On July 23, 2013, the Health Resources and Services Administration (HRSA) published a final rule to clarify how section 340B(e) of the Public Health Service Act (PHSA) will be implemented (“Exclusion of Orphan Drugs for Certain Covered Entities under 340B Program”, (78 Fed. Reg. 44016 (July 23, 2013)).
The final rule only applies to Critical Access Hospitals, Freestanding Cancer Hospitals, Rural Referral Centers and Sole Community Hospitals.
The final rule applies section 340B(e) of the PHSA only to drugs transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drug was designated under section 526 of the Federal Food, Drug, and Cosmetic Act (FFDCA). The final rule also sets forth that it is the responsibility of the 340B covered entity to maintain auditable records that demonstrate compliance with the terms of the orphan drug exclusion requirements. The rule provides clarity in the marketplace, maintains the 340B savings for newly-eligible covered entities, and protects the financial incentives for manufacturing orphan drugs designated for a rare disease or condition.
Who does the rule apply to? The orphan drug rule applies to free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals. The exclusion does not apply to covered entities that meet the 340B Program eligibility requirements and are enrolled under sections 340B(a)(4)(A) through 340B(a)(4)(L) of the Public Health Service Act (PHSA) or to a children’s hospital described in section 340B(a)(4)(M). Furthermore, if a hospital potentially qualifies under more than one section, such as a 340B(a)(4)(L) disproportionate share hospital and 340B(a)(4)(O) sole community hospital, the hospital must select which enrollment type it chooses to qualify under and comply with the related regulatory and program requirements. During the registration and annual recertification processes, an entity is required to certify that it meets the requirements for such an enrollment type, including the orphan drug exclusion.
How did HRSA interpret the orphan drug exclusion? HRSA’s interpretation of this provision excludes from the 340B Drug Pricing Program those drugs when used for the indication for which they received an orphan designation but not when the drug is used for indications independent of that designation. The rule does not exclude orphan drugs from the 340B Program when they are used for other approved non-rare indications. HRSA concluded that this interpretation reflects Congressional intent not to undermine pricing for drugs used to treat rare diseases, without potentially eliminating the net benefit intended by adding these new organizations to the 340B Drug Pricing Program.
What if I cannot track a drug by indication?Covered entities for which this rule applies that cannot or do not wish to maintain auditable records sufficient to demonstrate compliance this rule, must notify HRSA and purchase all orphan drugs outside of the 340B Program regardless of the indication for which the drug is used. Once a hospital is enrolled in 340B, it may change its decision to purchase all orphan drugs outside of the 340B Program on a quarterly basis by notifying HRSA. This documentation will be made public. This information will also be verified during the annual recertification process.
What if I can’t comply with the rule?Affected health care organizations will be required to develop auditable systems to ensure that they are not using Orphan Drugs purchased under the 340B Drug Pricing program for orphan designated indications. Failure to comply with this rule shall be considered a violation of section 340B(a)(5) of the PHSA – diversion.