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340B and Orphan Drugs

340B and Orphan Drugs



We continue to get questions about Orphan drugs. How to buy them, how they can be used, and which wholesaler account to use.  So this blog is about Orphans.  And for those curmudgeons out there, and you know who you are, no this has nothing to do with Orphan Annie . . . 

Note that this blog pertains to our colleagues at critical access hospitals, free-standing cancer hospitals, sole community hospitals and rural referral centers only.  Other 340B Entities may use 340B Pricing for Orphan drugs.


The Initial HRSA Rule: 340B hospitals subject to the orphan drug exclusion (critical access hospitals, free-standing cancer hospitals, sole community hospitals and rural referral centers) are responsible for ensuring that any orphan drugs purchased through the 340B Program are not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drugs are designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

And This Means?

If you fit the criteria above (CAH, FCH, SCH, RRC) you cannot use 340B pricing for a drug with orphan drug status.  This means you must use GPO/WAC pricing UNLESS the manufacturer extended 340B pricing to you voluntarily.

But the armchair lawyers out there will re-read the HRSA rule and note that it only mentions ‘rare condition or disease’.  Good read.  HRSA initially interpreted this as meaning you could use Orphan Drugs for Non-Orphan Status, and a lot of entities did just that, all the way up to a court ruling in 2014...

Judgement Day

No, not the Judgement Day in the Terminator Movie series.

Then: Congress passed the Patient Protection and Affordable Care Act (PPCA) in March 2010.  This extended 340B discounts from the original FQHC, DSH, Children Hospitals and Grantees to then include CAH, RRC, SCH and FCH facilities.  This expanded 340B coverage by an estimated 1,500 facilities. 

The act excluded Orphan Drugs, but HRSA’s interpretation was that Orphan Drugs could be discounted for non-orphan indications.  PhRMA fought a legal battle against this interpretation, and on October 14, 2014, the U.S. District Court ruled to exclude all drugs with an orphan status for all uses for the above entities.  So you can NOT use 340B pricing for an orphan drug for any indication.

And Now: Here’s HRSA’s latest ruling: For rural referral centers, sole community hospitals, critical access hospitals, and free-standing cancer hospitals participating in the 340B Program, the term 'covered outpatient drug' does 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. Therefore, manufacturers are not required to provide these covered entities orphan drugs under the 340B Program. A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals.

Fair?  Like the weather, it depends on where you stand.
On January 17, 2017 NPR’s Morning Edition broadcast a news article about Orphan Drugs in the United States. You can read the entire article here:[NPR Article].  They contend drug companies may be missing the intent behind the original Orphan Drug rule, which was intended to foster research and development for drugs to treat rare diseases and conditions that affected fewer than 200,000 people per year. NPR may have a point.  It is difficult to see the logic in drugs as old and as widely used as Cleocin being classified as an orphan drug.  Remember: Orphan Drug status gains an additional seven years of patent protection.  This equates to no competition for those seven years.

The list is available for public download.  It includes a number of new drugs as well as older drugs, and in fact, 47% of ALL new drugs approved in 2015 held orphan drug status.  You can download the updated list here: [HRSA Orphan Drug List].   

The Tide of Public Opinion

PhRMA consistently demonstrates the behavior expected of any business: Increase Shareholder Value.  Although it might be fun and even seem socially right to be critical of PhRMA, their behavior is no different from any well managed for-profit business. 

It is easy to understand PhRMA’s concern.  They were suddenly compelled to discount Orphan Drugs to 1,500 new institutions.  There was a legal opportunity due to vague wording in the PPACA and they took action.  But this is one position where a lot of people, and Organizations, are critical of PhRMA.

Here’s what the American Hospital Association has to say about this (Press Release 10/15/14): This decision comes at a steep cost for the vulnerable patients cared for by rural and cancer hospitals. The ruling excludes all drugs with an “orphan” designation from the 340B Drug Pricing Program for rural and cancer hospitals. 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. Sadly, the biggest beneficiary of this ruling is the pharmaceutical industry – it does nothing to help either patients or taxpayers.

On October 16, 2014, ASHP had this to say:

“This ruling will limit access to critical medications for the sickest patients in our healthcare system,” said Kasey K. Thompson, Pharm.D., M.S., M.B.A., ASHP Vice President of Policy, Planning, and Communications. “ASHP has long maintained that the interpretation by HRSA of the orphan drug provisions of the Affordable Care Act was correct and that rural and cancer hospitals should be able to access orphan drugs under the 340B program when used for non-orphan indications.”

The entities affected by the court decision — rural, cancer, critical-access, and sole community hospitals — treat patients with the most acute and complex medical conditions. Without access to these discounts, participating hospitals may not be able to absorb the cost of providing care to patients who otherwise would not be able to afford it.

Regardless of your own position on this issue, the rule is in place. You can fuss about it all you like, but don’t use 340B pricing for Orphan Drugs, regardless of the indication.

Which Wholesale Account to Use

In most cases, Orphan Drug status is extended to the Brand Name drug, not generics.  Review your purchase decisions carefully. And consider which account is most appropriate for purchasing Orphan Drugs.

Orphan Drugs will continue to show up on your 340B account. Often the price is the same as your GPO/WAC price in your other account. Some Manufacturers offer a 340B price voluntarily.  Be sure you know which do, and if in fact a contract is loaded for your facility.  Work with the Manufacturers, your Wholesaler and Split Billing Software company to determine which account you should use. Be sure your buyer understands your choice.

Final Thoughts

First: who wonders why DSH and Children Hospitals may use Orphan Drugs and no one else?  The answer hinges on the legal interpretation of “covered outpatient drug” and how that applies to the various 340B entities. Remember: CAH, RRC, FCH and SCH facilities are considered ‘New’ and were added as part of the PPACA act in 2010.  Negotiations between PhRMA and the Feds resulted in different rules for the two different segments.  It’s complicated, and even if anyone outside of a legal office fully understands the finer points of this topic, there is no way it could be covered in the thousand-word limit we try to keep on this blog.

Lastly: It is a little unfair to compare Orphan Drugs to Little Orphan Annie.  But not by much.  Orphan Drugs, not unlike Orphan Annie, started out as low income entities.  And, just like Annie’s fortunes changed when Oliver “Daddy” Warbucks came along, Orphan Drugs’ fortunes changed as PhRMA found ways to make what began as a well-intentioned initiative to treat rare diseases become a profit making strategy.

Be sure to contact your 340B Consultant for any questions or to get answers about this or other 340B issues!

Posted: Wednesday, June 13, 2018

Tags: 340B, CPS Blog Posts, OPA, Orphan Drugs, HRSA, ASHP, AHA