Orphan drugs are intended to treat rare disease (those affecting fewer than 200,000 people in the US). Many pharmaceutical manufacturers do not develop drugs for these diseases because the potential patient population is so small that the drugs would not be profitable to produce without government assistance. Yet according to the National Organization for Rare Disorders (NORD), 41% of all new drugs approved in 2016 were orphan drugs.
Do orphan drugs fall under the 340B program?
The 340B Drug Pricing Program gives covered entities the ability to cost-effectively provide the most vulnerable populations outpatient medications by allowing certain hospitals to purchase medications at a deep discount. However, under the regulations of the 340B program, manufacturers are not required to provide orphan drugs to covered entities at the discounted 340B rate. According to HRSA, “A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals participating in the 340B program.”
How do hospitals identify orphan drugs?
Orphan drug designation is derived from information provided by the FDA. Administered by HRSA and updated quarterly, this government list of orphan drugs should be the source used by 340B stakeholders to ensure compliance with the orphan drug exclusion. However, covered entities may need to conduct additional analyses of the drugs provided on this list to verify that orphan drugs are excluded from their 340B purchases.
In addition, the orphan drug designation sponsors noted on the FDA list may not be the current manufacturer for an orphan drug. So, HRSA encourages covered entities to track orphan drugs carefully and proactively resolve any potential disputes that may result from the use of the FDA orphan drug list. HRSA will continue to improve the list to ensure covered entities have the information they need to comply with the orphan drug exclusion.
Can an orphan drug be purchased on a 340B account?
According to 340B compliance requirements, orphan drugs must be excluded and may not be purchased on a 340B account; however, sometimes this happens inadvertently. For example, drug wholesalers may not always have the most up-to-date catalog of orphan drugs, so covered entities have, in some instances, purchased an orphan drug on their 340B account due to these out-of-date lists or because of technology or administration errors.
The consequences of such inadvertent errors can be costly. Through an audit, the manufacturer can identify the facility as one that is subject to the orphan drug exclusion, resulting in significant chargebacks to the facility. It is therefore in the covered entity’s best interest to exclude known orphan drugs from their 340B purchasing up front.
How can covered entities ensure orphan drugs are excluded from their 340B purchases?
Typically, a facility has two accounts: a GPO account and a 340B account. Orphan drugs should be purchased on a non-340B account, whether that’s GPO or some other type of arrangement with the covered entity’s wholesaler. If the covered entity was to purchase orphan drugs, they would place those medications on their GPO account, not their 340B account. If an orphan drug is purchased on a 340B account, it can inadvertently present in the 340B data during an audit.
To help mitigate this issue, Sentry identifies variances between the orphan drug list from HRSA and the FDA and compares that information to the covered entity’s list of 340B drugs.
How do health systems obtain drugs?
Several orphan drug manufacturers voluntarily offer what they call “value-add” or “340B-like” pricing that, from the general manufacturer perspective, says ‘We recognize that you’re a safety net hospital and somewhat disadvantaged by having to buy these drugs at a higher cost – so we will provide a one-off exclusive contract for this drug at this 340B price because we care.’
In order to receive special pricing on orphan drugs, covered entities must reach out to manufacturers and proactively execute one-off contracts. Even once the covered entity takes these steps, the drug is still not 340B-eligible; rather, the manufacturer is providing a community service by having that relationship with the covered entity. Many covered entities have not established these contracts, and by paying full price for the orphan drugs, they are leaving potential savings on the table.
How often do covered entities’ 340B list and orphan drug contracts need to be updated?
The orphan drug list is updated quarterly by HRSA. We, therefore, recommend quarterly maintenance to maintain 340B compliance and optimization. We also recommend reviewing individual contracts with orphan drug manufacturers quarterly.
Senturion Services’ new Orphan Drug Opportunity service helps covered entities maintain compliance with 340B Orphan Drug Exclusion requirements, exploring cost-effective ways to obtain orphan drugs, negotiating orphan drug contracts, and providing ongoing 340B program oversight and maintenance.
Contact us to learn more today.