The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Here We Go…AGAIN!

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


President Obama has told the Congress and the country that he will be using his pen and phone to get his priorities implemented.  That has meant bypassing Congress and changing, or ignoring, current law.  It is well known that this has occurred several times during the horrendous rollout of the Affordable Care Act (ACA / Obamacare).  According to the Galen Institute, a healthcare public policy research organization, the Obama administration has made 23 changes to the law through administrative fiat.  The president is wielding his pen and phone in other public policy areas as well, such as immigration and environmental policy, with almost always controversial results.

This unilateralism is happening in more esoteric areas as well, which doesn’t tend to attract the attention of the main-stream news media.

In May, CAGW wrote about the 340B federal drug discount program and why Congress needs to hold hearings about the program and reform it.  The 340B program requires pharmaceutical companies that participate in Medicaid to provide heavily discounted outpatient drugs to “covered entities,” such as certain kinds of hospitals, federally qualified health centers, specialized clinics, which provide general health services as well as treatment for specific diseases to uninsured, low-income people who do not qualify for Medicaid or Medicare.  The “covered entities” that participate in the program are supposed to pass along the savings to low-income patients, but due to vague language in the 340B law, this is not always happening.

Instead, many hospitals and the pharmacies they contract with are generating millions of dollars in profit.  Both the General Accountability Office and the Department of Health and Human Services Office of the Inspector General have been critical of the Health Resources and Services Administration (HRSA), the agency that oversees the 340B program, pointing to an absence of oversight by HRSA and for not providing clear guidelines.  As always, the consumers and taxpayers end up paying for a government program gone haywire.

The 340B program was expanded under the ACA, broadening “covered entities” to include other providers such as critical-access hospitals, sole community hospitals, and free-standing cancer hospitals that can take advantage of the discounted drugs.  In doing so, it also aggravated the problems already present in the discount program.

For example, an article in an October 2013 Clinical Oncology News and a May 2014 IMS Institute for Healthcare Informatics’ study, entitled Innovation in Cancer Care and Implications for Health Systems, demonstrate how the 340B programs is driving up the cost of cancer treatment for patients and enriching hospitals instead.

One type of drug that was not originally included in ACA’s expansion of the 340B discount program was an orphan drug.  A drug receives orphan status from the Food and Drug Administration (FDA) when it is intended for use in the treatment, diagnosis, or prevention of a rare disease or disorder that afflicts fewer than 200,000 people in the United States.  Examples of such diseases or disorders are cystic fibrosis, Lou Gehrig's Disease, Tourette's Syndrome, Hamburger Disease, and Job Syndrome.  Pharmaceutical companies receive special incentives to create drugs to treat these types of diseases, such as tax credits and seven years of market exclusivity.

The administration decided to take matters in its own hands and on May 20, 2011, HRSA proposed a regulation that changed what the ACA law said about excluding orphan drugs from the discount program.  The agency proposed it would allow certain hospitals to purchase orphan drugs at the deeply discounted price, provided the drugs would be used for a disease or condition other than for which the drug got its orphan status from the FDA.  Sometimes an orphan-designated drug can be used to treat a non-orphan disease, similar to when a drug is used “off-label.”  When a medication is being used "off-label," it means it is being used in a way that has not been explicitly approved for that indication by the FDA.  This is common medical practice, particularly in the field of oncology.  While pharmaceutical companies may not market off-label uses, a doctor can prescribe the use of a drug for any condition he or she feels is appropriate.

In July 2013, HRSA finalized the rule, making it official administration policy that utilizing an orphan drug for a non-orphan disease or condition would entitle a “covered entity” to get the discount.  Sen. Orrin Hatch (R-Utah) was strongly critical of the rule and wrote a letter to HRSA Administrator Mary Wakefield, stating the rule completely ignores the language of ACA and noted that it would be practically impossible for a drug company to determine whether an orphan drug was being used for a non-orphan condition or not.

The Pharmaceutical Research Manufacturers of America (PhRMA) immediately sued HRSA in September of 2013, stating the agency lacked the authority to change the clear meaning in ACA with respect to the orphan drugs exclusion from the 340B program.  It stated the rule would also create financial damage and weaken the incentive for companies to develop orphan drugs. On May 23, 2014, the U.S. District Court for the District of Columbia agreed with PhRMA’s argument and invalidated HRSAs rule.

In the wake of the ruling, in what has become a familiar executive branch gesture, HRSA simply thumbed its nose at the court and stated it would stand by its interpretation of the orphan drug exclusion language.

This action is another reason Congress must conduct oversight hearings on the 340B program and reform it to ensure it serves its original purpose.

Meanwhile, the lawlessness continues and patients and taxpayers will eventually pay the price.

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