Tag Archives: orphan drugs

Pharma Transparency Bill Wains in California as Price-Gouging Discussion Gains Momentum Nationally

On August 17, California lawmakers killed a drug price transparency bill, putting to rest a policy that would have major implications on the pharmaceutical industry in the United States’ most populous state. The bill, which was first introduced by State Senator Ed Hernandez (D-West Covina) in February 2016, sought to require drug makers to report and explain any price pharmaceutical increase of ten percent within any given twelve-month period, as well as justify any drug price of at least $10,000 within thirty days of moving to that amount and require insurers to disclose how much money they spent on drugs. While the bill received far-reaching support from healthcare providers, insurers, patient advocacy groups, labor groups, and business groups alike, it was met with fervent opposition by pharmaceutical companies.

According to the Los Angeles Times and lobbying activity filings, Hernandez’s legislation was one of the most lobbied bills of current the session, with at least seventy groups spending  money to advocate for or against it. “It’s probably amongst one of the more heavily lobbied bills — similar to tobacco and the most controversial bills,” the measure’s author, Senator Hernandez, told The Times.  However, by August 17, after four amendments, Hernandez pulled the plug on it entirely, stating that the amendments made it difficult to accomplish the bill’s intention, which would have “shed[] light on the reasons precipitating skyrocketing drug prices.”

The demise of this legislation is another huge win for Big Pharma lobbyist PhRMA, which in October 2015 won a summary judgment ruling in the United States District Court for the District of Columbia, blocking certain hospitals from receiving discounts for pricey orphan drugs. It also comes at a time when pharmaceutical companies, biotech firms, and orphan-drug makers have come under high scrutiny for price gouging, including the 5,455% price increase of HIV and Malaria-treatment medication, Daraprim, from $13.50 to $750 per pill in September 2015. Earlier this month, the uptick of the price of the allergic reaction-treating EpiPen Auto-injector medical device – from $57 to $600 between 2007 and 2016 – as its maker anticipates the arrival of a generic competitor, though, its non-generic, brand name competitor Auvi-Q was recalled in 2015 over dosage concerns.

A proponent for changes to Big Pharma since the 1990s, United States Senate Bernie Sanders (I – VT) made “out of control” prescription drug pricing a key issue during his 2016 presidential campaign. After winning the Democratic nomination, Presidential hopeful Hillary Clinton has carried the torch, speaking out on drastic price increases, sending stocks for EpiPen-maker, Mylan, tumbling.

With little being done by the United States Congress on the issue of drug price transparency, fourteen state legislatures have introduced measures to reign in prices. As of 2016, only Vermont has been successful in passing a bill, while others stall or fail outright, as is the case in California.

The pricing war in California now marches to the ballot in November. Citizens will vote on an initiative that would prohibit state agencies, like Medical (the state’s version of Medicaid) and Medicare from being charged any more for drugs than the United States Department of Veterans’ Affairs.

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D.C. District Court Limits Discounts to Orphan Drugs

On October 14, 2015, Judge Rudolph Contreras of the District Court for the District Court of Columbia sided with drugmakers in a decision that narrowed the scope of 340B, a popular but controversial drug discount program. The decision effectively bars children’s hospitals, cancer hospitals, and rural hospitals from obtaining 340B discounts for so-called “orphan” drugs like Prozac.

The plaintiffs in the case, Pharmaceutical Research and Manufacturers of America (“PhRMA”), is a lobbying group comprised of 48 of the nation’s pharmaceutical heavyweights, including Novartis and Pfizer. PhRMA challenged an HHS Interpretive Rule, which would have expanded the scope of the drug discount program. PhRMA argued that the agency’s Interpretive Rule contravenes the plain language of 340B. Judge Contreras agreed.

Background to 340B and the Disputed Interpretive Rule

At the heart of this dispute are high-demand “orphan” drugs like Prozac. Orphan drugs are drugs developed to treat a rare disease or condition; the rare disease or condition is the “orphan” use. But, by and large, orphan drugs are more well-known for their non-orphan uses. In the case of Prozac, the drug’s designated orphan use is autism and certain types of body dysmorphic disorders. Yet most patients and providers use Prozac as a treatment for depression.

When the Affordable Care Act was passed, Congress significantly expanded the types of covered entities that would be eligible for 340B program discounts. The ACA added children’s hospitals, freestanding cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals to the 340B drug pricing program. The newly covered entities, however, are excluded from certain types of 340B program discounts.

Under 340B(e), newly covered entities do not have access to discounts for a “drug designated . . . for a rare disease or condition.” Pharmaceutical companies and providers disagreed over the scope of 340B(e). Pharmaceutical companies argued for a broader interpretation and insisted that the provision refers to all types orphan drugs.

To clarify the confusion, HHS issued an interpretive rule on July 23, 2014. Under the Interpretive Rule, drugmakers must offer orphan drugs at a discount to newly-covered entities when the covered entity purchases the drug for a non-orphan use. In the Prozac example, that means a covered entity like a rural hospital could get a discount on Prozac when purchasing the drug for depression (a non-orphan use), but not for autism (the designated orphan use). Drugmakers that fail to comply and refuse to offer the discount price must provide a refund to the covered entity for the overcharge.

D.C. District Court Applies Chevron Test, Vacates HHS Ruling

The court vacated HHS’s Interpretive Ruling, finding that it failed the Chevron test. Under the first prong of the Chevron test, the question is whether Congress has directly spoken on the precise question at issue. If so, the agency must follow the intent of Congress as clearly expressed in the statute. If the congressional intent is unclear, the court proceeds to the second step of the Chevron analysis to determine whether the agency’s ruling is “based on a permissible construction of the statute.”

In this case, Judge Contreras concluded Congress’s intent was clearly expressed in 340B(e) and its related statutory provisions, and that the second part of the Chevron analysis was unnecessary.

The court held in favor of the pharmaceutical company and rejected HHS’s Interpretive Rule.

After concluding that the Interpretive Rule failed the first prong of the Chevron analysis, the Court vacated the Interpretive Rule as “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” In effect, the D.C. District Court’s decision signals a victory for pharmaceutical companies who now do not have to provide orphan drugs at a discount for newly-covered entities like children’s hospitals and rural hospitals.

Experts Foresee Legal Attacks on Other Parts of Drug Discount Program

HHS can still appeal. In the meantime, legal experts weighed in on Law360 and predicted that the decision could encourage drugmakers to lodge additional lawsuits on other parts of the 340B program. In particular, the pharmaceutical industry has railed against the “mega-guidance” that HHS released in August 2015 for the drug pricing program. The omnibus guidance is still in the note and comment process, with the current 60-day comment period ending on October 27, 2015.

Lawyers speculate that this decision leaves the omnibus guidance vulnerable to legal attack. Based on this decision, pharmaceutical companies can challenge the mega-guidance in court as soon as it is finalized, before HHS even attempts any type of enforcement. As Kristi Kung of Pillsbury Winthrop Shaw Pittman stated, “The court here found that the agency didn’t actually have to take an enforcement action against a manufacturer for there to be [a lawsuit].”

Reactions from Providers Underscore Deep Disappointment, Concern Over Access

The District Court decision struck a deep nerve among hospitals and providers. Immediately after the decision was released, the American Hospital Association (AHA) released a statement expressing its deep disappointment.

“This decision comes at a steep cost for the vulnerable patients cared for by rural and cancer hospitals,” AHA stated. “[The decision] will reduce access to critical services and treatments for some of the most vulnerable patients in society. Sadly, the biggest beneficiary of this ruling is the pharmaceutical industry – it does nothing to help either patients or taxpayers.”

The American Society of Health System-Pharmacists (ASPH) similarly stepped out in opposition of the decision. In its own statement, ASPH pointed out the adverse effects of the decision on access to care. According to ASPH, “this ruling will limit access to critical medications for the sickest patients in our healthcare system. . . . Without access to these discounts, participating hospitals may not be able to absorb the cost of providing care to patients who otherwise would not be able to afford it.”

In an interview with Modern Healthcare, the National Rural Health Association agreed, adding that the decision might cause rural hospitals to pass some orphan drug costs onto patients and could lead to some hospitals not stocking certain medications.

The overwhelming reaction against the decision is clear: the D.C. District Court decision creates public policy implications which cut off access to affordable care. By rejecting HHS’s orphan drug discount rule, this decision strongly disadvantages the same patients from underserved areas which the Affordable Care Act meant to assist.

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