by Admin | May 25, 2011 8:40 pm
May 25, 2011—Rural and freestanding cancer hospitals should be allowed to buy orphan drugs at 340B-discounted prices when they use the medicines to treat non-orphan diseases or conditions, the Health Resources and Services Administration (HRSA) says in a long-awaitedproposed regulation[1]—the first ever for the 340B program. The Monitor was the first to break the news of this development on May 19.
Drugs designated for the treatment of rare diseases “are in some cases also approved, or used without approval, for other indications and … are among some of the most widely used today,” states the May 20 proposed rule, which will implement the Affordable Care Act’s (ACA) limitation on orphan drug discounts for hospitals that gained eligibility for 340B under health care reform.
HRSA says the fact that orphan drugs can be—and often are—used for non-orphan purposes led it to conclude that Congress intended the prohibition to apply only when orphan drugs are used “for the rare condition or disease for which the orphan drug was designated.”
Congress, it says, wanted these newly eligible hospitals to participate in and benefit from the 340B program. Interpreting ACA’s language to exclude uses of orphan drugs “for common diseases or conditions,” it continues, “would place a substantial burden on the affected entities and potentially nullify the benefits of the 340B program for those entities considering enrolling.”
HRSA’s proposal is a setback for some drug manufacturers, which have argued[2] that the limit on 340B pricing should apply to all pharmaceuticals with an orphan designation that are approved to be marketed in the United States and without regard to how they are used.
With many of their blockbuster drugs losing their patent protection soon and few new blockbusters in the pipeline, manufacturers are turning to orphan drugs as a vital source of future profits. To protect those revenues, they negotiated last-minute changes to health care reform that barred children’s, rural and cancer hospitals from obtaining 340B discounts on the drugs. Congress lifted the ban for children’s hospitals[3] in December but it remains in place for rural and cancer hospitals.
Hospitals enrolled in the drug discount program want Congress to repeal exclusion entirely, just as it did for children’s hospitals.
Marketplace Confusion
HRSA says its rule will end “confusion in the marketplace … due to varying interpretations of the statutory exclusion.” Some manufacturers, it notes, have stopped selling orphan drugs to the new categories of 340B hospitals to avoid the possibility of reducing their products’ best prices. Hospitals, it continues, don’t know if they can buy the drugs and, if so, at what price and under what conditions.
HRSA also says its interpretation of ACA’s orphan drug language is consistent with Congress’ intent to stimulate the development of drugs for rare diseases. Each of the financial incentives that lawmakers have established to help bring orphan drugs to market, the agency points out, “applies only when the orphan drug is targeted or used to treat a rare disease or conditions and not for other indications.”
Allowing 340B pricing on orphan drugs when they are used for non-orphan reasons, HRSA says, is consistent with the Food and Drug Administration’s implementation of the Federal Food, Drug and Cosmetic Act “without generating an unintended benefit” for manufacturers of orphan drugs that “are widely or even exclusively utilized for common indications.”
The proposed rule would require hospitals to maintain separate purchasing accounts and auditable records to demonstrate that they were not using orphan drugs impermissibly, which presumably would be considered illegal drug diversion and punishable by monetary penalties and/or expulsion from the drug discount program. Manufacturers and the government could conduct audits to ensure compliance, and hospitals would have to put in place “tracking and recordkeeping requirements to demonstrate compliance,” the notice states.
HRSA, however, did not spell out what sort of recordkeeping standards hospitals would have to meet.
Unlike other 340B-eligible hospitals, critical access hospitals, rural referral centers and sole community hospitals may buy covered outpatient drugs through their group purchasing organizations (GPOs). If a hospital cannot or chooses not to comply with the recordkeeping requirements, HRSA says, it must purchase all of its orphan drugs outside of 340B, provided that it notifies the agency of its decision during its initial enrollment in 340B or during its recertification.
In addition, in recognition of the difficulties that cancer hospitals might have complying with the requirement of using separate purchasing accounts and tracking systems for orphan drugs, HRSA proposes to give them the option of buying all of their orphan drugs through either 340B or their GPO.
Hospitals Seek Repeal
Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents more than 700 hospitals enrolled in 340B, issued a statement saying it “is pleased to see that HRSA has proposed a reasonable interpretation of the 340B orphan drug exclusion which, consistent with common sense, would only exclude orphan drugs from the program when used for a rare disease or condition.”
“Nevertheless, we continue to believe the underlying provision in the law is fundamentally flawed,” the group says. “It discourages rural and free-standing cancer hospitals from enrolling in or fully benefitting from 340B while doing little to advance the objectives of the orphan drug program.”
SNHPA says it also believes that “narrowing the kinds of drugs eligible for discounts will harm vulnerable patient populations and increase costs to taxpayers.” The group says it will continue to lobby Congress to completely remove the ban.
“We’re delighted to see this matter moving toward resolution,” added Eric Zimmerman of the Rural Referral Center/Sole Community Hospital Coalition. “The confusion and uncertainty have been disruptive for everyone involved. Nonetheless, we recognize that this is a long way from becoming final.”
“Potentially Guts” Exclusion
In a blog posting, drug industry attorneys Joseph Metro and Vicky Gormanly of the law firm Reed Smith wrote that HRSA’s proposed rule “potentially guts” the orphan drug exclusion.
Alice Valder Curran, a partner with the firm Hogan Lovells who has represented many drug manufacturers, says that “while the proposed rule’s insistence that covered entities maintain compliance documentation certainly is welcome, the end result, in practical terms, is little more than the honor system.”
In the current budget environment, she says, HRSA’s Office of Pharmacy Affairs “has no resources to monitor or enforce compliance, which only leaves manufacturers with the option of requesting an audit, and the audit process is so burdensome that no manufacturer has ever used it.”
According to Donna Yesner, formerly of McKenna Long and Aldridge and now a partner with Morgan Lewis and Bockius, the rule would be “extremely difficult and costly to administer.”
“Use of a drug is simply not captured in purchase or prescription data, which indicates only whether a provider is eligible and whether a prescription is dispensed to a patient of the provider,” she observes. “Even if hospitals keep track for purposes of inventory replenishment, how are they going to indicate to contract pharmacies that the prescription for a designated orphan drug dispensed to an eligible patient is to be filled with 340B drugs or non-340B drugs, and how are manufacturers supposed to verify therapeutic use?”
“Manufacturers’ systems are designed to flag transactions based on questionable chargebacks, but these systems cannot catch errors based on patient treatment,” Yesner adds. She also says that
HRSA’s decision to allow cancer hospitals to buy their orphan drugs through a GPO “seems to conflict with the statute.”
HRSA is accepting comments on the on the proposal through July 19. Comments must include the Regulatory Information Number (RIN) 0906-AA94 and can be submitted by any of the following methods:
Source URL: https://340binformed.org/2011/05/340b-stakeholders-begin-poring-over-orphan-drug-rule/
Copyright ©2025 340binformed.org unless otherwise noted.