Drugmakers do not have to sell orphan drugs to rural and cancer hospitals at a discount under the federal program known as 340B, a judge ruled Wednesday. The pharmaceutical industry's victory in the case disappointed many hospitals.
Hospital groups say the decision could lead to higher prices for patients and affect the amount of uncompensated care the hospitals can provide. They also say the decision could limit access to some medications and harm already struggling rural hospitals.
The 340B program requires drug companies participating in Medicaid to discount outpatient medications for hospitals and clinics to help low-income patients.
The drug industry's lobbying group, Pharmaceutical Research and Manufacturers of America, has twice sued the Obama administration over its attempts to extend the discounts to orphan drugs, which include some of the most expensive medications on the market, when they're used for non-orphan indications.
The Affordable Care Act expanded access to 340B discounts but also excluded orphan drugs from the program. HHS' Health Resources and Services Administration, however, interpreted the law to compel drugmakers to give certain hospitals discounts for those drugs when they're used to treat something other than the rare diseases and conditions they were developed to target. The discounts applied to rural, cancer, critical-access and sole community hospitals.
Some orphan drugs are mostly used to treat common ailments despite being originally designed to treat rare ones. Prozac, for example, is widely used to treat depression but is designated as an orphan drug for the treatment of autism and body dysmorphic disorder in children and adolescents.
PhRMA has argued in court documents that the policy undermined incentives for drugmakers to continue to research and develop new orphan drugs.
U.S. District Judge Rudolph Contreras in Washington, D.C., decided Wednesday to vacate an HHS interpretive rule that the administration issued to salvage the policy. He wrote that the rule was contrary to federal law. A previous court ruling invalidated the policy when it was in a different form.
“PhRMA supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help,” Mit Spears, PhRMA executive vice president and general counsel, said in a statement. “To achieve this important objective, it is critical the program operates in a manner consistent with the clear and unambiguous direction of Congress.”
An HHS spokesman said HHS was reviewing the ruling Thursday but declined to comment further. HHS could appeal the decision.
Hospital groups, however, roundly criticized the decision saying it will have troubling consequences for the nation's poor and the hospitals that serve them.
“This decision comes at a steep cost for the vulnerable patients cared for by rural and cancer hospitals,” Tom Nickels, executive vice president of the American Hospital Association, said in a statement. “Sadly, the biggest beneficiary of this ruling is the pharmaceutical industry—it does nothing to help either patients or taxpayers.”
Rural hospitals will now have to pass the costs of the drugs to patients in some cases, and they might not always be able to keep certain drugs on hand because of the expense, said Diane Calmus, government affairs and policy manager with the National Rural Health Association.
The decision could also influence the amount of uncompensated care such hospitals provide. As part of the 340B program, hospitals are allowed to sell drugs they buy through 340B to insured patients for more than they paid and use the margin to fund uncompensated care.
Each year, hospitals purchase $7.5 billion worth of drugs through 340B and generate $3.8 billion for uncompensated care through the program, said Randy Barrett, a spokesman for 340B Health, which represents 1,000 hospitals that participate in the program.
“If they can no longer get 340B pricing and can no longer get that discount, they're going to have less money available to pay for all these services,” Barrett said.
Hospitals have faced mounting criticism that the program has veered from its intended purpose and the money is not necessarily supporting the unreimbursed costs of caring for low-income patients.
A 2014 analysis released by Avalere Health and sponsored by pharmaceutical industry-backed group Alliance for Integrity and Reform, found that about two-thirds of 340B hospitals provide less charity care than the average U.S. hospital. A analysis conducted this year, however, by healthcare policy consulting firm Dobson DaVanzo and Associates came to an very different conclusion, saying 340B hospitals provided almost twice as much care to Medicaid and low-income Medicare beneficiaries than other hospitals.
Calmus said rural hospitals in particular rely on the 340B money to provide uncompensated care.
“If you look across (the country) at the crisis of rural hospital closures, rural hospitals are not hospitals that are wasting the resources that they have,” Calmus said. “These are hospitals using every last resource they have to help a very vulnerable population.”
