pic thx to owen moore on flickr creative commons

In a victory for the pharmaceutical industry, a federal judge decided the US Health Resources and Services Administration cannot enforce a rule that would allow many so-called safety-net hospitals and clinics to obtain orphan drugs at a discount. Orphan drugs are used to treat rare diseases.

The decision caps more than two years of feuding between drug makers and the agency over a federal program known as 340B. This requires drug makers to offer discounts of up to 50 percent on all outpatient drugs to hospitals and clinics that serve indigent populations. There are roughly 2,000 such institutions, although the number was recently expanded thanks to the Affordable Care Act.

But the HRSA issued a rule that angered the pharmaceutical industry. Safety-net institutions are allowed to obtain orphan drugs at a discount. But under the HRSA rule, the discount would only have been applied if these medicines are prescribed to treat a condition other than the rare disease for which orphan status was granted.

Congress made the distinction as part of a balancing act – maintaining incentives for drug makers to pursue orphan designations, which can provide marketing exclusivity, while also providing hospitals and clinics with the ability to obtain needed medicines at affordable prices.

But the Pharmaceutical Research & Manufacturers of America argued that HRSA did not have a right to issue the rule and that the language contradicted existing law. The industry trade group also claimed that drug makers would unfairly lose revenue if the rule was enforced and that incentives for developing orphan drugs, which typically carry very high price tags, would be undermined.

This was actually the third time that HRSA issued such a rule. After first doing so in 2013, the pharmaceutical industry trade group filed a lawsuit to stop the discounts altogether on the grounds that HRSA misread the law and argued drug makers should not be required to offer discounts at all.

After losing that round last year, HRSA then refined its rule, which quickly prompted drug makers to file yet another legal challenge. In his 38-page opinion, US District Court Judge Rudolph Contreras wrote that the latest HRSA rule “contravenes the plain language” of the law pertaining to rural and some cancer hospitals in 340B programs.

Not surprisingly, the trade group for safety-net hospitals expressed disappointment. The group argues that the ruling means safety-net providers will not be able to get 340B discounts for any orphan drug used for any purpose and, as a result, costs will rise. The trade group noted that many of these drugs can cost patients up to $300,000 per year or more, and without access to 340B discounts, these hospitals will struggle to meet the needs of their vulnerable patients.

“This is a major setback for rural hospitals who are already struggling to keep their doors open,” Ted Slafsky, the 340B Health chief executive officer and president, said in a statement.

Similarly, the American Hospital Association released a statement to say “denying these hospitals the ability to utilize 340B discounts for these drugs 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 pharmaceutical trade group, meanwhile, was thrilled. In a statement, the group wrote that it “supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help. To achieve this important objective, it is critical the program operates in a manner consistent with the clear and unambiguous direction of Congress.”