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P T. 2014;39(9): 593, 626
Prescription: Washington

New Controversy for 340B: OPA Rebuffs Ruling by Court

Stephen Barlas

A federal court ruling in May has given new ammunition to opponents of the 340B program, which requires drug manufacturers to sell out-patient medications to certain hospitals at deep discounts. Drug manufacturers have long pushed for changes in the 22-year-old program, which Congress established as a means of helping non-profit hospitals serving significant numbers of poor, uninsured patients raise revenue for their operations.

The May ruling by the U.S. District Court for the District of Columbia sided with the drug industry in a suit brought by the Pharmaceutical Research and Manufacturers of America (PhRMA).1 The decision appears to cancel a final rule issued by the Office of Pharmacy Affairs (OPA) in the Department of Health and Human Services (HHS) in July 2013 dealing with sales of orphan drugs.2 The court concluded that HHS lacks the statutory authority to engage in that particular rule-making. The court did not address the substance of the rule.

The July 2013 final rule said manufacturers had to sell orphan drugs at discounted prices to 340B “covered entities” if the drugs were being used off-label, for a condition for which they were not approved. For example, fluoxetine (Prozac, Eli Lilly and Company) is designated an orphan drug for the treatment of autism and body dysmorphic disorder in children and adolescents, but is commonly prescribed for depression, a nonorphan condition. Off-label use of orphan drugs is especially important to categories of “covered entities” brought into the 340B program by the Patient Protection and Affordable Care Act (ACA). Those include children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals.

The OPA explained in the proposed rule: “Some entities have chosen not to participate in the 340B program because the costs of paying non-340B prices for all drugs with at least one orphan drug indication could have exceeded the cost-saving benefits of other nonorphan-designated 340B drugs.” That was a reference to the new 340B entrants.

But following the court’s ruling, the OPA posted a note on its website saying: “However, the court did not invalidate HRSA’s [the Health Resources and Services Administration, which includes OPA] interpretation of the statute. HHS/HRSA continues to stand by the interpretation described in its published final rule, which allows the 340B-covered entities affected by the orphan drug exclusion to purchase orphan drugs at 340B prices when orphan drugs are used for any indication other than treating the rare disease or condition for which the drug received an orphan designation.” 3

That didn’t sit well with PhRMA. It sent a brief to the court on June 18, 2014, asking it to rein in the OPA.

The OPA’s seeming rebuff of the federal court simply added fuel to the fire of a wider range of objections to the 340B program voiced by its opponents. Many of those were restated, but with increasing vehemence, at a gathering June 11 sponsored by the Alliance for Integrity and Reform of 340B, which includes PhRMA, individual drug companies, some pharmaceutical trade associations, and a few patients’ groups. Long-standing complaints about the OPA’s loophole-ridden definition of “patient” and the sometimes-small percentage of 340B revenue devoted to charity care were voiced.

The Alliance had previously fanned the flames with a report last January. It found that a majority of 340B hospitals are not providing high levels of charity care, as the Alliance says the 1992 law requires.4 But the law establishing the program allows hospitals to use 340B revenues to buy equipment and add buildings, for example.

In addition to those long-standing issues, newer ones came up on June 11, including complaints from the American Society of Clinical Oncology (ASCO) about hospitals buying free-standing community oncology practices and turning them into outpatient clinical settings. Hospitals can bill insurance companies more for chemotherapy drugs infused in outpatient settings than physicians can bill for chemotherapy drugs infused in a physician’s office. The ASCO is concerned that the differential threatens the existence of oncology office practices and hikes costs for patients, who have cost-sharing responsibilities.

Murray Aitken of the IMS Institute for Healthcare Informatics cited new IMS data showing that when cancer care is shifted from community care sites to 340B hospitals, costs of care can double.5 He asserted that increased costs, when borne by patients, may also discourage adherence to their treatment regimens.

Pharmaceutical manufacturers are particularly concerned about the “imperfections” in the current program because new hospitals are likely to be joining it as a result of Medicaid expansion under the ACA. A major eligibility criterion for covered entities is their “disproportionate share (DSH)” adjustment percentage. That DSH percentage is akin to a stand-in for Medicaid patients.

The OPA is a small, probably under-funded office. However, it manages only one program: 340B, which dispenses no federal funds. That is relatively rare for a federal agency. So it should be able to hone programmatic details with at least a little alacrity. Unfortunately, it has earned a reputation as a “hear no evil, see no evil” operation. That has led to increasing complaints about the program from all sides.


  1. Pharmaceutical Research and Manufacturers of America v U.S. Department of Health and Human Services. U.S. District Court for the District of Columbia. Civil Action 13-1501 (RC). May 232014;Available at: Accessed July 9, 2014
  2. Health Resources and Services Administration, Department of Health and Human Services. Exclusion of orphan drugs for certain covered entities under 340B program. Federal Register 2013;78;(141):44016–44028.Available at: Accessed July 9, 2014.
  3. Health Resources and Services Administration, Department of Health and Human Services. Orphan drugs exclusion. Available at: Accessed July 9, 2014
  4. Alliance for Integrity and Reform of 340B. Unfulfilled expectations: an analysis of charity care provided by 340B hospitals. Spring2014;Available at: http://340breform.Org/Userfiles/Final%20AIR%20340B%20Charity%20Care%20Paper.pdf. Accessed July 9, 2014
  5. IMS Institute for Healthcare Informatics. Innovation in cancer care and implications for health systemsMay 2014;Available at: Accessed July 11, 2014