The Orphan Drug Wars: HHS’s Recent Loss to PhRMA

by BakerHostetler
Contact

On May 27, 2014, almost a year following the promulgation of its final rule, the U.S. Department of Health and Human Services (HHS) had its rule vacated by the U.S. District Court for the District of Columbia under an injunction and the granting of a motion for summary judgment brought by the Pharmaceutical Research and Manufacturers of America (PhRMA). The HHS final regulation, issued July 23, 2013, would have permitted makers of the drugs designated for “orphan” conditions to charge the higher “orphan drug” price only when the drug was used to treat orphan conditions. PhRMA argued that this interpretation exceeded HHS’s authority and was not consistent with the statute, which did not limit the application to the treatment of the condition.

Under the ACA, new categories of providers were given access to the Section 340B Drug Pricing Program (340B Program). These providers include children’s hospitals, rural referral centers, sole community hospitals, critical access hospitals and cancer hospitals. The ACA provision set forth an exclusion of orphan drugs for such entities when involving “covered outpatient drugs.”

The ACA thus limited the use of the drug discount in defining the term “covered outpatient drug” by clarifying that the term does not include drugs designated for rare conditions under the Orphan Drug Act, in effect denying the affected facilities the discount for orphan drugs no matter what condition they were used to treat.

In its attempt to resolve questions and disputes relating to the meaning of the statute, HHS provided in its final rule that an orphan drug is exempt from 340B pricing requirements only when used to treat the rare condition or disease for which that orphan drug was designated. 78 Fed. Reg. 44016 at 44027.

The practical effect of the rule was that the discounted 340B price was not available to the added covered entities when purchasing orphan drugs for their intended orphan use. When the covered entity would have purchased the orphan drug for a non-orphan use, however, it would have received the 340B discounted prices. The final rule also imposed duties on the covered entities to maintain records of compliance.

PhRMA opposed the proposed rule and indicated in its complaint that it worked with HHS to communicate its concerns, urging HHS to respond to its comments and refrain from moving forward. Once the final rule was promulgated, PhRMA sued HHS, asserting that HHS was not given the authority by Congress to issue the regulation in question. Specifically, the Public Health Service Act, the Orphan Drug Act and the ACA did not provide HHS the authority to issue rules relating to the 340B Program and its effect on orphan drug pricing. In fact, HHS’s authority was limited to mediating disputes and providing for certain administrative processes. PhRMA argued that its members would be harmed by requiring manufacturers to provide drugs to the new categories of covered entities at 340B prices when such drugs are used for non-orphan indications, even though the statute expressly relieves manufacturers of that obligation. Additionally, PhRMA argued that the requirement for compliance and the addition of the qualification for knowing who was treated with the drug would impose on manufacturers and providers alike a burden for tracking the indications for which orphan drugs are ultimately used.

Judge Rudolph Contreras found that HHS “lacks statutory rulemaking authority to promulgate the orphan drug rule” at issue in the case. Judge Contreras provided some support for HHS by indicating in his ruling that he understood the desire and intent by HHS to avoid confusion relating to how the orphan drug exclusion applied. “Unfortunately, Congress did not delegate to [HRSA] broad rule-making authority as a means of doing so,” he concluded.

This ruling injects more uncertainty into the 340B arena, as the industry awaits the extensive 340B rules anticipated shortly, which reportedly sit at the Office of Management and Budget in their final review.

One thing is certain—the 340B Program and its application will continue to require the clarification that HHS was attempting to provide, and its implications for safety net providers will remain essential for allowing these providers to serve those individuals who need access to the drugs that the 340B Program was intended to cover.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BakerHostetler | Attorney Advertising

Written by:

BakerHostetler
Contact
more
less

BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.