340B Drug Pricing Program Interpretative Rule Survives (for Now)

A federal court entered a new order, on August 27, 2014, in an ongoing dispute between the Health Resources and Services Administration (HRSA) and the Pharmaceutical Manufacturers of America (PhRMA) regarding HRSA’s issuance of regulations for the 340B Drug Pricing Program (the 340B Program). The dispute relates narrowly to the 340B Program’s treatment of orphan drugs purchased by certain hospital covered entities, but is of much broader interest because of its potential impact on the scope of HRSA’s ability to issue regulations that are binding on participating 340B Program covered entities and manufacturers.

The Court Declined to Address HRSA’s New Interpretive Orphan Drug Rule

As previously reported, PhRMA challenged HRSA’s orphan drug rule, resulting in a court order vacating the rule in May 2014. In July 2014, HRSA responded by issuing a new rule, this time described as an “interpretive rule,” that expresses the same interpretation of the statute as was included in the invalidated regulation. PhRMA objected to this subsequent rulemaking, and petitioned the court to vacate the interpretive rule as well.

On August 27, 2014, the court ruled on PhRMA’s motion, declaring that, while HRSA is prohibited from defending the original, vacated rule, the July 2014 interpretive rule is a new agency action outside the scope of the lawsuit. This new ruling appears to send PhRMA back to square one, as the court indicated that PhRMA would need to bring a new action to challenge the July 2014  interpretive rule.

Potential Impact of Court Decision on Future 340B Program Regulations

The decision may also pave the way for HRSA to proceed with regard to the promulgation of previously announced rules – which have been delayed indefinitely – addressing key areas of the 340B Program. HRSA may choose to issue some or all of the delayed regulations as interpretive rules, as it did with the orphan drug rule. Regulations that have been drafted but not yet issued include the so-called “Mega Reg” that is expected to address topics including the definition of an eligible patient, compliance requirements for contract pharmacy arrangements, hospital eligibility criteria, and eligibility of off-site hospital facilities. HRSA will likely evaluate its options in issuing these rules, including an evaluation of their ability to survive legal challenge. If issued, the rules would be of great interest to both manufacturers and 340B Program covered entities.