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Judge Grants New Life to Orphan Drug Exclusion

Kate Traynor

The Health Resources and Services Administration (HRSA) appears, for now, to be one step ahead of the pharmaceutical industry in the ongoing battle over the 340B Drug Pricing Program's orphan drug exclusion.

The turnabout is the result of an August 27 order by U.S. District Judge Rudolph Contreras that essentially instructed the Pharmaceutical Research and Manufacturers of America (PhRMA) to take HRSA to court if the trade group disagrees with the agency's orphan drug policy.

That's what PhRMA did last October.

And Contreras this past May sided with PhRMA when he vacated HRSA's July 2013 final rule on the orphan drug exclusion, concluding that HRSA lacked the authority to issue the rule.

The orphan drug exclusion was part of an amendment to the Patient Protection and Affordable Care Act, also known as the Affordable Care Act. The amendment allowed rural hospitals and certain other facilities the opportunity to enroll in the 340B program but prevented these newly eligible entities from purchasing at 340B prices any orphan drug, defined as a product designated by FDA for the treatment of "a rare disease or condition."

HRSA's July 2013 final rule had stated that affected entities could purchase orphan drugs at 340B prices as long as the medications were used only for nonorphan indications.

Rather than continue to defend that legislative rule, HRSA issued a new interpretive rule on the orphan drug exclusion.

Interpretive rules are a mechanism used by federal agencies to explain their interpretation of an existing regulation or law. These rules are nonbinding and cannot set new legal standards or requirements, according to the Office of the Federal Register.

HRSA's interpretive rule reaffirms the stance the agency had taken in the legislative rule---that entities affected by the orphan drug exclusion may purchase those medications at 340B prices as long as they are not used for the orphan indications.

PhRMA asked Contreras to invalidate the interpretive rule, but the judge declined. His August 27 order stated that PhRMA's original lawsuit applies only to the original legislative rule, and the trade group must file a new complaint to challenge the interpretive rule.

The response to the previous ruling by Contreras varied among manufacturers, according to Apexus, HRSA's prime vendor for the 340B program. But overall, Apexus reported a drop in the amount of orphan-designated drugs sold since mid-May to newly eligible entities that are subject to the orphan drug exclusion.

"What we have seen is more manufacturers have had time to consult with counsel, and actually less are now offering 340B pricing on orphan drugs than previously," Apexus President Christopher Hatwig said.

At presstime, PhRMA had not announced its reaction to judge's most recent decision.

Christopher Topoleski, director of federal regulatory affairs for ASHP, said the Society backs HRSA's policy on orphan drugs.

"We have always supported their interpretation of the orphan drug provisions in the Affordable Care Act," Topoleski said. "We believe that the intent of the law was to only exclude 340B pricing for drugs with an orphan indication when they're used for that orphan indication."

Topoleski noted that it's possible for a manufacturer to receive an orphan designation for an already-marketed product on the basis of early clinical studies but then abandon the development of the drug for the orphan indication. Under HRSA's interpretation of the orphan exclusion, such drugs would continue to be available to hospitals that are subject to the exclusion.

Topoleski noted that decisions on whether or not to offer 340B pricing for orphan drugs lie with drug manufacturers, and purchasers may have little influence on those decisions.

Although HRSA acknowledged that the interpretive rule is not binding on manufacturers or 340B-covered entities, the agency emphasized on its website that the law underlying the 340B program is binding.

According to HRSA, the failure of drug manufacturers to comply with statutory requirements could result in "enforcement action by HRSA, which could include refunds to covered entities in the case of overcharges" for 340B drugs or revocation of the manufacturer's 340 pricing agreement.

Any manufacturer whose 340B pricing agreement is terminated by HRSA is ineligible to sell drugs to state Medicaid programs.

A manufacturer whose agreement is terminated for failure to follow HRSA's interpretation of the orphan drug exclusion "would have the opportunity to advocate for a different interpretation of the statute in defending against the enforcement action," according to HRSA.

Topoleski cautioned that the burden remains on purchasers to ensure that they are fully in compliance with 340B requirements.

"Always continue to be vigilant in your accounting, especially when it comes to this provision," he said. "If . . . the manufacturers are offering you the 340B discounts for their drugs with an orphan indication, then make sure that you're able to account for when you use them for the orphan indication and when you don't."

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