Critical access hospitals, rural referral centers, and sole community hospitals are not permitted to purchase designated “orphan drugs” under 340B prices except where manufacturers have opted to extend their 340B prices to all covered entities.

Many of our customers wishing to maximize the value of their 340B program have asked us about the legitimacy of utilizing orphan drugs when administered to patients for conditions other than those for which the drug was granted an orphan designation. Many drugs are used to treat common conditions, although the drug is designated as an orphan for a rare condition.

In consultation with our auditing colleagues and legal advisors, Cirrus maintains that orphan drugs may not be purchased under 340B even when administered for non-orphan conditions. Remicade is frequently used to treat rheumatoid arthritis, but also has an orphan designation to treat Crohn’s disease. This white paper will explain our conclusion.

What are Orphan Drugs
Orphan Drug legislation was enacted to extend exclusivity protection and tax incentives to drug manufacturers in order to encourage development of drugs to treat conditions for which drug development might otherwise be unprofitable. A manufacturer may request orphan drug protection for a drug in the case that:

1. The drug is intended to treat a disease or condition with fewer than 200,000 patients in the U.S.
2. The drug may be used to treat a disease or condition with more than 200,000 patients in the U.S., but the manufacturer expects that revenues from the drug will not cover research-related expenses.

In addition to protections under orphan drug legislation, 2010’s Affordable Care Act expansion of 340B also disallowed the newly eligible covered entity categories Rural Referral Centers, Sole Community Hospitals, Critical Access Hospitals, and free-standing cancer hospitals.

HRSA’s position
The Health Resource & Services Administration’s current advisory page is plain in requiring that 340B covered entities eligible based on the Affordable Care Act must exclude orphan drugs unless a manufacturer specifically elects to extend the discount to all entities. No exception is listed for orphan drugs used for non-orphan conditions.
Readers may rightly be confused because the HRSA site through the Office of Pharmacy Affairs also continues to refer to its July, 2014 interpretive rule that orphan drugs may be purchased if used for non-orphan conditions and further implies that manufacturers not allowing such a purchase are failing to adhere to statutory requirements.

Orphan Drugs
For rural referral centers, sole community hospitals, critical access hospitals, and free-standing cancer hospitals participating in the 340B Program, the term “covered outpatient drug” does not include a drug designated by the Secretary under section 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition. Therefore, manufacturers are not required to provide these covered entities orphan drugs under the 340B Program. A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals.

July 2014 HRSA issues Final Interpretive Rule

October 2015 Authority to Utilize Interpretive Rule Struck down in Federal Court

September 2016 Bill to close loophole introduced

Notable Exceptions to the Exclusion
Some manufacturers have elected to provide 340B pricing to their drugs regardless of the covered entity eligibility type.  This includes Abbvie, which allows Lupron and Humira to be purchased by any covered entity.


Rural Referral Centers, Critical Access Hospitals, Cancer Centers, and some Children’s Hospitals will no longer be able to purchase orphan drugs at 340B prices, even if the application of those drugs is for non-orphan conditions.  Prozac, for example, is classified as an orphan drug for its treatment of body dysmorphic disorder, although its typical application is for depression.  This week’s ruling means that Prozac and all other listed drugs must be completely excluded for these covered entity categories.

What Does This Mean?

Many Critical Access Hospitals we’ve worked with have already been excluding all drugs indicated as orphan without regard to the conditions being treated.  The new ruling requires all entities subject to the exclusion to do the same.  This means that ultimately fewer drugs will be considered eligible, including many common drugs.  This also means, however, that identifying patient conditions when identifying 340B eligibility will no longer be necessary for orphan drugs.

What Happened?

HRSA had issued a “Final Rule” that, according to its interpretation of the 340B statute, drugs identified as orphan but when not used for the specified orphan conditions should not be excluded under the definition of “covered outpatient drug”.  This rule was challenged by pharmaceutical manufacturers by claiming that HRSA did not have statutory authority to make a rule on this issue.  HRSA lost that challenge, and reissued the rule as “guidance”.

This week that guidance as well was overturned based on a lawsuit from manufacturer trade group PhRMA.  A Federal judge agreeing that HRSA’s guidance conflicts with the “plain language” of the statute.

HRSA has already posted information on the vacation of the ruling.

Cirrus is recommending to all customers subject to the orphan drug exclusion that they immediately disqualify all orphan drugs from 340B purchasing.


The court ruling: