The U.S. Department of Health and Human Services (HHS) issued a proposed rule last week clarifying which drugs qualify for the 340B discount program that was expanded under PPACA. The 340B program allows certain entities to purchase covered outpatient drugs at a discounted price from drug manufacturers so as to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services." When PPACA was signed into law, it expanded the list of organizations eligible to participate in the 340B Drug Pricing Program to include children's hospitals, freestanding cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. However, these organizations were prohibited from obtaining certain outpatient drugs used to treat rare diseases, known as Orphan Drugs, at 340B prices. Last year, Section 204 of the Medicare and Medicaid Extenders Act removed children's hospitals from the effect of the exclusion.

Specifically, the proposed rule addresses the use of orphan drugs under 340B. HHS acknowledged that confusion around the application of 340B to orphan drugs arose with covered entities. HHS issued the proposed rule to (1) provide clarity in the marketplace, (2) maintain the 340B savings and interests to the newly eligible entities, and (3) protect the financial incentives for orphan drugs for rare diseases. This proposed rule is the first published regulation that HHS intends to put out establishing the regulatory structure of the 340B program.

The proposed rule seeks to clarify that the newly covered entities can purchase outpatient orphan drugs at 340B prices to treat common conditions for which the drugs are FDA approved. However, 340B pricing would not apply to the orphan drugs for the treatment of the rare conditions or diseases for which the drugs were given their orphan drug designation. Further, the proposed rule requires covered entities to maintain records of compliance with the limits on the use of orphan drugs. They also must create separate purchasing accounts for the purchase of orphan drugs used for common conditions and orphan drugs purchased for the rare disease or condition. Covered entities are required to provide auditable records upon written request from the government. If an entity chooses not to purchase orphan drugs outside of 340B program, the entity must notify the Health Resources and Services Administration (HRSA) at the time of 340B enrollment or recertification.

Freestanding cancer hospitals are further prohibited from using a Group Purchasing Organization (GPO) for the purchase of any covered outpatient drug. If cancer hospitals maintain auditable records that demonstrate full compliance with orphan drug purchasing requirements, then they may use a GPO to purchase orphan drugs only for the rare condition or disease for which that drug was designated as orphan. However, cancer hospitals are prohibited from using a GPO to purchase orphan drugs for any other condition. HHS has requested comments to the proposed rule through July 19.