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Vital Signs

The Healthcare Business Blog

PhRMA sues to stop 340B pricing for orphan drugs

By Jaimy Lee

The pharmaceutical lobby has filed a lawsuit seeking to block implementation of a federal rule that allows healthcare providers that participate in the 340B drug discount program to buy orphan drugs at reduced prices if the drugs are used to treat non-orphan conditions or diseases.

In the lawsuit filed Sept. 27 in the U.S. District Court for the District of Columbia, the Pharmaceutical and Research and Manufacturers of America alleges that the regulation is based on an erroneous reading of the statutory text and is outside the scope of HHS' rulemaking authority.

The Health Resources and Services Administration, which is part of HHS, released the final rule in July. It went into effect Tuesday.

The drug trade group this year said that final rule on the orphan-drug exclusion would “undermine” Congress' intent to preserve orphan-drug development incentives. In the lawsuit, PhRMA said its member companies will suffer financial harms if they are required to offer 340B pricing “beyond the clear boundaries of the 340B statute.”

“The interpretation is inconsistent with the clear statutory direction,” Mit Spears, PhRMA's executive vice president and general counsel, said in an e-mailed statement. “Moreover, as a practical matter, the final rule imposes significant administrative burdens on 340B providers and manufacturers to determine the prescribed use of a medicine.”

The Safety Net Hospitals for Pharmaceutical Access, a trade group representing hospitals that participate in the 340B program, said in a statement that “we hope the court will deny PhRMA's request for an injunction and uphold the regulation in any subsequent litigation.”

The 340B program requires drug companies to provide discounts up to 50% on covered outpatient drugs to hospitals and other participating providers that serve indigent or uninsured patient populations.

The program was first implemented decades ago, but Congress in 2010 expanded eligibility to critical-access hospitals, sole community hospitals, rural referral centers and free-standing cancer hospitals as part of the Patient Protection and Affordable Care Act. Participating providers are called covered entities.

A provision, which is called the orphan-drug exclusion, was added during reconciliation. It prevents the newly eligible providers from accessing 340B pricing for orphan drugs. The new rule was expected to clarify that provision and states that providers can buy orphan drugs at 340B prices as long as the drug is used to treat a non-orphan condition or disease.

Orphan drugs are designated to treat diseases or conditions that affect fewer than 200,000 people, but these drugs often have indications for other non-orphan conditions or diseases. They can be some of the most expensive medications on the market, sometimes costing thousands of dollars a month.

“The statutory language makes clear that Congress intended the orphan drug exclusion to apply to any orphan drug sold to one of the newly covered entities, regardless of whether the covered entity uses the drug for an orphan indication,” PhRMA said in the lawsuit.

PhRMA and Sen. Charles Grassley (R-Iowa) have been critical of aspects of the 340B program, mainly by expressing concern over how providers use savings generated by the 340B program.

PhRMA said in the lawsuit that it had asked HHS last week to delay the implementation of the final rule. HHS declined.

The language of the ACA, in a section called “exclusion of orphan drugs for certain covered entities,” simply says: “For covered entities … the term 'covered outpatient drug' shall not include a drug designated by the Secretary under section 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition.”

Follow Jaimy Lee on Twitter: @MHjlee

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