On June 22, 2013, the Health Resources and Services Administration (“HRSA”) released its final rule on the exclusion of orphan drugs for certain covered entities under the 340B Drug Discount Program.  The advance copy is currently available for viewing at the Office of the Federal Register Public Inspection Desk, and is expected to be printed in the Federal Register on July 23, 2013.  The rule largely finalizes the proposed rule HRSA issued on May 20, 2011 (76 Fed. Red. 29,183), and permits the “new” covered entities (free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals) to access 340B pricing on orphan drugs, so long as the drugs are not to be used for the orphan indication.  The final rule is effective October 1, 2013.

Section 7101 of the Affordable Care Act (the “ACA”), as amended by section 204 of the Medicare and Medicaid Extenders Act of 2010, prohibits the “new” classes of covered entities established by the ACA (other than children’s hospitals) from accessing 340B discounted prices with respect to orphan drugs. In the final rule, HRSA interpreted the statute as permitting access for such entities to discounted prices where the drugs will not be used to treat the orphan condition, provided the covered entity can provide auditable records and otherwise meet program requirements. Specifically, the rule states that, with respect to free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals, “covered outpatient drugs” do not include “orphan drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which that orphan drug was designated.” (emphasis added).

The final rule establishes new program regulations at 42 C.F.R. subch. A, pt. 10. Under the final rule, HRSA will require a newly covered entity to declare whether it will purchase orphan drugs under 340B in its initial application, annual recertification, or change request. Only when a newly covered entity can maintain and provide auditable records that track the indication for 340B purchases of orphan drugs will the entity be in compliance with this regulation.  Under the final rule, manufacturers are not permitted to condition sale of orphan drugs under the 340B Program on proof of the drugs’ intended use or assurance of compliance with the program requirements.   However, certain limited audit rights may be available to manufacturers.

Given the complexities associated with the 340B Drug Discount Program and the final rule, we recommend that manufacturers, covered entities, contract pharmacies, distributors, and group purchasing organizations closely review the rule, as well as the applicable statute and related HRSA guidance, to best ensure their systems are capable of compliance.

Posted by Kathleen Peterson

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