HRSA Issues Interpretive Rule on 340B Drug Pricing Program

by Foley & Lardner LLP

On July 21, 2014, the Health Resource and Services Administration (HRSA) within the U.S. Department of Health and Human Services (HHS) issued a new interpretive rule addressing the treatment of orphan drugs by certain hospital covered entities participating in the 340B Drug Pricing Program (340B Program). The new rule is available on HRSA’s website, and will be announced in the Federal Register on July 23, 2014. The rule is effective immediately.

HRSA’s Interpretive Orphan Drug Rule

HRSA’s interpretive rule is the next step in an ongoing dispute regarding the treatment of orphan drugs, and, more generally, the scope of HRSA’s authority to issue and enforce guidance applicable to covered entities and drug manufacturers regarding the 340B Program. As described in a prior post, on May 23, 2014 a federal district court invalidated HRSA’s prior attempt to issue a regulation addressing the treatment of orphan drugs in the 340B Program, because it determined that HHS lacked the authority to issue the regulation. In that decision, the court concluded that the 340B Program statute did not authorize HHS to issue the regulation as a legislative rule, but left open the possibility that HHS could issue the regulation as an interpretive rule.

HRSA’s new interpretive rule contains the same treatment of orphan drugs with respect to purchasing by critical access hospitals, rural referral centers, sole community hospitals, and freestanding cancer hospitals as was set forth in the invalidated legislative rule. Specifically, the rule provides that drugs with orphan designations are only excluded from the 340B Program when those drugs are transferred, prescribed, sold or otherwise used for the rare condition or disease for which the drugs were designated as orphan drugs. The drugs are not excluded from 340B Program discounted pricing when transferred, prescribed, sold, or otherwise used for conditions or diseases other than those for which the drugs were designated as orphan drugs.

Potential Implications of New Rule

Unlike the prior rule, the interpretive rule has not been added to the Code of Federal Regulations, and does not invoke HRSA’s legislative authority. While the new interpretive rule affirms HHS’ continued defense of its interpretation of the statutory restriction on the use of orphan drugs, covered entities and manufacturers should be aware of the potential for further litigation to either invalidate the interpretive rule, or to impede HRSA’s ability to enforce it. On July 21, 2014, in reaction to the publication of the new interpretive rule, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed in court a supplemental memorandum in support of PhRMA’s earlier motion for miscellaneous relief. The filing requests that the court give expedited consideration to PhRMA’s previous motion asking that the court either order additional briefing on whether the rule can survive as an interpretive rule or enter a judgment vacating the final rule because HHS lacks legislative rulemaking authority on this issue and the final rule is incapable of surviving as an interpretive rule. HHS filed an opposition to PhRMA’s motion prior to issuing its interpretive rule, contending that the court already vacated the final rule and that the court left open the avenue of issuing interpretive guidance, even where the rule or guidance sets forth the same interpretation previously included in the challenged regulation. HHS expressed its position that a challenge to the new interpretive rule would require a new lawsuit or at least an amended complaint. Thus, additional litigation on this issue may be forthcoming.

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