U.S. District Court Invalidates the HRSA Orphan Drug Interpretive Rule
On October 14, 2015, the U.S. District court has found for PhRMA in its civil case against HRSA on the validity of the “Interpretive Rule” for the Orphan Drug Prohibition.
Here are few highlights of interest to the manufacturer community in the court finding:
Summary of the Two Positions
In support of its motion for summary judgment, HHS makes two principal arguments. First, HHS claims that the Interpretive Rule does not constitute a final agency action and, therefore, is not subject to judicial review. Second, HHS argues in the alternative that, even if the rule constitutes a final agency action, its interpretation is entitled to Skidmore deference. In opposition to the motion—and in support of its own motion for summary judgment—PhRMA contends that the Interpretive Rule is a final agency action and, further, that the rule conflicts with the plain language of section 340B(e).
Whether the Interpretive Rule is a Final Order
"The Court first considers whether the Interpretive Rule constitutes a final agency action. Under the APA, judicial review is available only of a “final agency action” 5 U.S.C. § 704. Therefore, if the Interpretive Rule does not constitute a final agency action…"
Consideration of Rule’s Impact on Manufacturers
"…the Court finds that the Interpretive Rule imposes a significant burden on pharmaceutical manufacturers and other regulated entities alike…"
"There is also evidence that implementing the Interpretive Rule will have a “direct effect” on pharmaceutical manufacturers’ “day-to-day business.” Reckitt Benckiser, 613 F.3d at 1138 (quoting Abbott Labs, 387 U.S. at 152). Various pharmaceutical company officials have submitted sworn declarations representing that, to determine whether covered entities are in fact using orphan-designated drugs to treat non-rare conditions, their companies must “make changes to [their] own accounting, contracting and government price reporting systems and require the wholesaler[s] through whom [they] sell [their] 340B drugs to make changes to their tracking system.” (Page 23)
"Whether to comply with the Interpretive Rule presents pharmaceutical manufacturers, too, with a “painful choice between costly compliance and the risk of prosecution at an uncertain point in the future...”
This story has some history, going back to the Affordable Care Act (ACA) where Congress expanded 340B Program eligibility to additional categories, but excluded those entities from purchasing Orphan Drugs at the 340B Price. HRSA eventually issued a Final Rule on implementing the ACA Orphan Drug prohibition, essentially establishing that the covered entities (CE) could not purchase Orphan Drugs for their approved indication, but could for other indications. However, HRSA’s authority to promulgate a Final Rule was challenged by PhRMA and as a recourse, HRSA issued an Interpretative Rule which is once again challenged, and now invalidated.
To refresh, the timeline of relevant events to date are summarized below:
- May 2011 - HRSA issues the notice of proposed rulemaking providing details regarding the Orphan Drug provision of the ACA. The purpose of this rule was three fold – to provide clarity into the marketplace, to maintain savings for newly eligible covered entities, and to protect the financial incentives for manufacturing orphan drugs designated for a rare disease or cause as indicated by ACA.
- July 2013 - HRSA issues the Orphan Drug Final Rule stating that the orphan drug exclusion prohibits the newly eligible categories of 340B entities (free standing cancer hospitals, sole community hospitals, critical access hospitals, and rural referral centers) from buying orphan drugs at 340B prices only if the drug is used for its orphan indication. If the drug is used for another non-orphan indication it could still be purchased at 340B pricing. Further, this would allow for these entities to purchase orphan products ineligible for 340B pricing (meaning the drugs purchased for the orphan indication) at GPO pricing because HRSA interpreted them to fall outside of the definition of covered drugs.
- September 2013 - PhRMA brings a suit against HRSA stating that "HHS's revision of the orphan drug exclusion through rulemaking is at odds with the plain statutory text. The statutory language makes clear that Congress intended the orphan drug exclusion to apply to any orphan drug sold to one of the newly covered entities, regardless of whether the covered entity uses the drug for an orphan indication. The Final Rule thus violates the Administrative Procedure Act because it is not in accordance with law."
- October 2013 - HRSA Orphan Drug Final Rule becomes effective.
- May 2014 - The U.S. District Court releases its ruling on the HRSA 340B Orphan Drug Final Rule challenge by PhRMA. The court vacates the Final Rule based on HHS’s lack of "statutory authority to engage in such rulemaking."
- July 2014 - HRSA issues an “Interpretive Rule” of the Orphan Drug provisions of the ACA.
- October 2014 - PhRMA filed a Complaint, arguing that HRSA’s interpretive Rule is not supported by the statutory language in the ACA.
- October 2015 - US District Court invalidates the HRSA Interpretive Rule.
This is an important turn of events for all stakeholders. For the manufacturing community, there had been many questions as to how to apply the Interpretive Rule as authoritative guidance, and how to treat historical chargeback transactions to covered entities that had been denied based upon the Court’s initial invalidation of the Orphan Drug Rule. It also created operational questions on how to manage the difficulties related to certain aspects of the Interpretive Rule, including the provision that Covered Entities would have to be able to track and monitor allowable Orphan Drug purchases and non-allowable Orphan Drug purchases; CE’s ability of making purchases under the Orphan Drug Rule if they are unable to track such transactions; and the impact to drug manufacturer’s chargeback validations and operations.
This may or may not be the end of the story, but it does return us to a key question related to HRSA’s ability to promulgate rules. This was highlighted recently when HRSA delayed its issuing of the 340B “Mega Rule” in light of the Court’s finding in May of 2014, and its recent issuing of guidance in a different guidance format than formal rule making.
This is an important event in the implementation of the Orphan Drug provision of the ACA. If you have questions on how this impacts your organization, whether it is a policy question or operational impact, please reach out.
Mark Linver, Managing Director, Huron Life Sciences
Chris Cobourn, Managing Director, Huron Life Sciences
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