HRSA withdraws proposed 340B rule

In April 2014, the Health Resources and Services Administration (HRSA) submitted a proposed rule on the 340B drug-pricing program to the executive branch office that oversees federal rulemaking.

Observers predicted that the rule would address issues identified in a report issued by the U.S. Department of Health and Human Services (HHS) Inspector General, which cited, among other concerns, inconsistencies in how contract pharmacies determine whether a prescription is 340B-eligible when they dispense the drug on behalf of a covered entity. 

The rule was also expected to discuss monitoring of contract pharmacy arrangements by covered entities. In addition, experts anticipated that the rule would clarify HRSA’s “patient” definition to ensure covered entities dispensed 340B drugs only to eligible patients.

In November 2014, HRSA withdrew the proposed 340B rule from the regulatory review process. The rule is one of only three HHS rules withdrawn in 2014. Although HRSA withdrew the rule, the agency could resubmit a new version for consideration at a future date. This scenario is unlikely, given ongoing litigation and the midterm shift in control of Congress.

The PhRMA challenge

The agency’s decision to withdraw the 340B rule is related to a May 2014 judicial decision on the first-ever HRSA rule. That federal court case tested the limits of HRSA’s rulemaking authority.

In Pharmaceutical Research and Manufacturers of America (PhRMA) v. HHS, the court found that Congress gave HRSA the authority to issue 340B rules on three subjects: civil monetary penalties; the calculation of the 340B discount price offered to covered entities; and an administrative dispute-resolution process. PhRMA argued that HRSA lacked the authority to issue a rule excluding orphan-drug purchases by certain covered entities from 340B discounts when the drugs were purchased for use as an orphan drug, but not when the drugs were purchased for non-orphan-indicated uses. The court found that HRSA had exceeded its rulemaking authority by issuing a rule on orphan-drug purchases and invalidated the rule.

After the decision, HRSA reissued the orphan-drug exclusion rule as an interpretive rule without the force of law, which instructs the public on the agency’s interpretation of its own statute. HRSA noted that the court had let the agency’s interpretation of the statute stand. PhRMA disagreed, arguing the agency’s use-based interpretation was contrary to the statute, and filed a second suit against HRSA’s interpretive rule. That suit is pending.

HRSA concedes

By withdrawing the proposed 340B rule after the PhRMA decision, HRSA is essentially conceding that it requires new rulemaking authority from Congress to issue future rules on many 340B issues. Indeed, HRSA announced it would propose legally binding rules only in the three subject areas identified by the court as those for which HRSA had explicit rulemaking authority.

The incoming Republican-led Congress is unlikely to grant HRSA broad additional rulemaking powers, however. Republican leadership has questioned whether the 340B program is helping low-income patients and has cited the HHS Inspector General report as evidence that HRSA needs to provide greater oversight.

Where things stand

HRSA’s withdrawal of the rule does not render the agency powerless to provide direction on ambiguities in the 340B program. HRSA has stated that it will use guidance in 2015 to address “key policy issues.”

While agency guidance does not have legal effect, create legal rights or obligations, or bind HRSA or private parties, guidance does demonstrate an agency’s current approach to an issue. Until HRSA issues guidance, covered entities and contract pharmacies will continue to address the complexities of the 340B program in different ways.