On Wednesday, August 27, 2014, the U.S. District Court for the District of Columbia entered final judgment in the legal challenge to the final rule on the treatment of orphan drugs under the 340B Drug Pricing Program. That legal challenge, commenced in September 2013, followed a circuitous route that involved not only court filings but also public remarks by a government official—and their subsequent retraction. The following timeline outlines important events related to the legal challenge and includes links to relevant filings and other documents.
The Affordable Care Act and the Expansion of the 340B Program
2010—The Affordable Care Act (ACA) adds four new categories of covered entities to the 340B program: certain cancer hospitals, rural referral centers, critical access hospitals, and sole community hospitals (ACA covered entities). These new covered entity types are added to the program on a more limited basis than the other categories of covered entities in that they are not entitled to the 340B ceiling price on orphan drugs. Under the 340B statute, only “covered outpatient drugs” are subject to the ceiling price requirement, and the ACA amends the statutory definition of that term to exclude orphan drugs for purposes of the ACA covered entities. Specifically, the ACA provides that, for the ACA covered entities only, the term “covered outpatient drug” does not include “a drug designated by the Secretary under section 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition.”
The HRSA Orphan Drug Final Rule
- May 20, 2011—The Health Resources and Services Administration (HRSA), the agency that administers the 340B program, releases a proposed rule on the orphan drug exception. The proposed rule defines the exception narrowly, to refer to the orphan use alone, rather than the drug as a whole. Under the proposed rule, the ACA covered entities would be able to access the 340B ceiling price on orphan drugs so long as the entity uses the drug for a non-orphan use.
- July 23, 2013—HRSA releases its final rule on the orphan drug exception. Issued more than two years after the proposed rule, the final rule adopts HRSA’s initial proposal with minimal changes, largely ignoring manufacturer concerns regarding the presumed ability of covered entities to implement the use-based approach in a compliant manner. The final rule has an effective date of October 1, 2013. Click here for a discussion of the final rule.
The PhRMA Legal Challenge
- September 27, 2013—Pharmaceutical Research and Manufacturers of America (PhRMA) files suit in the U.S. District Court for the District of Columbia against the Department of Health and Human Services (HHS), the parent agency to HRSA, challenging the final rule. The complaint seeks to invalidate the final rule as well as to enjoin (stop) its implementation. PhRMA makes two arguments in support of its legal challenge: first, that neither HHS nor HRSA have authority to issue a rule interpreting the orphan drug exception, and second, that the final rule is inconsistent with the 340B statute. The final rule remains in effect while the litigation proceeds. Click here for a discussion of the PhRMA legal challenge.
- May 23, 2014—The court “vacates,” or invalidates, HRSA’s final rule. The court explains in its opinion(which explains the decision) and order (which implements the decision and vacates the rule) that it is vacating the final rule on the ground that HHS lacked the authority to issue a regulation on the 340B orphan drug exception. By finding that HHS lacked authority to issue the regulation, the court did not need to reach PhRMA’s other argument and did not address whether the rule itself was valid as a substantive matter. The court gives HHS until June 13 to decide whether it wants to defend the regulation as an “interpretive rule” through further briefing. Click here for a discussion of the opinion.
- June 12, 2014—HHS declines the court’s invitation to submit further briefing to defend the final rule as an interpretive rule but notes that HHS continues to evaluate whether to appeal the court’s decision, to re-issue the orphan drug regulation as an interpretive rule, or to issue other interpretive guidance.
The HRSA Website Posting and Public Statement
- June 18, 2014—HRSA posts a statement on its website, stating that “the Court did not invalidate HRSA’s interpretation of the statute. HHS/HRSA continues to stand by the interpretation described in its published final rule, which allows the 340B covered entities affected by the orphan drug exception to purchase orphan drugs at 340B prices when orphan drugs are used for any indication other than treating the rare disease or condition for which the drug received an orphan designation.”
- June 18, 2014—On the same day that HRSA posts its website statement, PhRMA files a brief with the court calling out HRSA for what PhRMA characterizes as an attempt to enforce the final (legislative) rule as an interpretive rule despite HHS’ refusal to pursue that argument before the court. PhRMA requests that the court either order additional briefing on the issue of whether the final rule can survive as an interpretive rule or enter a final order invalidating the rule. The filing includes a copy of HRSA’s website statement as Exhibit B. Click here for a discussion of the HRSA posting and PhRMA’s response.
- July 14, 2014—Commander Pedley, the director of the 340B program, addresses attendees of the 340B Coalition Conference during the conference’s opening plenary session. Commander Pedley states that HRSA will be issuing its policy regarding the orphan drug exception through an interpretive rule. After her speech concluded, and in response to questions from the audience, Commander Pedley states that HRSA views its indication-based interpretation of the orphan drug exception as binding on manufacturers and that HRSA will pursue manufacturers that do not comply. Commander Pedley’s statements are reported in “The Pink Sheet” Daily trade publication.
- July 14, 2014—On the same day that Commander Pedley addresses the 340B Coalition Conference, HHS files its response brief to PhRMA’s June 18 motion. The brief states that the court’s invalidation of the “legislative” final rule does not preclude HRSA from issuing an “interpretive” rule or other interpretive guidance on that same subject. The brief also states that the website posting “merely informs industry participants as to HRSA’s opinion as to the proper interpretation of the statute—it does not seek to give renewed force to the [final rule] as a legislative rule” (emphasis in original). The brief also argues that if HRSA were to issue an interpretive rule, PhRMA would have to file a new lawsuit, or at least amend its complaint in the present action, to challenge such a new interpretive rule.
- July 18, 2014—PhRMA files its reply to the HHS brief, including the Pink Sheet article as an exhibit, completing the briefing on PhRMA’s challenge to what it characterizes as a HRSA “power play” to re-impose a use-based interpretation of the orphan drug exception. PhRMA alleges that HRSA’s website posting and forthcoming interpretive rule are an attempt to circumvent the court’s decision. PhRMA points to language in the website posting as well as Commander Pedley’s statements at the conference as evidence that HRSA views its interpretation of the orphan drug exception as binding.
The HRSA Interpretive Rule
- July 21, 2014—HRSA releases its interpretive rule on the orphan drug exception and announces the availability of the interpretive rule in the Federal Register. The interpretive rule is listed as being effective and states that its purpose is “to describe the manner in which Section 340B(e) of the PHSA will be interpreted and implemented by HHS.” There is no “notice and comment” process or request for stakeholder input. The interpretive rule is generally consistent with the vacated final rule.
- July 21, 2014—On the same day that HRSA released its interpretive rule, PhRMA files a supplemental brief with the court, asking for expedited consideration of its motion filed June 18. In its brief, PhRMA calls the interpretive rule “materially identical” to the invalidated and vacated final rule, and “respectfully requests that the Court give expedited consideration to the Motion for Miscellaneous Relief, and reject HHS’s attempts to evade the Court’s holding that ‘the agency did not receive congressional authority’ to issue legislative rules construing § 256b(e).”
- July 24, 2014—HHS files a brief in opposition to PhRMA’s motion to invalidate the orphan drug interpretive rule. The HHS brief fully retreats from any HRSA statements indicating that the interpretive rule is binding, stating that the interpretive rule is “without the binding effect that a substantive rule would have.” The brief itself and an accompanying declaration by Commander Pedley state that Commander Pedley “misspoke” when she indicated that HRSA views the interpretive rule as binding. In the declaration, Commander Pedley states that it is her “understanding that the requirements of the statute are binding, but that the interpretation set forth in the interpretive rule is not.” On the same day, HRSA also posts an FAQ on its website indicating that HRSA does not view the interpretive rule as binding.
- August 27, 2014—The U.S. District Court for the District of Columbia enters final judgment in the PhRMA litigation. The court states that HRSA’s interpretive rule issued July 21 is a “new agency action…that was not the subject of this lawsuit” and that PhRMA’s challenge to the interpretive rule is beyond the scope of the original lawsuit.
- October 2014—HRSA sends letters to a number of manufacturers that HRSA believes are not making orphan drugs available to ACA covered entities at the ceiling price. In the letters, HRSA asks the manufacturers to notify HRSA of plans to repay affected covered entities and to make orphan drugs available at the ceiling price to ACA covered entities in the future.
- October 9, 2014—PhRMA files suit in the U.S. District Court for the District of Columbia against HHS challenging the interpretive rule.
- January 27, 2015—HHS files its motion for summary judgment, which states that the PhRMA challenge is not yet ripe for consideration and also should fail because HRSA’s interpretation is supported by the statute.
Click here for a discussion of PhRMA’s legal challenge to the interpretive rule, filed on October 9, 2014