On May 19, 2011, the Health Resources and Services Administration (“HRSA”) released a proposed rule concerning the exclusion of orphan drugs for certain covered entities under the 340B Program. The 340B Program, enacted pursuant to the Veterans Health Care Act of 1992 (“VHCA”), limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals.

Health care reform included significant changes for the 340B program, including expanding the types of covered entities eligible to participate in the Program. New classes of covered entities include certain freestanding cancer hospitals, rural referral centers, sole community hospitals, critical access hospitals, and children’s hospitals. However, under the amendments, 340B prices are not available for “orphan drugs” purchased by freestanding cancer hospitals, rural referral centers, sole community hospitals and critical access hospitals. This limitation applies to protect financial incentives for manufacturers to bring to market such drugs.

Under the proposed rule, however, such covered entities may in fact purchase orphan drugs at the 340B price so long as the drug is not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drug was designated. In other words, covered entities can purchase the drugs for approved non-orphan uses, as well as potentially unapproved, off-label uses. This proposal potentially “guts” the ineligibility provisions of the statute, as the rule provides no guidance as to how manufacturers can determine what indications (or non-indicated off-label uses) their orphan drugs are used for, and emphasizes that manufacturers may not condition the offer of 340B pricing upon an entity’s assurance that the drug will be used for its orphan indication.

The proposed rule is also somewhat unusual in its specificity, in that HRSA has not previously issue a rule that more generally governs the 340B program. Thus, manufacturers may wish to consider whether it is appropriate to comment on some of the general defined terms (e.g., “covered entity,” “covered outpatient drug”) contained in the proposed rule.

The proposed rule may be viewed here.  Comments are due July 19, 2011.