340B Orphan Drug Rule Invalid

On May 23, 2014, concluding a case brought by Pharmaceutical Research and Manufacturers of America (PhRMA) against the US Department of Health and Human Services (HHS), the U.S. District Court for the District of Columbia found that HHS lacks the authority under the 340B Statute to issue regulations implementing the Affordable Care Act’s 340B orphan drug exclusion. View opinion here.

With this finding, the D.C. District Court (1) vacated the HHS’ July 2013 final rule (Final Rule) that made free-standing cancer hospitals, CAHs, rural referral centers and sole community hospitals eligible to purchase orphan drugs for non-orphan conditions at discounted rates under the 340B program; (2) granted PhRMA’s motion for an injunction to stop enforcement of the Final Rule; and (3) granted PhRMA’s motion for summary judgment in the case.

The Final Rule required pharmaceutical manufacturers to offer 340B pricing to the above-listed 340B covered entities for an orphan drug when used for “non-orphan” conditions, but not when used for a rare disease or condition. The Final Rule also required all such 340B covered entities to have an auditable tracking mechanism in place that would show that 340B pricing was not applied when those drugs were dispensed for orphan conditions.

The D.C. District Court found that the manner in which the Final Rule “split the baby” (i.e., granted 340B pricing to certain covered entities for patients with non-orphan conditions only) was probably the most fair, but Congress didn’t grant HHS the authority to regulate orphan drugs under the 340B program. While the court left the door open for HHS to provide additional briefing on the theory that its Final Rule was an “interpretive regulation” rather than a legislative one developed in response to congressional authority, the judge indicated that he is unlikely to agree with any such arguments.

This ruling calls into question whether HHS has the authority to issue other regulations implementing the 340B program, including the long-awaited guidance on the 340B program that is currently under review by the Office of Management and Budget that is supposed to be released this coming June.