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Pharmaceutical Research And Manufacturers of America v. United States Department of Health And Human Services

United States District Court, D. Columbia.

May 23, 2014

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff,
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants

Page 29

Re Document Nos.: 3, 24, 25, 26 29, 32.

For Pharmaceutical Research And Manufacturers of America, Plaintiff: Jeffrey L. Handwerker, ARNOLD & PORTER LLP, Washington, DC USA.

For United States Department of Health And Human Services, Mary K Wakefield, in her official capacity as Administrator for the Health Resources and Services Administration, Health Resources And Services Administration, Kathleen Sebelius, in her official capacity as Secretary of Health and Human Services, Defendants: Jean-Michel Voltaire, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Washington, DC USA; Carol Federighi, U.S. DEPARTMENT OF JUSTICE, Civil Division, Federal Programs Branch, Washington, DC USA.

For Safety Net Hospitals For Pharmaceutical Access, National Rural Health Association, Americas Essential Hospitals, Movants: Barbara Straub Williams, LEAD ATTORNEY, POWERS, PYLES, SUTTER & VERVILLE, PC, Washington, DC USA; Ronald S. Connelly, LEAD ATTORNEY, POWERS, PYLES, SUTTER & VERVILLE, Washington, DC USA.

For American Hospital Association, Amicus: Diane M. Signoracci, LEAD ATTORNEY, BRICKER & ECKLER, LLP, Columbus, OH USA.

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MEMORANDUM OPINION

Granting Plaintiff's Motion for an Injunction; Granting Plaintiff's Motion for Summary Judgment; and Disposing of All Other Pending Motions in This Case

RUDOLPH CONTRERAS, United States District Judge.

I. INTRODUCTION

Orphan drugs are drugs that treat rare diseases or conditions, and are so-named because efforts to research, invest in, and produce them would otherwise be abandoned if not for the incentives Congress has provided pharmaceutical manufacturers to do so. While orphan drugs can only be designated as such to treat rare diseases or conditions, they can also be used to treat non-rare diseases or conditions.[1] For example, Prozac (generically named Fluoxetine) 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 non-orphan condition. See Orphan Drug Designation and Approvals List as of March 3, 2014, at 72; [2] see also Amicus Curiae Brief of Safety Net Hospitals for Pharmaceutical Access, et al. 11, ECF No. 29-1 (" Safety Net Amicus Brief" ). Rituxan,[3] designated an orphan drug for treatment of anti-neutrophil cytoplasmic antibody-associated vasculitis, non-Hodgkin's B-cell lymphoma, and immune thrombocytopenic purpura, is commonly prescribed to treat the non-orphan conditions of rheumatoid arthritis, multiple sclerosis, and autoimmune anemia. See Orphan Drug Designation and Approvals List as of March 3, 2014, at 254, see also Safety Net Amicus Brief at 9. The plaintiff in this case, Pharmaceutical Research and Manufacturers of America (" PhRMA" ), challenges a final rule promulgated by the Secretary (" Secretary" )

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of Health and Human Services (" HHS" ) addressing the uses for which an orphan drug must be offered at a discounted price, as specified in section 340B of the Public Health Service Act (" PHSA" ). Because the Court concludes that HHS lacks the statutory authority to engage in such rulemaking, the Court will vacate the final rule, and grant the plaintiff's motion for an injunction and motion for summary judgment.

II. FACTUAL & STATUTORY BACKGROUND

A. The Orphan Drug Act

The Orphan Drug Act was passed in 1983 as an amendment to the Federal Food, Drug, and Cosmetic Act, " to facilitate the development of drugs for rare diseases and conditions . . . ." See Pub. L. 97-414, 96 Stat. 2049 (January 4, 1983). The Federal Food, Drug, and Cosmetic Act (" FFDCA" ) defines a " rare disease or condition" as " any disease or condition which (A) affects less than 200,000 persons in the United States, or (B) affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making available . . . a drug for such disease or condition will be recovered from sales . . . of such drug." 21 U.S.C. § 360bb(a)(2).

Congress passed the Orphan Drug Act in part because it found that " because so few individuals are affected by any one rare disease or condition, a pharmaceutical company which develops an orphan drug may reasonably expect the drug to generate relatively small sales in comparison to the cost of developing the drug and consequently to incur a financial loss." 96 Stat. 2049 § 1(b)(4). To encourage the development of such drugs, the Orphan Drug Act provides the following incentives to pharmaceutical manufacturers of those drugs: (1) a seven-year market exclusivity period for the orphan drug (as opposed to a two-year period for regular drugs), see 21 U.S.C. § 360cc(a); (2) a clinical tax credit for any expenses incurred in developing an orphan drug, see 26 U.S.C. § 45C; (3) research grants for clinical testing, see 21 U.S.C. § 360ee, and (4) an exemption from new drug application fees, see 21 U.S.C. § 379h(a)(1)(F).

B. 340B Program

The 340B Program began in 1992 when Congress enacted it as part of the Veterans Health Care Act, codified as section 340B of the Public Health Service Act (" PHSA" ) at 42 U.S.C. § 256b. Section 340B of the PHSA " imposes ceilings on prices drug manufacturers may charge for medications sold to specified health care facilities." Astra USA, Inc. v. Santa Clara Cnty., Cal., 131 S.Ct. 1342, 1345, 179 L.Ed.2d 457 (2011). Under this program, manufacturers are required, as a condition to Medicaid covering their products, to enter into a pricing agreement with the Secretary of HHS. See 42 U.S.C. § 256b(a). Under those pricing agreements, certain covered entities, ( i.e., black lung clinics, hemophiliac diagnostic treatment centers, Native Hawaiian Health Centers, see 42 U.S.C. § § 256b(a)(4)(F)-(H)) can get pharmaceutical medications at a discounted price " if such drug is made available to any other purchaser at any price." Id. § 256b(a)(1).

Under the original 340B statute, covered entities were generally disproportionate share hospitals--hospitals that serve indigent populations. See id. § 256b(a)(4)(L). However, as part of the Patient Protection and Affordable Care Act (" ACA" ), Congress added several categories to the covered entities list that became (M), (N), and (O) under 42 U.S.C. § 256b(a)(4): children's hospitals excluded from the Medicare prospective payment system, free-standing

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cancer hospitals excluded from the Medicare prospective payment system, critical access hospitals, rural referral centers, and sole community hospitals. See Pub. L. 111-148 § 7101(a) (March 23, 2010), codified at 42 U.S.C. § 256b(a)(4)(M)-(O).

The Health Care and Education Reconciliation Act (" HCERA" ) also made several changes to the 340B Program, including excluding orphan drugs from 340B discount pricing available to the newly-added covered entities. This particular change is the critical statutory provision at issue in this case and goes as follows: " For covered entities described in subparagraph (M), (N), or (O) of subsection (a)(4), the term 'covered outpatient drug' shall not include a drug designated by the Secretary under section 526 of the Federal Food, Drug, and Cosmetic Act for a rare disease or condition. " Pub. L. 111-152 § 2302(4), codified at 42 U.S.C. § 256b(e) (emphasis added). Thus, under the new orphan drug exclusion, the newly-added covered entities can get their pharmaceutical medications at a discounted price, except for orphan drugs, for which they must pay full price. But, as set forth below, the parties take opposing views as to whether these entities must pay full price for orphan drugs when used for a non-orphan indication.

C. Orphan Drug Exclusion Rule

In response to numerous letters from drug manufacturers and covered entities alike asking for clarification on the orphan drug exclusion promulgated under the ACA/HCERA, the Secretary of HHS published a notice of proposed rulemaking to " (1) provid[e] clarity in the marketplace, (2) maintain[] the 340B savings and interests to the newly-eligible covered entities; and (3) protect[] the financial incentives for manufacturing orphan drugs designated for a rare disease or condition as indicated in the Affordable Care Act as intended by Congress." See Notice of Proposed Rulemaking, Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program, 76 Fed. Reg. 29,183, 29,184 (May 20, 2011). HHS provided a 60-day comment period and received 50 comment letters raising a variety of issues from members of Congress, manufacturers, 340B entities and providers, and other 340B stakeholders. See Final Rule, Exclusion of Orphan Drugs for Certain Covered Entities under 340B Program, 78 Fed. Reg. 44,016, 44,017 (July 23, 2013). HHS then published the final rule on July 23, 2013. See id.

The Final Rule establishes, inter alia, that with respect to the newly-designated covered entities, " a covered outpatient drug does not include orphan drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which that orphan drug was designated under section 526 of the FFDCA. A covered outpatient drug includes drugs that are designated under section 526 of the FFDCA when they are transferred, prescribed, sold, or otherwise used for any medically-accepted indication other than treating the rare disease or condition for which the drug was designated under section 526 of the FFDCA." See 42 C.F.R. § 10.21(a) (emphasis added).

The practical effect of this rule is that the discounted 340B price is not available to newly-added covered entities when purchasing orphan drugs for their intended orphan use. When a covered entity purchases the orphan drug for a non-orphan use, however, it does receive the 340B discount price. For instance, as explained by amicus Safety Net Hospitals for Pharmaceutical Access, in the case of Prozac, " an affected hospital could purchase the drug at 340B discounts if it were used to treat depression, its common purpose, but

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an affected hospital would have to purchase the drug outside the 340B program [and therefore, not at a discounted rate] if it were used to treat either of its two orphan indications." See Safety Net Amicus Brief at 11.

The Final Rule also imposes duties on the covered entities to maintain records of compliance. Specifically, the rule states that " [a] covered entity listed in paragraph (b) of this section is responsible for ensuring that any orphan drugs purchased through the 340B Program are not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drugs are designated under section 526 of the FFDCA. " 42 C.F.R. § 10.21(c)(1) (emphasis added). If the covered entity " cannot or does not wish to maintain auditable records sufficient to demonstrate compliance with this rule, [it] must notify HRSA [4] and purchase all orphan drugs outside of the 340B Program regardless of the indication for which the drug is used." Id. § 10.21(c)(3). The rule also explains that " [f]ailure to comply with this section shall be considered a violation of sections 340B(a)(5) and 340B(e) of the PHSA, as applicable." Id. § 10.21(f).

D. Preliminary Housekeeping issues

The plaintiff brought suit against HHS in this action, alleging that the rule contravenes the plain language of the statute, and is therefore invalid. Pending before the Court are the plaintiff's motion for a preliminary injunction and motion for summary judgment, see ECF Nos. 3 & 25, and the defendants' motion to dismiss, or in the alternative for summary judgment. See ECF No. 24. Also pending before the Court are: (1) the plaintiff's motion for judicial notice, see ECF No. 26, (2) an unopposed motion for leave to file an Amicus Curiae Brief by Safety Net Hospitals for Pharmaceutical Access (" Safety Net" ), see ECF No. 29, and (3) the plaintiff's motion to strike the extra-record material included in the amicus brief submission, see ECF No. 32.

The Court will address the latter three issues first, as they can be quickly disposed of. With respect to the plaintiff's motion for judicial notice, the plaintiff asks this Court to take judicial notice of the " Frequently Asked Questions" page related to orphan drug designation and development posted on the U.S. Food and Drug Administration's (" FDA" ) website. See ECF No. 26. Federal Rule of Evidence 201 provides that " [t]he court may judicially notice a fact that is not subject to reasonable dispute because it can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Ev. 201(b)(2). A court may also take judicial notice " at any stage of the proceeding." Fed. R. Ev. 201(d). Courts in this jurisdiction have frequently taken judicial notice of information posted on official public websites of government agencies. See Cannon v. District of Columbia, 717 F.3d 200, 205 n.2, 405 U.S. App.D.C. 141 (D.C. Cir. 2013) (taking judicial notice of document posted on the District of Columbia's Retirement Board website); Carik v. Dep't Health & Human Svcs., No. 12-272(BAH), 4 F.Supp.3d 41, 2013 WL 6189313, *4 n.4 (D.D.C. Nov. 27, 2013) (taking judicial notice of information on the FDA's website); Hyson v. Architect of Capitol, 802 F.Supp.2d 84, 90-91 n. 4 (D.D.C. 2011) (taking judicial notice of description on U.S. Office of Personnel Management's website). As such, this Court will grant the plaintiff's motion and take judicial notice of the Frequently Asked

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Questions page for " Developing Products for Rare Diseases and ...


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