April 23, 2010 – A late change to the federal health care reform law has left many hospitals newly eligible for 340B drug discounts questioning the value of enrolling in the program. It might even prompt some children’s hospitals to consider withdrawing from the program just months after finally obtaining access to 340B pricing.
The amendment, which House Democratic leaders added to the budget bill that was passed in tandem with the health reform law, prohibits the new classes of 340B providers from buying so-called orphan drugs at 340B discounted prices. They include many specialty drugs used by children’s and free-standing cancer hospitals in oncology treatments and most of the blood factor products used to treat hemophilia. Safety-net hospitals and other pre-existing types of 340B providers are unaffected by the ban.
The health reform law added cancer and children’s hospitals—many of the latter of which house hemophilia treatment centers—to the list of 340B-eligible providers along with critical access hospitals, rural referral centers and sole community hospitals. All were barred from buying orphan drugs, which are used to treat diseases or conditions affecting fewer than 200,000 people in the U.S., at the drugs’ 340B discount prices. In exchange for developing these drugs, the federal government grants manufacturers marketing exclusivity for seven years plus a variety of tax incentives.
The Food and Drug Administration (FDA) classifies nearly 350 drugs as orphan products. Manufacturers fought for the amendment, saying they could never recoup the drugs’ R&D costs if they were forced to sell them at 340B discounts. The Plasma Protein Therapeutics Association (PPTA), which represents makers of plasma-derived and recombinant biological therapies, declined requests for comment on the amendment and its impact on 340B providers.
Providers Fear Millions in Lost Savings
Children’s and cancer hospitals and other new 340B-eligible providers have expressed serious concerns about the orphan drug exclusion. A pharmacist at one of the nation’s leading children’s hospital notes that 11 of his institution’s top 20 most-used drugs are on the orphan drug list. Many are either used to treat cancer or are recommended for use in related supportive care. The hospital spent $5 million last year on such drugs dispensed in outpatient settings and their exclusion from 340B coverage could cost the hospital at least $1 million a year in lost savings.
Dale W. Adams, vice president and chief pharmacy officer at City of Hope cancer hospital in Los Angeles, likewise says a quick review of the law shows it will reduce his institution’s potential savings significantly. Chemotherapy agents are the hospital’s key outpatient pharmaceuticals and most are on the orphan list. Only 12 of City of Hope’s top 36 drugs, he notes, will be eligible for 340B discounts.
Even Larger Losses Possible
Such losses could grow even larger due to the amendment’s ambiguous wording. For example, while the FDA grants drugs orphan status for the treatment of specific illnesses, many are also used to treat different illnesses that fall outside the scope of the drug’s orphan-related indications. It is unclear whether the new categories of 340B providers will be able to obtain discounts for drugs dispensed or administered for these non-orphan conditions. Advocates for 340B providers also note that hospitals have no way of knowing for certain how such drugs will ultimately be used at their time of purchase. It is also unclear whether hemophilia treatment centers located at children’s hospitals will keep or lose their eligibility for 340B discounts. Hospital officials say many centers could be forced to close if they lose access to 340B discounted factor products.
Providers are concerned that the Office of Pharmacy Affairs (OPA) might not issue guidance on such matters for some time. In the absence of such rules, children’s and cancer hospitals fear that manufacturers will apply the exclusion as broadly as possible, which in turn might discourage them from enrolling in 340B or force some to drop out altogether.
In addition, some non-orphan brand-name drugs often used by children’s and cancer hospitals will be subject to smaller discounts than others. The part of the health care reform law that raised minimum Medicaid rebates—and, as a result, 340B discounts—gave brand-name blood factor products and brand-name drugs with pediatric indications a 17.1 percent minimum discount compared with the 23.1 percent minimum price cut given to other brand-name drugs.
“The orphan drug exemption undermines the very purpose of the 340B program,” says Ted Slafsky, executive director of Safety Net Hospitals for Pharmaceutical Access. “We will be working closely with the affected hospital groups to get this matter reversed.”