One of the things that is becoming more disturbing each day is how the Obama Administration is issuing a tsunami of regulations, interpretive rules, sub-regulatory guidance, executive orders, guidelines, and even divine proclamations on White House tissue paper (just kidding on that last one) that contradict, subvert, or circumvent the law.  Even though I just cover healthcare issues, it is practically impossible to keep current with the changes, particularly as a result of the Affordable Care Act (ACA), better known as ObamaCare.

From the Department of Agriculture to the Environmental Protection Agency (EPA), to Health and Human Services (HHS), and the Treasury, the Obama administration is crafting sub-rosa rules at an alarming rate.  Law professor and Constitution scholar Jonathan Turley says it is a “massive gravitational shift” of power to the executive branch.  The Competitive Enterprise Institute just released its annual study, “The Ten Thousand Commandments,” which “shines a light on the large, growing, and hidden costs of America’s regulatory state.”  According to Wayne Crews, author of the report, the “costs for Americans to comply with federal regulations reached $1.863 trillion in 2013. That is more than the GDPs of Canada or Australia.”

Often, the end result are lawsuits challenging the Obama Administration’s arbitrary decisions in court.  For example, some of the more well-known cases are the four challenges to the IRS’s interpretation that taxpayer-funded subsidies are allowed in the federally-run ObamaCare exchanges.  According to the plaintiffs, ACA contains no such provision that authorizes subsidies in the federal exchanges, yet subsidies have been provided.  The outcome of these cases are still to be determined.

The Murray Energy Corporation and twelve states that rely on coal production are suing the EPA over its proposed rules to cut greenhouse gases from coal plants, excusing the agency for overstepping its authority under the Clean Air Act.  Indiana Governor Mike Pence (R), and one of the plaintiffs, said, “Congress has already rejected legislation that would put limits on carbon dioxide emissions, and a law of this significance should be passed by the legislative branch.”

But often the legal challenges are about relatively obscure issues that don’t grab a lot of public attention.  One issue that I have been tracking has fallen under this rubric.  You may recall I have written about a federal drug discount program called 340B. Citizens Against Government Waste (CAGW) believes that Congress needs to conduct vigorous oversight of the program (the last oversight hearing was in 2005) and reform it. Things are starting to heat up again with program and legal challenges, so I thought I would give you an update.  First, a bit of background.

My blog posted in CAGW’s May 2014 SwineLine described the 340B program and why taxpayers needed to pay attention to what was happening to it even then.  It started out in 1992 as a relatively small program intended to help certain healthcare entities that served large populations of indigent, uninsured patients offer deeply discounted pharmaceuticals to those patients.  If pharmaceutical companies wanted to participate in Medicaid, then they had to participate in the 340B program.  The understanding was these discounts given by the manufacturers would be passed along to uninsured patients.

The 340B program was greatly expanded under the ACA and is now being exploited nationwide by healthcare providers for their own gain.  In many cases, patients who are supposed to be benefitting from the lower prices do not get them; in fact, the poorly-written law does not specifically mandate that healthcare entities to pass along the savings to patients, whether insured or not.

What has happened is the program has turned into a money-making scheme that helps large non-profit hospital systems and their contract pharmacies, reap billions in profit.  The Charlotte Observer, for example, ran a series of articles on non-profit hospitals making huge earnings at the expense of patients while providing little charity care.  The series included at least two articles on how the 340B program was being abused by the hospitals, entitled “Hospitals Probed on Use of Drug Discounts” and “Hospitals Profited on Drugs for Poor, Uninsured.”

Who ends up paying for the misuse of the 340B program?  Taxpayers of course, through higher insurance premium costs, increased drug prices, and taxes.

Since 2011, there has also been an on-going and troubling issue with the 340B program over orphan drugs.  An orphan drug gets its designation from the Food and Drug Administration if it is intended for use in the treatment of a rare disease that affects fewer than 200,000 people in the United States.  Research-based companies are provided incentives to create these drugs because the patient populations are very small.

In May 2011, Health and Human Services’(HHS) Health Resources and Services Administration (HRSA), the agency that oversees the 340B program, issued a proposed regulation that would allow the 340B discount apply to orphan drugs if they are used for a non-rare disease indication (in other words, off-label) by certain 340B-covered healthcare entities.  But the ACA explicitly exempts orphan drugs from the 340B discount and makes no distinction whether the drug is used for a rare disease or not.  Once again, the Obama administration is changing law by regulatory fiat.

In July 2013, HRSA finalized the rule.  In Congress, Senator Orrin Hatch (R-Utah) was strongly critical of the new interpretation, laying out his reasons in a July 2013 letter to HRSA Administrator Mary Wakefield, in which he reminded HRSA that the law exempts orphan drugs from the 340B program, without any qualifiers, and also points out that the agency has proven itself incapable of good oversight.  For example, he believes the agency will be unable to track when orphan drugs are used for a rare disease and when they are not.

The Pharmaceutical Research and Manufacturers of America (PhRMA) sued HHS in September 2013.  Modern Healthcare reported on Oct 2, 2013 that, “The drug trade group this year said that final rule on the orphan-drug exclusion would ‘undermine’ Congress' intent to preserve orphan-drug development incentives.  In the lawsuit, PhRMA said its member companies will suffer financial harms if they are required to offer 340B pricing ‘beyond the clear boundaries of the 340B statute.’”

In May 2014, the Judge Rudolph Contreras of the United States District Court for the District of Columbia invalidated the rule, siding with PhRMA, and stating that HHS does not have the legal authority to issue the regulation.  The judge did suggest that HHS might want to write an interpretive rule.  Thomas Barker and Igor Gorlach of the law firm FoleyHoag (LLP) questioned “how recasting the same rulemaking as an interpretive rule and repeating the same argument would change the opinion of the Court.”

Just like zombies, the bureaucrats kept on coming.  Predictably, on July 21, HRSA released a new interpretive rule, basically the old rule in a new suit, as an effort to circumvent the court’s decision.  PhRMA requested that Judge Contreras throw out the “new” interpretive rule because it was substantially identical to the one he had just declared the agency had no legal authority to issue.

However, on August 27, 2014 Judge Contreras disagreed with PhRMA’s request because the interpretive rule is a new action and not part of the earlier suit.  He said that PhRMA was free to file another lawsuit.

Sure enough, PhRMA did file another suit.  Here is what the trade association said in its press release:

At issue is the Health Resources and Services Administration’s (HRSA) interpretation of the 340B orphan drug exemption, enacted as part of the Affordable Care Act (ACA). The ACA significantly expanded the type of entities that can access 340B discounts for prescription drugs. To preserve incentives to invest in research and development of new treatments for rare diseases, the ACA expressly exempts manufacturers from having to provide these discounts on orphan drugs to newly eligible providers.

“After the Federal District Court of the District of Columbia vacated the HRSA July 23, 2013 rulemaking regarding the 340B orphan drug exemption, in July 2014, the agency issued the exact same rule, but labeled it ‘interpretive.’  HRSA’s action in this regard is unlawful.

“While we value the hard work and efforts of all agencies, it is important federal agencies recognize and work within the bounds set by Congress. PhRMA is therefore filing suit against the U.S. Department of Health and Human Services to challenge its second attempt to issue a rule conflicting with the plain language of the statute.

So the expensive waiting game begins again and taxpayer money continues to seep out all over the place.

Meanwhile, this case is just one representation of what is happening across business sectors and around the country.  More valuable resources are tied up playing “Whack-A-Mole” as companies scramble to keep up and defend themselves against the regulatory onslaught and an administration that routinely violates and re-interprets the law with reckless indifference.

(For further reading on the 340B issue see CAGW’s May Waste Watcher and in my June 2014 Swine Line post.)