The Pharmaceutical Research and Manufacturers of America is asking a federal court to bar implementation of the HHS final rule determining that orphan drugs are subject to the deep manufacturer discounts provided to certain safety net health care facilities covered by the 340B program when they are used for non-orphan indications.

In a lawsuit filed Sept. 27 in federal court for the District of Columbia, PhRMA argues that the final rule “is based on an erroneous reading of the statutory text” and “is outside the scope of HHS’s rulemaking power.” The rule implements a provision of the Affordable Care Act that excludes orphan drugs from 340B pricing for certain types of providers. It went into effect Oct. 1.

Published July 23 by HHS’ Health Resources and Services Administration, which oversees the 340B program, the final rule says that only an orphan drug’s specific rare disease use will be exempted from mandatory discounts. If the drug also has other non-orphan indications, its manufacturer must provide the 340B discounts when the product is used for those other indications Also see "340B Final Rule Keeps Orphan Drug Exclusion Narrow, Counter To Manufacturers’ Request" - Pink Sheet, 22 July, 2013..

HRSA stuck to its narrow application of the orphan drug exclusion despite vigorous arguments by drug industry stakeholders for a broader interpretation of the law.

In its complaint, PhRMA requests both a preliminary and permanent injunction against the rule, arguing that “the statutory language makes clear that Congress intended the orphan drug exclusion to apply to any orphan drug sold to one of the … covered entities, regardless of whether the covered entity uses the drug for an orphan indication.” Manufacturers made the argument about the plain language of the statute in comments during the drafting of the rule, but HRSA said it was guided by what it believed to be the legislative purpose of the law Also see "340B Orphan Drug Rule: Stakeholders Are Parsing ACA Statute – Should Some Indications Be Cheaper Than Others?" - Pink Sheet, 6 June, 2011..

Moreover, PhRMA asserts that “Congress did not empower HHS or HRSA to promulgate rules interpreting the orphan drug exclusion,” Therefore, “the final rule exceeds HHS’ statutory authority.” PhRMA is represented in the lawsuit by Jeffrey Handwerker and Diane Bieri of the D.C. office of Arnold & Porter.

The ACA provision states that drugs subject to 340B pricing “shall not include a drug designated by the Secretary … for a rare disease or condition.” The provision aimed to protect prices for orphan indications somewhat as the new law was making more health care providers eligible for the discounting program; the orphan drug exclusion applies only to those providers made eligible for 340B by the ACA.

In the final rule, HRSA explained that “interpreting the statutory language to exclude all uses of drugs with an orphan designation, including indications for other diseases and conditions, would nullify the benefits of the expansion of the 340B program for those entities. Therefore, we believe that interpreting the statutory language to exclude all indications for a drug that has an orphan drug designation is contrary to congressional intent to balance the interests of orphan drug research and the expansion of the 340B Program to new entities.”

Nevertheless, PhRMA maintains that the final rule unfairly and adversely affects drug manufacturers in four ways. First, “PhRMA’s members will suffer financial and other harms as a result of HRSA’s rule extending these price controls beyond the clear boundaries of the 340B statute.”

Second, “in order to track when newly eligible covered entities dispense orphan drugs and to ascertain whether these entities are in fact purchasing outpatient orphan drugs for orphan indications at 340B prices, PhRMA’s members will be forced to spend significant resources adapting their internal systems and requiring wholesalers that sell 340B drugs to adapt their systems as well.”

Third, “PhRMA’s members face significant uncertainty regarding their legal and practical ability to obtain restitution of the monies lost due to the final rule if the rule is deemed unlawful” because “HRSA has not yet taken steps to implement the mandatory dispute resolution process required by the” ACA and “the structure and size of the 340B program make it untenable to seek and recover refunds from covered entities.” HHS has estimated that 967 parent facilities and 2,212 affiliated “outpatient/child sites” of covered entities are subject to the orphan exclusion rule, the trade group notes.

Finally, PhRMA asserts that “by limiting the scope of the orphan drug exclusion, the final rule also works against the Orphan Drug Act’s incentives to develop new orphan drugs.”

DoJ Requests Stay Of Action

The federal government has not responded to the arguments in the complaint but the Department of Justice filed a motion Oct. 1 requesting a stay in the proceedings because of the government shutdown.

PhRMA filed a motion later on Oct. 1 opposing the stay. In the filing, the group notes it had offered, in telephone conversations with HHS’s legal counsel, to agree to a stay for the duration of any government shutdown if HHS would suspend implementation of the final rule for the same period. However, the “defendants thus far have declined to do so,” PhRMA says. The court has not yet ruled on the motions.

The organization representing safety net hospitals, the Safety Net Hospitals for Pharmaceutical Access, issued a statement Oct. 2 in support of the final rule. “As we said when the regulation was published in July, HRSA’s interpretation of the 2010 law that created the exclusion is consistent with common sense. It balances congressional intent to lower drug costs for rural and cancer hospitals with congressional intent to encourage orphan drug development,” SNHPA said.

“It is clear from the plain meaning of the relevant language in the 2010 law that orphan drugs should only be excluded from 340B pricing for the affected hospitals when they are used to treat their orphan indications.”

PhRMA Seeking Injunction Against 340B Orphan Drug Exclusion Rule

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