Judge Upends 340B Orphan Drug Exclusion

In a recent ruling, the U.S. District Court for the District of Columbia knocked down the federal government’s regulation allowing orphan drugs to be sold at full price, without any mandated discount. The ruling applies to the use of these drugs in the government’s 340B Drug Pricing Program.

Under the law, orphan drugs are defined as those drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the drug was designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

The 340B Drug Pricing Program is a program that the federal government began in 1992. It requires drug manufacturers to sell drugs to certain healthcare organizations at big discounts. These healthcare organizations fall into six broad categories – disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals (CAH).

The reason the government instituted the 340B program for drugs in these healthcare centers is to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

However, section 340B(e) of the law, states that “the term ‘covered outpatient drug’ shall not include a drug designated by the Secretary under section 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition.”

The Health and Human Services Department interpreted this language to mean that drugs which are sold, prescribed, or used to treat rare conditions or diseases, as designated in federal law, are excluded from the pricing discount program. They cannot be discounted if used to treat rare diseases. However, if these same drugs are used for other types of diseases, they can be discounted as part of the law. 

But the court ruled that making such an interpretation was outside the department’s authority as stated in the law. The court ruled that the government agency “lacked the statutory authority to engage in such rulemaking.”

With this ruling, the court has stated that the Orphan Drug Exclusion Rule is no longer valid. However, HHS has stated that even with the ruling it will continue to allow the relevant healthcare organizations to buy these drugs at a discounted rate when they are not being used to treat the rare disease for which they received the orphan designation.

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