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From Health Law Daily, October 3, 2013

PhRMA seeks to enjoin HRSA from enforcing the 340B Program orphan drug exclusion final rule

By Susan Smith, JD, MA

The Pharmaceutical Research and Manufacturers of America (PhRMA) filed a complaint seeking to preliminarily and permanently enjoin HHS and the Health Resources and Services Administration (HRSA) from enforcing the Final rule adopting a regulation that excludes orphan drugs sold to certain entities from the price controls imposed by the 340B Drug Program. HHS adopted 42 C.F.R. sec. 10.21(a) implementing sec. 340B(e) of the Public Health Service Act (PHSA) in a final rule (78 FR 44016) published in the Federal Register on July 13, 2013, which became effective October 1, 2013. PhRMA contends that the final rule is arbitrary, capricious, an abuse of discretion (5 U.S.C. secs. 706(2)(A) and (C)).

340B Drug Program. The 340B Drug Program, which is administered by HRSA, an operating division of HHS, imposes price controls on “covered outpatient drugs” that are purchased by specified categories of health clinics and hospitals (covered entities) (42 U.S.C. sec. 256b(a)(1)). Under the Program, drug manufacturers are obligated to offer covered entities an upfront discount at the time of sale on the manufacturer’s covered outpatient drugs. The discount is referred to as the “ceiling price.” The Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) as amended by the Health Care and Education of Reconciliation Act of 2010 (P.L. 111-152) expanded the categories of covered entities that are entitled to the “ceiling price,” but also determined that drug manufacturers would not be required to extend 340B pricing on orphan drugs sold to the new categories of covered entities (codified as amended by the Medicare and Medicaid Extenders Act of 2010 (P.L. 111-309) at 42 U.S.C. sec. 256b(e)). Sec. 526 of the Federal Food, Drug and Cosmetic Act (FDCA) establishes procedures for identifying products as orphan drugs, which are products designated by the Food and Drug Administration as a drug for a rare disease or condition if the drug could be used to treat such a disease or condition.

PhRMA’s argument. PhRMA contends that the final rule violates the Administrative Procedure Act (5 USC sec. 701, et seq.) because it is an erroneous reading of the statutory text that the HRSA is seeking to implement and is outside the scope of HHS’ rulemaking power. According to PhRMA, “the statutory text makes it clear that the 340B orphan drug exclusion applies to any drug designated as an orphan drug,” while the Final rule asserts that an orphan drug is exempt from 340B pricing requirements “only” when “used for the rare condition or disease for which that orphan drug was designated” (42 C.F.R. sec. 10.21(a)). PhRMA asserts that HHS did not have the authority to issue the Final rule, maintaining that if Congress had intended to imposed the use-based limitation on the orphan drug exclusion, it could have done so, noting that Congress crafted limiting language in relation to orphan drugs in other contexts but made a deliberate choice to define the orphan drug exclusion in sec. 340B(e) without reference to the indication for which the drug is used.

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