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From Health Law Daily, June 17, 2015

HHS backs down on orphan drug pricing under 340B program

By Michelle L. Oxman, J.D., LL.M.

HHS, acting through the Health Resources and Services Administration (HRSA), has proposed changes to the regulations governing the calculation of the ceiling prices for drugs sold to covered entities under the discount program for certain entities established under Public Health Service Act (PHSA) sec. 340B, known as the “340B program.” The agency is taking this action in response to a court decision that invalidated the provisions of HRSA’s regulations on the pricing of “orphan drugs” under the program (Proposed rule, 80 FR 34583, June 17, 2015).

Orphan drugs” and the court decision. Under section 526 of the Food, Drug and Cosmetic Act (FDC Act) (21 U.S.C. §360bb), the sponsor of a drug may request that it be designated for a rare disease or condition; such drugs are commonly referred to as “orphan drugs.” The sponsor is then entitled to certain benefits, including extended patent protection, that allow it to charge higher prices for a longer period of time in order to recoup its research costs. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) amended PHSA sec. 340B to expand the discounts under the program to more facilities that serve the poor, including children’s hospitals, rural referral centers, and sole community hospitals. But sec. 2302 of the Health Care and Education Reconciliation Act (P.L. 111-152) further amended sec. 340B to provide that the term “covered outpatient drug” does not include orphan drugs sold to the newly added facilities. HHS amended its regulations and interpretive rules to provide that the exclusion for orphan drugs from the 340B discount program applied only to the drugs when used for their designated indication, not for other common indications. In May 2014, a federal court in the District of Columbia ruled in Pharmaceutical Research and Manufacturers Association v. HHS that the HHS rule exceeded the agency’s statutory authority (see Court invalidates HHS rule limiting prices of orphan drugs sold under 340B program, May 27, 2014).

Proposed changes. The Proposed rule removes the definitions of “orphan drug,” “participating manufacturer,” and “group purchasing organization,” and adds definitions of “340B drug,” “average manufacturer price,” “CMS”, “National Drug Code (NDC),” “quarter,” and “wholesaler.” The newly added definitions are borrowed from Medicaid law and regulations.

The Proposed rule also would amend the definitions of “ceiling price,” “covered outpatient drug,” and “covered entity,” adopting the Medicaid definitions of the latter two terms. “Ceiling price” is defined as the price calculated pursuant to sec. 340B and these regulations. The preamble explains that the ceiling price is to be calculated by subtracting the uniform rebate amount under the Medicaid prescription drug rebate program from the average manufacturer price. No price per unit would fall below $0.01. The changes appear to retreat from the agency’s position limiting the special pricing of orphan drugs to the indications for which they are designated as orphan drugs.

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