Bipartisan legislation introduced this week would extend discounts under a federal program to orphan drugs in a bid to reduce prescription drug costs at rural and cancer hospitals and clinics.
The bill, Closing Loopholes for Orphan Drugs Act, if passed, would limit the 340B drug pricing program's orphan drug exclusion to apply only when the drug is used for the rare condition or disease it was developed to treat. That would allow orphan drugs, which are often very expensive, to be discounted under the federal program when they are used for non-orphan diseases or conditions. The discounts would apply to rural, cancer, critical-access and sole community hospitals.
The legislation was introduced Tuesday by Rep. Peter Welch (D-Vt.) and Rep. Morgan Griffith (R-Va). In an interview, Welch said drug companies have exploited the orphan drug “loophole,” driving up costs for rural healthcare providers and their customers.
“There's a loophole here and pharma is driving a huge truck through it,” he said.
The 340B drug pricing program requires drugmakers participating in Medicaid to give steep discounts on outpatient drugs to safety-net hospitals and clinics that serve low-income patients.
But while the Affordable Care Act expanded access to 340B discounts, it excluded orphan drugs from the program.
Orphan drugs are developed to target rare diseases, but they often treat more common conditions. By claiming “orphan status,” companies can receive tax breaks and seven years of competition-free marketing under the law.
Some argue the orphan drug exclusion has led drugmakers to exploit the law by claiming orphan status and then marketing the drug for more common conditions while still reaping the financial rewards under the law.
“When Congress passed this orphan drug act, it had a good intention and that was to focus pharmaceutical efforts to develop drugs for rare diseases,” Welch said. “But the intention was that the economic benefits of the designation would be applied only to situations where the drug was used for that rare disease.”
Hospitals participating in 340B lose the benefit of the program, while drugmakers get the higher price for their drug, he said.
The Health Resources and Services Administration, part ofHHS, interpreted the orphan drug exclusion under the law to require drugmakers to provide discounts to orphan drugs when they are used for something other than the disease the orphan drug was developed to treat.
But a federal court in October 2015 struck down that interpretation, ruling that drugmakers are not required under the 340B program to discount orphan drugs for cancer and rural hospitals. Disappointed hospital groups argued that the ruling would raise prices for patients and reduce access to services and treatments.
Tuesday's legislation would essentially allow the HRSA to interpret the law the way it did before the court's October ruling.
Hospitals and associations have lauded the new legislation.
“Limiting the orphan drug exclusion for 340B drug pricing program eligible rural and cancer hospitals is critical for some of the most vulnerable patients cared for by these safety net hospitals,” Tom Nickels, executive vice president of the American Hospital Association, said in a statement. “This legislation gives these hospitals the ability to utilize 340B discounts for orphan drugs when the drug is not used for its orphan indication and will increase access to critical services and treatments.”
Membership organization 340B Health, which comprises 1,200 hospitals and health systems in the 340B program, said Tuesday that limiting the orphan drug exclusion “could help the hospitals keep their doors open and enable patients to access affordable medications.”
“We would expect that there would be broad support for this (bill) given that there are rural hospitals in districts all over the country,” Jeff Davis, 340B legislative and policy counsel, said Tuesday.
Meanwhile, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, the drug industry's lobbying group, said in a statement that expanding the discount program “would do little to help patients benefit from the program, given it does not require 340B discounts to be passed on to patients. Instead it further exacerbates existing market distortions created by the 340B program.”
PhRMA has twice sued the U.S. government over its attempts to extend the orphan drug discount.
Congress created the 340B drug-pricing program in 1992 to help hospitals that serve disproportionately large numbers of low-income patients. The program has seen a stark rise in the number of covered organizations over the past decade. One-third of all hospitals now participate, and the Government Accountability Office estimates that 40% of hospitals are eligible.