A federal district court ruling last week struck down interpretive guidance issued last year by the Health Resources and Services Administration (HRSA) relating to 340B pricing on orphan drugs for certain 340B covered entities. A notice on HRSA’s Office of Pharmacy Affairs website states: “As of October 14, 2015, the Orphan Drug Interpretive Rule has been vacated.” The site also notes that HRSA will provide additional information as it becomes available.
The orphan drug provision of the Affordable Care Act (ACA) states that free-standing cancer hospitals (CAN), critical access hospitals (CAH), rural referral centers (RRC) and sole community hospitals (SCH) participating in the 340B program may not buy orphan drugs at 340B prices. However, HRSA’s interpretive guidance, issued in 2014, had stated that these 340B covered entities are allowed to purchase orphan drugs at 340B pricing when the drugs are used to treat conditions other than the rare condition or disease for which the drug received its orphan designation.
U.S. District Judge Rudolph Contreras noted that the language in the ACA “unambiguously” excludes all drugs carrying an orphan designation, and stated that it is not within the authority of either HRSA or the court to rewrite the statute. However, he did note that the language of the statute “might be more difficult to reconcile with the generally-stated goal of the 340B program,” which is to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services, by reducing the amount hospitals spend on outpatient drugs.
A costly ruling
This ruling means that rural and cancer hospitals will no longer be able to purchase orphan drugs at 340B pricing for any condition. The ruling does not affect disproportionate share hospitals or pediatric hospitals.
Because orphan drugs tend to carry the highest price tags, this ruling is expected to greatly affect both patients and hospitals by raising prices and reducing access. Rural hospitals already running on tight margins may be unable to absorb the higher drug costs of these pricey medications – especially for their uninsured and underinsured patients.
A 2013 survey by 340B Health, a membership organization of more than 1,000 hospitals and health systems that participate in the 340B program, provided some insights from rural hospitals into the potential annual financial impact of losing the 340B discounts on orphan drugs used for non-orphan indications:
- 40 percent save $50,000 or less annually
- 40 percent save $50,000 to $300,000 annually
- 17 percent save more than $300,000 annually
- 3 percent save $1,000,000 annually
In a press release this week, Ted Slafsky, President and Chief Executive Officer of 340B Health, stated, “This is a major setback for rural hospitals who are already struggling to keep their doors open.”
American Hospital Association Executive Vice President, Tom Nickels, noted the potential impact on patient care, as well, telling Healthcare Finance, “Denying these hospitals the ability to utilize 340B discounts for these drugs will reduce access to critical services and treatments for some of the most vulnerable patients in society.”
Next steps for affected hospitals
Participating 340B entities of type CAN, CAH, RRC and SCH should immediately review their orphan drug purchasing practices and adjust their 340B policies and procedures to align with the court ruling. Sentry customers who have chosen an “opt-in” status to purchase orphan drugs at 340B pricing for non-orphan indications, should contact SentryOne Customer Care to discuss changing this status to “opt-out.”