A lawsuit challenging the Interpretive Rule, filed by the Pharmaceutical Research and Manufacturers of America (PhRMA) in October 2014, was recently vacated in favor of PhRMA by the U.S. District Court for the District of Columbia. In the opinion, the court noted that the Affordable Care Act (ACA) exempts orphan drugs from mandatory 340B discounts without differentiating between the indications of the drug for orphan designations versus treatment of a non-rare condition or disease. The court also rejected the government’s argument, that allowing manufacturers to avoid discounts for all uses of the orphan drug would result in attempts by manufacturers to obtain orphan drug designations for drugs that most commonly treat non-rare diseases. As an ode to Congressional intent and a balk at administrative deference, the court pointed out that Congress has the power to make the change that the U.S. Department of Health and Human Services (HHS) attempted with its Interpretive Rule, and thus it should be left to the legislative branch.

Background

The 340B Drug Pricing Program (340B Program) requires that drug manufacturers provide discounts on certain drugs to eligible healthcare facilities that treat large numbers of uninsured and low-income patients. The ACA contained a provision that amended § 340B(e) of the Public Health Service Act (PHSA), exempting drugs designated by the FDA as “orphan drugs” from the mandatory discounts required under the 340B Program. The amended PHSA provision states that “the term ‘covered outpatient drug’ shall not include a drug designated by the Secretary under § 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition.”

The orphan drug designation is awarded to drugs that are intended to treat specific rare conditions or diseases that typically affect less than 200,000 Americans. However, it should be noted that drugs, designated for an orphan indication, may also be used to treat conditions or diseases that affect more than 200,000 people. In other words, a drug may be granted orphan designation and not receive the orphan indication for other approved uses.

In a 2014 Interpretive Rule, HHS interpreted the ACA orphan designation provision as exempting orphan drugs from 340B discounts when used for their “orphan” indication (i.e., treating a rare condition or disease). HHS determined that orphan drugs used to treat diseases or conditions that are not rare are subject to the discounts. The Interpretive Rule states:

HHS interprets section 340B(e) of the PHSA as excluding from the 340B Drug Pricing Program … drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the drug was designated under section 526 of the Federal Food, Drug, and Cosmetic Act (FFDCA). However, section 340B(e) of the PHSA does not exclude from the 340B Program drugs that are transferred, prescribed, sold, or otherwise used for conditions or diseases other than for which the drug was designated under section 526 of the FFDCA.

Interpretive Rule, at 1.

Going forward

It’s too soon to tell what the impact of the court’s ruling will mean for the 340B Program and for federal agency deference by judicial authorities. However, understanding the implications for safety net providers will remain essential for allowing these providers to serve those who require access to the drugs under the 340B Program. It will also be interesting to watch PhRMA’s actions in relation to other provisions contained in the Health Resourses and Services Administration’s mega rule.

Pharmaceutical Research and Manufacturers of America v. United States Department of Health and Human Services et al, No. 1:2014cv01685 (D.D.C. 2015)