U.S. District Court Agrees With PhRMA, Vacates HRSA 340B Orphan Drug Rule

By Jay W. Cormier & Alan M. Kirschenbaum –

Last summer, the Health Resources and Services Administration (“HRSA”) promulgated a final regulation to implement a statutory provision, added by the Affordable Care Act, that excludes orphan drugs from the ceiling price limitations of the 340B Program when the drugs are purchased by certain covered entities.   As described in our previous post on the final rule, it provided that the orphan drug exclusion applies only to orphan drugs when used for the rare condition or disease for which that orphan drug was designated.  In other words, under the rule, covered entities are entitled to 340B prices when a drug designated as an orphan drug for one indication is used for a different, non-orphan indication.

As we have previously noted, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) filed suit in October 2013 alleging that HRSA violated the Administrative Procedure Act because (1) HRSA did not have the authority to promulgate the final rule, and (2), even if HRSA did have such authority, the final rule conflicts with the plain language of the statute, which, according to PhRMA, exempts all uses of designated orphan drugs from the ceiling price, not just those used for the orphan indication.

Last Friday, the United States District Court for the District of Columbia ruled in favor of PhRMA on the first ground, without reaching the second.  Judge Rudolph Contreras found that Section 340B of the Public Health Service Act authorized rulemaking in only three specific areas:  (1) the establishment of an administrative dispute resolution process; (2) the methodology for calculating the 340B ceiling price; and (3) the imposition of civil monetary sanctions.  He noted that HHS does not have general authority to issue such regulations as may be necessary for the implementation of the 340B program, as it does, for example, under Medicare and Medicaid.  The court held that HRSA’s orphan drug regulation does not fall within any of the three areas for which Congress authorized rulemaking, and, therefore, must be vacated.  The government has 60 days to appeal the decision.

This case has implications for the 340B Program that go beyond the orphan drug exclusion.  Earlier this year, HRSA announced that it would be issuing a proposed regulation addressing the following areas of the 340B Program:

• The definition of an eligible patient
• Compliance requirements for contract pharmacy arrangements
• Hospital eligibility criteria
• Eligibility of off-site facilities

That rule – which has come to be known as the “mega-rule,” is currently under review by the Office of Management and the Budget and was anticipated by HRSA to be published in June.  However, Judge Contreras’ ruling raises questions about whether the mega-rule exceeds HRSA’s rulemaking authority.  The Administration may decide to withdraw the rule, or to postpone its publication until the case is resolved on appeal (assuming that an appeal is filed).  We will be following this case, as well as the fate of the mega-rule, in this blog.