Congress Acts to Close 340B Orphan Drug Loophole
The Closing Loopholes for Orphan Drugs Act was originally introduced by Representative Peter Welch (D) Vermont, on June 13, 2017, in a previous session of Congress, but was not enacted. The legislation was reintroduced on September 27, 2019, by Representative Welch and Representative David McKinley (R) West Virginia as HR 4538. This is a very important bill for sole community hospitals, critical access hospitals, rural referral centers, and freestanding cancer clinics to correct the situation created under the Affordable Care Act which prohibited these covered entities from purchasing orphan drugs at 340B prices. The proposed legislation is receiving support from key industry groups such as AHA and ASHP.
The Affordable Care Act (ACA) allowed for the addition of critical access hospitals, sole community hospitals, rural referral centers, and freestanding cancer centers as covered entities eligible to participate in the 340B Program. However, the ACA also prohibited the newly added covered entities from purchasing orphan drugs at 340B prices. FDA orphan drug designation is given for a specific indication related to the treatment of a rare disease in patient populations under 200,000 and orphan drug status provides incentive benefits for pharmaceutical manufacturers such as fee waivers, market exclusivity, and tax credits. The majority of drugs with orphan status are also approved and marketed for other indications outside of the orphan indication. However, under the current ACA provision no matter what the indication for the drug, if it has orphan status it cannot be purchased at 340B prices by the above referenced covered entities.
The Closing Loopholes for Orphan Drugs Act is designed to correct this situation and will allow critical access hospitals, sole community hospitals, rural referral centers, and freestanding cancer centers to purchase orphan drugs at 340B prices to treat an indication other than the orphan indication. This change will allow covered entities to use these drugs to support the intent of the 340B Program for non-orphan indications just like any other drug in the 340B Program while also preserving the benefits for manufacturers for the orphan indications.
The challenge for Covered Entities in this approach will be how to differentiate drug use and 340B purchases “by indication.” Will split-billing systems and EHRs be able to address this issue through the application of modifiers to capture eligible indications? Will this create the need for Covered Entities to include this as another element of their 340B audit process to validate compliance? Closing the orphan drug loophole certainly presents an additional opportunity for sole community hospitals, critical access hospitals, rural referral centers, and freestanding cancer clinics but it will also come with compliance challenges.