In October, a federal court struck down a Health Resources and Services Administration 340B orphan drug policy (the "Interpretive Rule") that called for manufacturers to provide drug discounts when orphan drugs were used for either off-label purposes, or to treat common conditions.
This decision follows a May 2014 decision where the Court vacated a Final Rule promulgated by the Secretary of the Department of Health and Human Services. In May 2014, the Court concluded that HHS lacked the statutory authority to promulgate such a rule. The Court noted that Congress granted HHS only "a specific delegation of rulemaking authority to establish an adjudication procedure to resolve disputes between covered entities and manufacturers." In the decision to vacate the final rule, however, the Court raised the possibility that HHS could issue the rule as an interpretive rule rather than a legislative rule.
Therefore, after the initial Final Rule was struck down, HHS issued an interpretive rule identical in substance to the vacated Final Rule, and Pharmaceutical Research and Manufacturers of America (PhRMA) challenged that Interpretive Rule.
PhRMA challenged the Interpretive Rule under the Administrative Procedure Act (APA) as being arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. PhRMA believed that the HHS rule extending the discounts to orphan drugs violated the plain language of the ACA's orphan drug exemption and that the government lacked authority to issue the final rule.
Various pharmaceutical company officials submitted sworn declarations to the Court representing that 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." The D.C. Circuit Court has previously found similar requirements to constitute an immediate and significant burden on a regulated entity.
HHS tried to argue that the Interpreted Rule was not a final agency action and therefore not actionable under the APA, and that even if the Court determined the rule could be challenged, the HHS should be afforded judicial deference to make their own rules as they apply to the agency.
HHS claimed that the "Interpretive Rule, itself, 'does not alter the legal obligations of the program participants' and that the rule has no legal force 'independent of any binding effect that the statute itself may have.'" HHS did, however, concede that the Interpretive Rule represents the consummation of the agency's decision-making process.
The Court's Decision
The Court concluded that the case was a question of statutory interpretation and the Interpretive Rule imposed an immediate and significant practical burden on the regulated entities and rejected HHS' position, and struck down the Interpretive Rule as contrary to the plain language of the 340B Program statute.
The Court found that the "Interpretive Rule imposes a significant burden on pharmaceutical manufacturers and other regulated entities alike." The Court found that deciding "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.'" As such, the court granted a summary judgment motion in favor of PhRMA, taking the case off the docket and essentially invalidating the Interpretive Rule.
Industry and Legal Response
Mit Spears, PhRMA's executive vice president and general counsel said PhRMA was "very pleased with the Court's decision," and that "PhRMA supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help. To achieve this important objective, it is critical that the program operates in a manner consistent with the clear and unambiguous direction of Congress."
The Court's decision will have an immediate impact on the finances of the hospitals to which the orphan drug exclusion applies as they will no longer be authorized to purchase orphan drugs at a 340B discounted price when used for non-orphan purposes.
This decision by the court also has the potential to lead to more litigation surrounding HHS' recent proposed omnibus guidance on the 340B program. Attorney Donna Lee Yesner of Morgan Lewis & Bockius, LLP, stated, "What is interesting to me – and will impact the proposed mega-guidance – is the court's conclusion that the rule was reviewable as final agency action by a trade association rather than forcing individual companies to litigate the issue in enforcement proceedings." Ms. Yesner sees more litigation in the future, commenting, "Factors that the court considered – that HRSA was unlikely to change its position that noncomplying manufacturers would be in violation of the statute, compliance was costly and manufacturers who did not comply would be subjected to severe sanctions – apply equally to some of the positions taken in the proposed guidance."
Ms. Yesner believes that the contract pharmacy program may be "especially vulnerable to challenge as an improper interpretation of the term 'covered entity' and as an unauthorized substantive rule," since the contract pharmacy program was expanded to include retail pharmacies as covered entities. She also said it is possible that the covered entities will sue over the interpretation of the term "patient," because that limits the revenues of the pharmacies.