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May 29, 2014

District Court Strikes Down 340B Orphan Drug Rule Concluding that HRSA Does Not Have Necessary Rulemaking Authority

Published

May 29, 2014

On May 23, the U.S. District Court for the District of Columbia issued a decision striking down the 340B orphan drug rule that was finalized by the Health Services and Resources Administration (HRSA) in July 2013 and took effect Oct. 1, 2013.

Supporting the injunction filed by the Pharmaceutical Research and Manufacturers of America (PhRMA), the court found that HRSA does not have “substantive rulemaking authority under section 340B of the [Public Health Service Act] to promulgate the orphan drug rule.”

HRSA issued the 340B orphan drug rule to clarify when newly eligible 340B covered entities could obtain access to 340B orphan drug discounts. The ACA expanded the types of providers eligible for the 340B program but also included restrictions on these groups’ ability to obtain 340B discounts for orphan drugs. HRSA’s final rule interpreted these restrictions to allow newly eligible facilities to obtain 340B discounts for orphan drugs when those drugs are used for non-orphan indications. However, these same facilities were disallowed from accessing 340B discounts when such drugs are used for any on-label orphan indications.

Based on the court’s ruling, newly eligible 340B covered entities will not be able to obtain 340B discounts on any orphan drugs, regardless of the conditions. Based on HHS estimates, newly eligible covered entities stand to miss out on $6-9 million in drug cost savings per year as a result of the court’s decision. Importantly, the vast majority of 340B covered entities will be unaffected by this rule, and will remain eligible to purchase all outpatient drugs at 340B prices.

HRSA plans to publish a “comprehensive” 340B proposed rule in June to clarify central issues in the 340B program that are important to both to providers and manufacturers. The court’s finding to limit HRSA authority leaves the timing and potentially the status of this rule in question. At the very least, HRSA may need to make substantive changes to the proposed rule justifying its authority to issue certain provisions of the rule in the first place. It is also possible, however, that HRSA may be forced to abandon some provisions of the proposed rule based on the court’s ruling.

View the Court’s decision.

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