Pricing Regime Drug Exclusion Leads to Suit

(CN) - The federal government illegally excluded drugs for rare diseases and conditions from a new rule setting maximum prices for medicines sold to certain treatment facilities, the pharmaceutical industry claims in court.

In a lawsuit filed in the federal court in Washington, D.C., the Pharmaceutical Research and Manufacturers of America (PhRMA) claims the U.S. Department of Health and Human Services violated the Administrative Procedures Act by leaving this class of drugs outside the government's price control regime.

The industry claims the rule, approved on July 13, 2013 and set to take effect on Oct. 1, is "based on an erroneous reading" of section 340(B) of the Public Health Service Act.

"The 340(B) Program imposes price controls on 'covered outpatient drugs' that are purchased by specific categories of health clinics and hospitals, referred to as 'covered entities," the association states. "Pharmaceutical manufacturers may not charge more than a statutorily defined 'ceiling price' for outpatient drugs sold to these covered entities as a condition of Medicaid reimbursement. PhRMA supports the 340(B) program and its purpose of providing vulnerable uninsured patients with better access to life-saving medicines."

Congress allowed more hospitals to qualify for coverage under 340(B) through the Affordable Care Act. However, Congress also used the Act to exclude orphan drugs, which treat diseases and conditions that affect less than 200,000 people in the United States, from the new statutory price ceilings, the plaintiff says.

"The statutory text of Section 340(B) thus makes clear that the 340B orphan drug exclusion applies to any 'drug' designated as an 'orphan' drug pursuant to section 526 of the FFDCA [Federal Food, Drug and Cosmetic Act]. Contrary to the statutory command in Section 340(B)(e), however, the final rule asserts that an orphan drug is exempt from 340B pricing requirements only when 'used for the rare condition or disease for which that orphan drug was designated," it adds.

The pharmaceutical industry claims Health and Human Service's revision of the statutory text in its final rule is illegal because it ignores that "Congress intended the orphan drug exclusion to apply to any orphan drug sold to one of the newly covered entities, regardless of whether the covered entity uses the drug for an orphan indication."

The industry also claims that Health and Human Services overstepped its authority because no federal statute gives an agency the power to issue rules regarding the orphan drug exclusion.

As a result of the new rule, the industry says, its members will be forced to sell orphan drugs to qualified hospitals and clinics at 340(B) prices rather than being exempt from the statute's price ceiling, which will make them "suffer financial and other harms," the complaint states.

The industry's members and drug wholesalers will also have to shell out to develop new systems that track the ways eligible hospitals use the orphan drugs they receive, the complaint adds.

In addition to the department, the other named defendants are HHS Secretary Kathleen Sebelius and the agency's administrator, Mary K. Wakefield.

The industry seeks a declaration that the new rule violates the Administrative Procedures Act and an injunction preventing the government from enforcing it.

The industry is represented by Jeffrey L. Handwerker with Arnold & Porter.

Emails to Health and Human Resources seeking comment were not returned by the end of business hours.

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