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CAPITOL PERSPECTIVES column 12 LIFESCIENCELEADER.COM JULY 2014 By J. McManus NEW MEDICARE DATA AND LITIGATION PROVIDE FRESH REASONS FOR CONGRESS TO REFORM 340B pharmacy arrangements 3 hospital eligibility criteria 4 eligibility of off-site facilities. But litigation by PhRMA over the defi- nition of "orphan drug" stopped that regulation in its tracks. PhRMA asserted that HRSA violated the Administrative Procedure Act because HRSA did not have the authority to issue the final rule, and even if it did have that authority, the stat- ute exempts all uses of orphan drugs from 340B, not just the orphan indication. The District Court ruled in favor of PhRMA on HRSA's legislative authority to issue the regulation, stating that HRSA only had authority in three narrow areas: 1 the establishment of an administra- tive dispute resolution process 2 the methodology for calculating the 340B ceiling price 3 the imposition of civil monetary sanctions. Notwithstanding that District Court decision, HRSA updated its Web page on June 18, 2014, and asserted that the deci- sion did not, in fact, invalidate the agency's interpretation that manufacturers must continue to provide 340B discounts for non-orphan conditions of orphan drugs. This raises a fundamental question: How can HRSA continue to implement a policy that was created through a process the District Court has found to be invalid? This may be the worst of all possi- ble outcomes for the pharmaceutical industry: The District Court's decision hamstrings HRSA from reining in egre- gious aspects of the 340B program but does not prevent it from continuing to demand 340B discounts for non-orphan indications for orphan drugs. Unless and until HRSA appeals the District Court decision on its fundamen- tal ability to issue regulations, the phar- maceutical industry and provider com- munity is left in limbo and will continue to operate under the current regime. In the 22-year history of the 340B program, Congress has held exactly one oversight hearing. Perhaps this is because 340B hospitals and other qualified 340B recipients reside in every Congressional district, while pharmaceutical companies are lim- JOHN MCMANUS is president and founder of The McManus Group, a consulting firm spe- cializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University. ited to a few zip codes in several states. But real reform of the 340B pro- gram must now come from Congress. The easiest thing for Congress to do would be to punt on substantive matters of the 340B expansion and simply empower HRSA to issue a rule that would clarify and implement all aspects of the program. But that would be a lost opportunity to fundamentally reform a program that has spiraled out of control and bears lit- tle resemblance to its original purpose of providing discounted outpatient drugs to uninsured and indigent hospital patients. 340B # of Entity Subdivisions Contract Pharmacies New York-Presbyterian Hospital Yes 96 0 Florida Hospital Yes 57 36 Cleveland Clinic Yes 0 0 Massachusetts General Hospital Yes 1 1 Cedars-Sinai Medical Center Yes 31 0 Barnes-Jewish Hospital Yes 1 1 Norton Hospitals, Inc. Yes 109 53 Methodist Hospital (Henderson, KY) Yes 0 2 Methodist Healthcare Memphis Hospitals Yes 8 91 Christiana Hospital Yes 0 0 William Beaumont Hospital No — — Duke University Hospital Yes 7 0 IU Health No — — University Of Michigan Health System Yes 41 54 Evanston Hospital No — — The Methodist Hospital (Merriville, IN) Yes 7 0 Aurora St. Luke's Medical Center Yes 1 0 Scott & White Memorial Hospital Yes 33 256 Yale-New Haven Hospital Yes 28 18 Mount Sinai Hospital Yes 21 54 Pitt County Memorial Hospital Yes 3 0 Stanford Hospital No — — Vanderbilt University Hospital Yes 22 175 Lahey Clinic Hospital Yes 0 0 Hospital Of University Of Pennsylvania Yes 48 0 The McManus Group Top 25 Hospitals — Medicare Payments Figure2 l 0 7 1 4 _ C P . i n d d 2 0714_CP.indd 2 6 / 2 0 / 2 0 1 4 1 0 : 1 4 : 5 3 A M 6/20/2014 10:14:53 AM