Pharmacy News

Judge Upends 340B Orphan Drug Exclusion

[July 15, 2014, AJHP News]

Kate Traynor

BETHESDA, MD 30 Jun 2014—For rural and cancer hospitals that have prepared their budgets for the next fiscal year, a May 23 court ruling affecting purchases through the 340B Drug Pricing Program is unwelcome news.

"It couldn't have come at a worse time," said Sajal Roy, director of pharmacy services at Western Maryland Health System (WMHS) in Cumberland.

The ruling, by U.S. District Judge Rudolph Contreras, applies to critical access hospitals, free-standing cancer hospitals, sole community hospitals, and rural referral centers that participate in the 340B program. The ruling prohibits these entities from purchasing at discounted 340B prices any drug designated for the treatment of an orphan condition.

HRSA Releases FY 2013 340B Audit Results

The Health Resources and Services Administration (HRSA) in March released the initial results of the agency's audits of covered entities for fiscal year 2013.

Of the 13 organizations listed in the report, 10 had no adverse findings. One hospital named in the report was cited for diversion of 340B program drugs and dispensing them in circumstances not supported by the medical record. The hospital is the only entity named in the report to face a sanction—repayment to manufacturers—as a result of the audit.

HRSA's fiscal year 2012 audit report included information on 51 340B-covered entities. Of these, 19 had no adverse findings and 16 were required to make repayments to drug manufacturers.

Roy said six brand-name orphan drugs alone will account for $900,000 in new costs for WMHS in the absence of 340B pricing. In all, he said, the ruling adds about $2 million in unanticipated costs to his already approved $18 million budget for the fiscal year that started in July.

"We have to find that money somewhere," Roy said. "It's going to cause major issues. … It's going to have an impact on the formulary and the end user. [The reason] we're here every day is to take care of patients, so patients are going to have access issues now."

The court ruling is a response to a lawsuit filed last October by the Pharmaceutical Research and Manufacturers of America.

The Health Resources and Services Administration (HRSA), which oversees the 340B program, had not indicated at presstime whether the agency would appeal the judge's decision.

Orphan drug exclusion. The so-called orphan drug exclusion was part of an amendment to the Patient Protection and Affordable Care Act, also known as the Affordable Care Act (ACA).

Although it gave rural hospitals and certain other facilities the opportunity to enroll in the 340B program, the law precluded these newly eligible entities from purchasing at 304B prices any orphan drug, defined as a product designated by FDA for the treatment of "a rare disease or condition."

But HRSA, in a regulation that went into effect last October, had declared that affected entities could purchase orphan drugs at 340B prices as long as the medications were used for nonorphan indications.

For example, the rule allowed affected hospitals to purchase fluoxetine at 340B prices for the treatment of depression, which is not an orphan indication, as long as the hospitals could document that use. But 340B-program-purchased fluoxetine could not be used for the treatment of autism or body dysmorphic disorder, conditions for which fluoxetine maker Neuropharm Ltd. has obtained orphan designations.

Contreras, in his ruling, determined that the Department of Health and Human Services, which oversees HRSA, lacks the statutory authority to implement the so-called orphan drug exclusion.

In addition to affecting last October's HRSA rule, the judge's decision brings uncertainty to a proposed major rule on 340B that the agency had planned to release for public comment this past June.

"I think, optimistically, the rule will be significantly delayed," said Christopher Topoleski, ASHP's director of federal regulatory affairs. But he said HRSA should still be able to address issues such as the definition of an eligible patient and hospital eligibility criteria under 340B.

"We are still looking forward to clarity on some of those issues," he said.

Early response. The effect of the judge's decision were felt within days, said Christopher Hatwig, president of Apexus, HRSA's prime vendor for the 340B program.

Hatwig said HRSA's periodically updated list of orphan-designated products consists of "very common drugs," including about 55 that are available from Apexus through the prime vendor program.

"There's been a lot of noise created, a lot of confusion, and a lot of phone calls to the national call center," Hatwig said, referring to the Apexus-run telephone information center for hospitals, manufacturers, and other stakeholders involved in the 340B supply chain.

Roy said his hospital's 340B software vendor "has instructed us that they're taking no action at this time because the drug manufacturers will take the first action by removing their medications from the 340B pricing file."

By mid-June, Hatwig said, one manufacturer had notified Apexus to cease providing products with orphan designations to hospitals affected by the ruling. And two major wholesalers and one major vendor of split-billing software have stopped processing orders for orphan-designated drugs for hospitals affected by the ruling.

"That's the market forces at work trying to minimize their risk until further information is available," Hatwig said.

He encouraged people with questions about the ruling's effects to phone the Apexus call center at 888-340-2787.

Topoleski said the ruling appears to give drug manufacturers the right to demand refunds from affected entities that previously purchased orphan-designated products at 340B prices.

But he said he is unaware of that happening in the immediate aftermath of the judge's ruling.

Choose your exclusion? Clifton J. Cahoon, director of pharmacy at St. Luke's Magic Valley Regional Medical Center in Twin Falls, Idaho, said he expects the court ruling to result in the loss of about 70% of the hospital's expected 340B savings.

"It's a big number," he said.

Cahoon said the hospital can still get a "pretty good discount" on orphan-designated drugs from its group purchasing organization (GPO), but the cost will be higher than the 340B price.

He said Magic Valley previously participated in the 340B program as a disproportionate share hospital (DSH) but had to drop out when the hospital no longer met the criteria for that designation. Magic Valley has been participating in the 340B program as a sole community hospital for about a year, he said.

DSH facilities are not subject to the orphan drug exclusion, but they cannot purchase outpatient drugs through a GPO [See July 13, 2013, AJHP News]. Sole community hospitals and other entities that gained entry into the 304B program through the ACA are subject to the orphan drug exclusion but not the GPO exclusion.

Hatwig said it may be worthwhile for hospitals qualifying as both a DSH and a sole community hospital in the 340B program to determine which designation would make more sense financially.

"That's an individual decision," he said. "Not every hospital has that option. But if they do have the option, they can run the numbers either way. They definitely ought to get their finance department involved and the compliance people involved to take a look at it."

Cahoon said Magic Valley plans to remain in the 340B program as a sole community hospital because the savings still available to the facility remain worthwhile.

"Also, … we've just started our first contract pharmacy," he added. "So we're going to pursue more contract pharmacies to help compensate for our current loss."

Roy advised pharmacy directors whose hospitals are affected by the ruling to "take a look at how this is going to affect you on a line-item level, looking at each drug and the cost for the year."

"You've got to get on top of this one now and find out how many dollars you're talking about and come up with a plan so that you can take that hit, and you can afford those medications and keep that patient access open," he said.


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