On October 14, 2015, the United States District Court for the District of Columbia (the Court) issued a ruling which could have significant positive implications for drug manufacturers who have been unhappy with an interpretive rule issued by the Department of Health and Human Services Health Resources and Services Administration (HRSA) that extended deeply discounted prices under section 340B of the Public Health Services Act (PHSA) to certain entities for “orphan drugs” when used by qualifying patients for treatment of conditions beyond those that originally qualified the drug for “orphan” status. Pharm. Research & Mfrs. of Am. v. U.S. Dep’t of Health & Human Servs., No. 14-1685-RC (D.D.C. Oct. 14, 2015). The Court granted the Pharmaceutical Research and Manufacturers of America’s (PhRMA) motion for summary judgment against HRSA, the result of which vacates an interpretive rule that has been in effect since July 21, 2014. The interpretive rule was intended to set forth the agency’s interpretation of Section 340B(e) of the PHSA which excludes drugs “designated by the Secretary” as orphan drugs from the deeply discounted pricing available to certain 340B Covered Entities added to the program under the Affordable Care Act—children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals (the “Relevant Covered Entities”). Instead, the interpretive rule essentially stated that “while ‘the discounted 340B price is not available to [the Relevant Covered Entities] when purchasing orphan drugs for their intended orphan use,’ when a [Relevant Covered Entity] instead purchases a drug for non-orphan use, it ‘does receive the 340B discount price.’” HRSA also included in its interpretation of the law a statement that “manufacturers that do not offer the 340B price for drugs with an orphan designation when those drugs are used for an indication other than the rare condition or disease for which the drug was designated…are violating section 340B(a)(1) of the PHSA and the terms of their Pharmaceutical Pricing Agreement.” 

HRSA published the interpretive rule in July 2014 after the Court previously invalidated a prior final rule promulgated by HRSA setting forth the same interpretation of the orphan drug exclusion on the grounds that HRSA did not have express authority from Congress in the PHSA to promulgate the rule. PhRMA was the plaintiff in that case as well. The Court did not rule as to whether HRSA’s interpretation of the orphan drug exclusion in such prior case was contrary to the plain language of the 340B statute, only whether HRSA had the authority to issue the rule. See Pharm. Research & Mfrs. of Am. v. U.S. Dep’t of Health & Human Servs., 43 F.Supp.3d 28 (D.D.C. 2014). 

Pharmaceutical manufacturers disagreed with HRSA’ interpretation of Section 340B(e) as being contrary to the plain language of the statute and an arbitrary and capricious abuse of discretion on the part of the agency, and filed the instant case. In fact, though no formal enforcement actions were taken, HRSA published a listing of those pharmaceutical manufacturers who disagreed with and affirmatively failed to follow the agency’s interpretation of the law by not offering the discounted 340B price on drugs in this particular situation on HRSA’s website. The Court agreed with the Plaintiff and found that the ultimate use of a drug was irrelevant (as some orphan drugs can not only be used for the rare disease or condition they were designed to treat, but also for more common, or “non-orphan” conditions) when determining its exclusion from 340B pricing, but turned rather on the mere designation of the product as an orphan drug. 

The ruling issued by Judge Rudolph Contreras is being viewed as a victory for manufacturers, especially for those drug makers that had not been abiding by HRSA's interpretation of the orphan drug exclusion, as it removes concerns about retrospective liability or potential repayments to the Relevant Covered Entities. The ruling will also make the 340B program easier to administer, as the Relevant Covered Entities will simply be unable to purchase drugs designated as orphan drugs at 340B pricing regardless of the reason a patient is taking a given drug.