HRSA's regulation, they say, would violate the law, couldn't be enforced and would harm R&D.
Editors' note: This is the second in a series of articles on 340B stakeholders' reactions to an important proposed regulation to implement health care reform's limit on rural and free-standing cancer hospitals' access to 340B pricing on orphan drugs. In this installment, we focus on the drug industry's perspectives.
August 11, 2011—A proposed federal regulation that would let rural and free-standing cancer hospitals buy orphan drugs at 340B prices for the treatment of common illnesses conflicts with federal law, would be open to abuse and would undermine drug development, drug manufacturers argued in comments filed with the Health Resources and Services Administration (HRSA).
Pharmaceutical manufacturers and industry groups that submitted comments uniformly opposed HRSA's proposed regulation, which will implement health care reform's restriction on 340B discounts for orphan drugs purchased by rural and cancer hospitals that became eligible for the program under reform. Comments on the proposed rule, which will be the first ever for the 340B program, were due on July 19.
In its May 20 proposal, HRSA decided to limit the orphan drug exclusion to situations in which orphan drugs are used for orphan indications. The fact that orphan drugs are often used for non-orphan purposes, the agency said, led it to conclude that Congress intended the restriction to be narrow. Lawmakers wanted newly eligible hospitals to benefit from 340B, it said, and interpreting the restriction broadly would potentially nullify the benefits of enrolling.
Conflict with Statute
In their comments, manufacturers argued that HRSA lacks authority to limit the prohibition on 340B pricing to uses for the rare disease or condition for which the orphan drug was designated. The plain language of the orphan drug exclusion, they pointed out, broadly excludes an orphan "drug"from those drugs eligible for 340B discounts.
"The statute quite clearly refers to a 'drug,' not an 'indication,'" Bayer Health Care noted. "The plain meaning of the statute could not be clearer."
Two key lawmakers—Rep. Henry Waxman (D-Calif.), ranking member of the House Energy and Commerce Committee, and Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee—also wrote to HRSA, however, saying its interpretation was correct.
Compliance Would be Impossible
Manufacturers further argued that even if HRSA had authority to narrow the orphan drug exclusion, it would be impossible to comply with and enforce the proposed rule. Genentech, for example, said it would be expensive and burdensome for hospitals "to accurately identify and document the purpose for which a drug is used in an auditable manner."
Manufacturers are also skeptical that either the government or manufacturers could properly audit hospital records to ensure compliance. The government, they noted, lacks resources to conduct audits and manufacturers would be impeded by privacy concerns and lack of access to appropriate records.
Bayer, for example, wrote that that HRSA's "reliance on covered entities to police themselves, without any possibility of meaningful audits, given the very high hurdle imposed with respect to manufacturer audits under current program guidelines, threatens the integrity of the 340B program."
Effect on R&D
All of the drug manufacturers and industry groups that submitted comments warned that HRSA's proposal would inhibit orphan drug research and development. For example, Pharmaceutical Research and Manufacturers of American (PhRMA), the trade group for brand-name drug manufacturers, said "it is essential to craft public policies that help sustain the research and development needed to provide treatment options for people who suffer from rare diseases."HRSA's proposed rule, it said, could "set back that important effort."
"Must Offer" Provision
The drug industry also challenged HRSA's citation of language from health care reform in its proposed rule requiring manufacturers to offer 340B pricing on covered drugs. The so-called "must offer" provision was included in health care reform along with the orphan drug exclusion. Manufacturers argued that the must-offer provision has no bearing on the orphan drug restriction. Contrary to HRSA's reading of congressional intent, they maintained, orphan drugs sold to newly eligible covered entities are not covered outpatient drugs and thus are unaffected by the must-offer provision. Moreover, they said, the must-offer provision is not in effect yet because it has not been incorporated into revised 340B pharmaceutical pricing agreements signed by HRSA and manufacturers.
Best Price Guidance Sought
Manufacturers also asked HRSA to delay issuing a final regulation until the Centers for Medicare and Medicaid Services (CMS) weigh in on the orphan drug exclusion's impact on Medicaid best price. They said they are concerned that voluntary 340B discounts on orphan drugs that are not considered covered outpatient drugs will lower their best price.
Until CMS issues guidance to confirm orphan drugs are exempt from best price determinations, manufacturers argue that HRSA cannot force 340B sales. Genentech, for example, wrote that "HRSA cannot compel manufacturers to sell orphan drugs that may be best price eligible at a price less than or equal to the 340B price; this could potentially force manufactures to set an involuntary best price that could jeopardize the viability of their orphan drugs."
No Exception to GPO Prohibition
Manufacturers and industry groups also opposed HRSA's proposal to let cancer hospitals that cannot or choose not to meet the regulation's compliance requirements to opt out of 340B for all orphan drugs and purchase them through a group purchasing organization GPO. Manufacturers argued this would create an exception to the GPO prohibition in violation of federal law.