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The 340B Mega-Reg is Dead

Written by: Ellyn Sternfield

With all due credit to the Coroner from the Wizard of Oz, like the Wicked Witch of the East crushed by Dorothy’s house, the 340B Drug Discount Program mega-reg is “not only merely dead, it’s really most sincerely dead.”  And to quote one of my favorite sports commentators, Tony Kornheiser, “I believe I had that.”

Let’s recap.  In January 2014, HRSA announced that it would be “formalizing” existing guidance and issuing a regulation designed to cover “a number of aspects” of 340B program operations.  Termed the “mega-reg,” it was intended to address such controversial issues as the definition of a “patient” eligible to receive a 340B drug, compliance requirements for 340B contract pharmacies, and mandatory criteria for hospital eligibility as a 340B covered entity.  HRSA stated that the proposed mega-reg would be published and available for comment no later than June 2014.  And indeed the draft rule was forwarded to OMB for review in April 2014.  So what happened?  Well, let’s just say that HRSA’s Orphan Drug Rule was the tornado which carried the house to Oz, causing it to land on the witch.

Orphan Drug Rule Lawsuit

I wrote about HRSA’s Orphan Drug Rule in July 2013.  “Orphan” drugs, designated as such by the FDA under the Orphan Drug Act, are used to treat specific rare conditions such as ALS or Huntington’s disease.  The Orphan Drug Act provides incentives for manufacturers of such drugs and, through a specific provision in the Affordable Care Act (ACA), Congress exempted orphan drugs from 340B drug discounts.

In its 2013 implementing Orphan Drug Rule, HRSA limited application of the ACA’s orphan drug exception to just three types of 340B covered entities, and further limited application of the exception to situations where the drug was being used for the rare condition or disease for which it was designated as orphan by the FDA.  So, for example, if drug X is designated as orphan for treatment of ALS, but is also FDA-approved to treat anorexia, manufacturers would have to make the drug available to covered entities at 340B discounted prices if the entity intended to dispense the drug to anorexia patients.

The Pharmaceutical Research and Manufacturers of America (PhRMA) filed a lawsuit to enjoin enforcement of Orphan Drug Rule, arguing in part that HRSA was not authorized to issue rules interpreting the legislatively adopted orphan drug exception to 340B pricing.  And in May 2014, U.S. District Judge Rudolph Contreras ruled that HRSA lacked regulatory authority to promulgate regulations “interpreting” the breadth of the statutory orphan drug exception, finding that “(w)here Congress prescribes the form in which an agency may exercise its authority…[the court] cannot elevate the goals of an agency’s action, however reasonable, over that prescribed form.”

Orphan Drug Rule Lawsuit Fallout

Since the May ruling, HRSA has tried to implement its intended orphan drug rule by reissuing it as a statutory interpretation; PhRMA filed a new lawsuit seeking to enjoin any implementation or enforcement of HRSA’s statutory “interpretation” as beyond its authority; and a number of commentators, including me, theorized that that the court ruling would cause HRSA to reconsider whether to proceed with issuing its mega-reg.

In early September 2014, I predicted that HRSA would not issue its mega-reg, but might move forward in finite areas where it had specific Congressional authorization to promulgate rules, such as civil monetary penalty law authority for compliance violations.  And in fact the mega-reg continued to sit at OMB.  That is, until November 13, 2014, when the regulation was officially pulled.

What’s Next?

Well, I must say that I had that.  On its website, HRSA now says that in 2015 it will issue proposed regulations in areas in which it has specific congressional authorization to act, such as calculation of 340B ceiling prices; creation of an administrative dispute resolution process; and civil monetary penalties for regulatory violations. 

HRSA also says it will issue proposed guidance for notice and comment on unstated “key” issues, which may include such issues as the definition of a 340B patient, covered entity eligibility, and the operations of contract pharmacies.  It remains to be seen whether HRSA will address the thorny issue referenced in the OIG’s Report on 340B Contract Pharmacy Operations: the lack of existing processes to protect against unlawful duplicate discounting/rebates of 340B drugs billed through Medicaid managed care plans.  Or whether HRSA will tackle another question repeatedly raised by OIG: whether 340B drugs should be identified as such and billed at acquisition cost to Medicare Part D Plans.

But the actual impact of any HRSA non-regulatory “guidance” may once again rest with the Courts and a ruling on PhRMA’s pending lawsuit challenging HRSA’s authority to implement and enforce its “interpretation” of the statutory orphan drug exception.

In all likelihood, HRSA guidance will not solve the underlying problem.  My constant refrain over the last two years has been that the problems with the 340B Drug Discount Program come back to the on-going dispute over the Program’s purpose:  Is the 340B Program intended to provide uninsured safety-net patients with access to outpatient drugs, or is it intended to provide safety-net providers with enhanced revenue to increase patient access to health services? Unless and until HRSA, or Congress, is prepared to answer that question, it is likely 340B Program operations, and HRSA authority over those operations, will remain in flux.

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Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.