Court ruling ends some hospitals’ discount on orphan drugs

Rudolph Contreras, judge for the U.S. District Court for the District of Columbia, has ruled the U.S. Department of Health and Human Services acted outside of its regulatory authority when it interpreted the law covering payments for pharmaceuticals with “orphan drug” status as not applying to payments when the drug was prescribed for a condition for which it was not an “orphan drug,” such as Prozac prescribed for depression (its most common use) instead of either of Prozac’s two orphan indications.

Before the ruling, disproportionate share hospitals, children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals could buy pharmaceuticals with “orphan drug” status at a discount under the government’s 340B Program — so called because it was codified as section 340B of the Public Health Service Act — as long as the hospitals only used the discounted drugs for treating conditions other than those the drugs had their orphan indications for. Otherwise the hospitals had to pay the non-discounted price.

However, Judge Contreras agreed with the Pharmaceutical Research and Manufacturers of America, the plaintiff in the case, that while helping safety net hospitals get the lowest possible price for drugs may sound good, it is not what the law says and HHS acted beyond its authority by extending a mandated discount to these hospitals for orphan drugs used for conditions other than those the drugs received their orphan drug indications for. According to the law, the hospitals should have paid the non-discounted price for a drug with orphan drug status regardless of how it was be used, Judge Contreras ruled.

According to the American Hospital Association, the effect of the ruling will be that safety net hospitals with limited resources will need to pay more for drugs and this will adversely affect patient services and limit access to affordable drugs for patients, particularly those in rural settings or those who are poor.

“We believed and continue to believe that [HHS’s] interpretation in the rule was the only practical approach to preserve access to 340B discounted drugs for the hospitals affected by the 340B Orphan Drug exclusion. The ruling will result in a financial windfall to drug manufacturers for uses of the drug unrelated to the rare disease or condition for which it was given orphan designation, contrary to the language and intent of both the Orphan Drug Act and the ACA,” said Rick Pollack, the AHA’s executive director, in a statement.

The ruling seems not to have affected the stock prices of leading public hospital operators, however. The stock price for LifePoint Hospitals, Inc., the largest public rural hospital operator, has climbed this week after the ruling and was close to its 52-week high when this story was posted.