On Thursday, October 9, 2014, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit against the Department of Health and Human Services (HHS) challenging the interpretive rule implementing the 340B statute’s orphan drug exception. The complaintwas filed in the U.S. District Court for the District of Columbia. 

Background

As you may recall, the Affordable Care Act expanded the 340B program to add certain new categories of eligible covered entities but excluded drugs subject to an orphan designation from the 340B ceiling price requirement as to those entities. In 2013, the Health Resources and Services Administration (HRSA), which administers the 340B program, issued a final “legislative” rule that interpreted that ceiling price exception narrowly, to apply only to orphan drugs when used for the indication subject to the orphan designation. As a result, the final rule, which went into effect on October 1 last year, allowed the new covered entity types to purchase orphan drugs at the 340B ceiling price when those drugs were used for non-orphan indications. 

Just prior to the effective date of the final rule, PhRMA filed suit against HHS, the parent agency to HRSA, challenging the final legislative rule. PhRMA made two arguments in support of its legal challenge. First, PhRMA alleged that HHS did not have the authority to issue a rule interpreting the orphan drug exception. Second, PhRMA alleged that, even if HHS had authority to issue a regulation, the final rule was inconsistent with the statute and therefore invalid on that ground. PhRMA argued that the statutory language that creates the ceiling price exception applies to the orphan drug as a whole, and not on an indication/use basis. 

The court ruled in PhRMA’s favor in May 2014, invalidating the final legislative rule on the ground that the agency lacked the authority to issue the rule. Therefore, the court never reached PhRMA’s second argument: that HRSA’s use-based interpretation of the orphan drug exception is not supported by the statutory language.

In July 2014, HRSA issued an “interpretive” rule that restated the final legislative rule’s use-based approach. In a court filing related to the original PhRMA litigation, HRSA conceded that the interpretive rule itself is not binding but also stated that a manufacturer’s failure to abide by the interpretive rule could subject a manufacturer to an enforcement action by HRSA. When PhRMA attempted to challenge the interpretive rule as part of the original lawsuit, the court stated that PhRMA would have to file a new action if it wished to challenge the interpretive rule, which PhRMA has now done.

New action

The complaint filed on October 9 responds to the court’s direction by initiating a new case, this time challenging the interpretive rule. PhRMA’s argument is the same as the second argument made in the initial action: HRSA’s use-based interpretation of the orphan drug exception is not supported by the statutory language. PhRMA requests that the court invalidate the interpretive rule for that reason. 

Two aspects of new PhRMA complaint are noteworthy:

  1. The complaint does not challenge HRSA’s authority to issue an interpretive rule on this topic. PhRMA made that argument in the initial case as to the legislative rule, and that was the ground the court relied upon when invalidating the legislative rule. PhRMA is not making that argument in this case as to the interpretive rule. PhRMA is challenging the interpretive rule solely on the basis that HRSA’s interpretation is not supported by the statutory language.
  2. PhRMA has not requested a preliminary injunction, which would amount to an expedited request for the court to rule on the matter. That means that this case will not be resolved on an expedited basis.