Orphan Drug Ruling Disrupts the 340B Program

by Polsinelli

On Wednesday, the United States District Court for the District of Columbia issued its highly anticipated opinion regarding the 340B orphan drug litigation. The opinion can be found here. The Court ruled in favor of PhRMA, a trade association that represents pharmaceutical research and biopharmaceutical companies, and found that the Health Resources and Services Administration’s (“HRSA”) engaged in “final agency action” and its interpretive rule was contrary to the plain language of the 340B statute. The Court granted PhRMA’s motion for summary judgment, and vacated the interpretive rule.

In light of the ruling, 340B covered entities should consider the short-term and long-term implications that this decision will have on their 340B programs. This ruling could significantly increase the cost of drugs for rural and cancer hospitals and could raise concerns regarding enforceability of HRSA’s recently proposed omnibus guidance.

At issue was the validity of the HRSA July 21, 2014 interpretive rule that permitted certain 340B covered entities to purchase orphan drugs at discounted 340B prices, and whether HRSA’s interpretive rule was contrary to the plain language of the orphan drug exclusion in the 340B statute (42 U.S.C. § 256b(e)).

Does this Mean for Covered Entities?

The Court’s decision has the potential to (i) directly impact to 340B covered entity rural hospitals (sole community hospitals, critical access hospital, and rural referral centers) and freestanding cancer hospitals as they may no longer be able to purchase orphan drugs at 340B pricing; and (2) raise questions as to HRSA’s authority to issue the changes proposed in its recently Omnibus Guidance as an interpretive rule.

Polsinelli will continue to analyze the impact of the Court’s decision. In the interim, we encourage covered entities to consider the following:

  • The statutory orphan drug exclusion at 42 U.S.C. § 256b(e) only applies to rural hospitals (sole community hospitals, critical access hospital, and rural referral centers) and freestanding cancer hospitals. If HRSA does not appeal the Court’s ruling, the above rural hospitals and freestanding cancer facilities would no longer be able to purchase orphan drugs at 340B pricing;
  • Entities subject to the orphan drug exclusion may continue to purchase orphan drugs off of a group purchasing organization (“GPO”) account as they are not subject to the GPO prohibition;
  • The statutory orphan drug exclusion at 42 U.S.C. § 256b(e) does not apply to disproportionate share hospitals or grantees. As a result, these types of 340B covered entities can continue to purchase orphan drugs off of a 340B account;
  • The Court’s analysis and resulting decision may directly impact the viability of HRSA’s proposed Omnibus Guidance discussed in our previous notification. HRSA may lean on Congress for assistance by way of an updated 340B statute the properly grants HRSA broad rulemaking authority;
  • HRSA has the ability to appeal the Court’s decision. This could result in a temporary delay in enforcement regarding the orphan drug exclusion.

Keep in mind that HRSA has the ability to appeal the Court’s decision, so we also encourage covered entities to continue to monitor HRSA’s next move closely as that may impact whether manufacturers are able rely on this week’s ruling. Polsinelli’s 340B team is here to help and discuss contingency plans given the uncertainly of the orphan drug issue.

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.

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