Judge Vacates HHS Rule Requiring Some Discounts on Orphan Drugs

A U.S. district court judge handed PhRMA a major victory when he vacated an HHS rule requiring Medicaid discounts on orphan drugs in certain healthcare settings, calling it “arbitrary, capricious, [and] an abuse of discretion.”

In granting PhRMA’s motion for summary judgment, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia said the term “a drug designated … for a rare disease or condition” in the 340B provisions clearly shows Congress meant to exclude all drugs with orphan designations from eligibility for the newly added facilities. 

The judge noted that the July 2014 “interpretative” rule is identical in substance to one the court had struck down in May of that year.  

Under the 340B Medicaid Drug Rebate Program, firms must offer drugs at a steep discount to be covered by Medicaid. Orphan drugs aren’t subject to those discounts, even when they have non-orphan indications, so the incentive to create such drugs isn’t diminished.

The Affordable Care Act added several new categories of 340B eligibility, such as children’s and freestanding cancer hospitals and rural referral centers, and the rule created a loophole that allowed drugs with orphan indications used in those facilities to be discounted under 340B when used to treat non-orphan diseases.  

When drugmakers didn’t comply, HHS sent letters saying they were out of compliance and required them to reimburse facilities for costs above the discounted prices.

PhRMA sued HHS in October 2014, saying the rule exceeded HHS’ authority. HHS is reviewing the decision.

Read the ruling in Pharmaceutical Research and Manufacturers of America v. United States Department of Health and Human Services at www.fdanews.com/10-16-15-PhRMAvHHS.pdf. — Kellen Owings