[Federal Register Volume 78, Number 141 (Tuesday, July 23, 2013)]
[Rules and Regulations]
[Pages 44016-44028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17547]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

42 CFR Part 10

RIN 0906-AA94


Exclusion of Orphan Drugs for Certain Covered Entities Under 340B 
Program

AGENCY: Health Resources and Services Administration (HRSA), Department 
of Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: HHS is issuing this final rule to clarify how section 340B(e) 
of the Public Health Service Act (PHSA) will be implemented. The final 
rule applies section 340B(e) of the PHSA only to drugs transferred, 
prescribed, sold, or otherwise used for the rare condition or disease 
for which the orphan drug was designated under section 526 of the 
Federal Food, Drug, and Cosmetic Act (FFDCA). The final rule also sets 
forth that it is the responsibility of the 340B covered entity to 
maintain auditable records that demonstrate compliance with the terms 
of the orphan drug exclusion requirements. This rule will provide 
clarity in the marketplace, maintain the 340B savings for newly-
eligible covered entities, and protect the financial incentives for 
manufacturing orphan drugs designated for a rare disease or condition 
as indicated in the Affordable Care Act and intended by Congress.

DATES: This final rule is effective on October 1, 2013.

FOR FURTHER INFORMATION CONTACT: CDR Krista Pedley, Director, Office of 
Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), Health 
Resources and Services Administration (HRSA), 5600 Fishers Lane, 
Parklawn Building, Room 10C-03, Rockville, Maryland 20857, or by 
telephone at (301) 594-4353.

SUPPLEMENTARY INFORMATION:

I. Background

    The 340B Program was established by section 602 of the Veterans 
Health Care Act of 1992 (Pub. L. 102-585) and is codified as section 
340B of the PHSA. Section 340B instructs HHS to enter into agreements 
with drug manufacturers of covered outpatient drugs. 42 U.S.C. 256b(a). 
Pursuant to section 340B(a)(1) of the PHSA, when a manufacturer signs a 
Pharmaceutical Pricing Agreement (PPA), it agrees that the prices 
charged for covered outpatient drugs to covered entities (organizations 
eligible under section 340B to receive 340B discounted pricing) will 
not exceed defined ceiling prices, which are based on pricing data

[[Page 44017]]

reported to the Centers for Medicare & Medicaid Services (CMS). The 
340B ceiling price is calculated by taking the Average Manufacturer 
Price (AMP) and reducing it by the Unit Rebate Amount, which is 
calculated as indicated in 340B(a)(1) and 340B(a)(2)(A). Drugs 
purchased by covered entities through the 340B Program may not be sold 
or transferred to anyone other than the patients of the covered 
entities.
    The Affordable Care Act and the HCERA made several changes to the 
340B Program. The 340B Program generally has relied on published 
program guidance documents, which are typically finalized after a 
notice and comment period. However, we have determined that a 
regulation is necessary to implement these changes. On May 20, 2011, 
HHS published a notice of proposed rulemaking in the Federal Register 
(76 FR 29183) to provide details about how it proposed to implement 
section 340B(e) of the PHSA. As stated in the notice, the purpose of 
issuing this regulation is to: (1) Provide clarity in the marketplace; 
(2) maintain the 340B savings for newly-eligible covered entities; and 
(3) protect the financial incentives for manufacturing orphan drugs 
designated for a rare disease or condition as indicated in the 
Affordable Care Act and intended by Congress. (76 FR at 29184).
    Section 7101 of the Affordable Care Act added several new 
categories of eligibility for 340B Program participants, allowing them 
to have access to 340B drug pricing. The entity types added to the list 
of eligible entities listed under 340B(a)(4) included: 340B(a)(4)(M) 
(children's hospitals and free-standing cancer hospitals), 
340B(a)(4)(N) (critical access hospitals), and 340B(a)(4)(O) (rural 
referral centers and sole community hospitals). It also excluded free-
standing cancer hospitals, critical access hospitals, rural referral 
centers, and sole community hospitals from access to 340B drug pricing 
for an orphan drug when it is used for a rare disease or condition. As 
amended by the Affordable Care Act and section 204 of the Medicare and 
Medicaid Extenders Act of 2010 (Pub. L. 111-309), section 340B(e) of 
the PHSA (42 U.S.C. 256b(e)) states the following:
     EXCLUSION OF ORPHAN DRUGS FOR CERTAIN COVERED ENTITIES--
For covered entities described in subparagraph (M) (other than a 
children's hospital described in subparagraph (M)), (N), or (O) of 
subsection (a)(4), the term `covered outpatient drug' shall not include 
a drug designated by the Secretary under section 526 of the Federal 
Food, Drug, and Cosmetic Act for a rare disease or condition.

Congress passed the Orphan Drug Act of 1983 to stimulate the 
development of drugs for rare diseases. The Food and Drug 
Administration (FDA), Office of Orphan Products Development, 
administers the Orphan Drug Act and reviews requests for designations. 
A drug is designated by the FDA as ``a drug for a rare disease or 
condition'' pursuant to section 526 of the FFDCA at the request of the 
sponsor, if FDA finds that the drug is being or will be investigated 
for a rare disease or condition and, if approved by FDA, the approval 
will be for that disease or condition. 21 U.S.C. 360bb(a)(1). This 
designation is referred to as orphan-drug designation. 21 CFR 316.24. 
The orphan drug designation provides a number of incentives for the 
development of the orphan drug for the particular disease or condition. 
These incentives include: (1) 7-year market exclusivity to sponsors of 
approved orphan products; (2) a tax credit of 50 percent of the cost of 
conducting qualified human clinical trials; (3) Federal research grants 
for clinical testing of these new therapies to treat and/or diagnose 
rare diseases; and (4) an exemption from the usual drug application 
``user'' fees charged by the FDA.

    FDA will designate a drug for a rare disease or condition as an 
orphan drug in situations where the drug is also approved for a 
different disease or condition that does not qualify for such a 
designation. 21 CFR 316.23(b). However, each of the orphan drug 
incentives applies only when the orphan drug is targeted or used to 
treat the rare disease or condition and not when used for other 
indications.
    First, the marketing exclusivity only applies if the drug has been 
approved by the FDA to be marketed for an orphan rare disease or 
condition, even if it has been approved by FDA for a common condition 
(non-rare use). Second, the tax credit must relate to testing of the 
drug for the rare disease or condition underlying the orphan 
designation and not for other diseases or conditions (non-rare uses). 
Third, the Federal research grants are for testing the treatment of 
rare diseases and not for other indications. Finally, the exemption 
from FDA user fee payments only applies to user fees charged when 
seeking marketing approval to treat the orphan designated rare disease 
or condition. The incentives associated with orphan drug designation do 
not apply to any indication for a disease or condition that has not 
itself received orphan drug designation (the product would not be 
considered to be an ``orphan drug'' for such additional uses).
    The award of an orphan designation does not alter the standard 
regulatory requirements and process for obtaining marketing approval, 
which is a separate process administered by the FDA's Center for Drug 
Evaluation and Research and the Center for Biologics Evaluation and 
Research. In fact, a large majority of drugs with orphan designations 
do not have approval to be marketed in the United States. Only 
outpatient drugs that have been approved by FDA for marketing in the 
United States are included in the 340B Program. Thus, among outpatient 
drugs that have received an orphan designation, only those that have 
also received marketing approval by the FDA can be included as covered 
outpatient drugs for the 340B Program.
    The May 20, 2011, Federal Register (76 FR 29183) notice provided a 
60-day comment period and HHS received 50 comment letters raising a 
variety of issues. Comments were received from Members of Congress, 
manufacturers, 340B entities and providers, and other 340B 
stakeholders. HHS has carefully considered all comments in developing 
this final rule, as outlined in Section III, below, presenting a 
summary of all major comments and agency responses.

II. Summary of the Final Rule

General Provisions (Subpart A)

    This final rule establishes a new Part 10 of Chapter 42 of the Code 
of Federal Regulations, which will include requirements for 
implementation of certain sections of section 340B of the PHSA 
``Limitation on Prices of Drugs Purchased by Covered Entities.'' 
Additional 340B Program regulations may be published in the future and 
would be incorporated into this Part.

Eligibility To Purchase 340B Drugs (Subpart B)

    Section 10.10 of the final rule establishes that entities meeting 
the requirements of section 340B(a)(5) of the PHSA and listed within 
section 340B(a)(4) of the PHSA are eligible to purchase covered 
outpatient drugs under the 340B Program. After the enactment of the 
Affordable Care Act, section 340B(a)(4) includes the following entity 
types: (1) A Federally-qualified health center (as defined in section 
1905(l)(2)(B) of the Social Security Act (SSA)); (2) An entity 
receiving a grant under section 340A of the PHSA; (3) A family planning 
project receiving a grant or contract under section 1001 of the PHSA; 
(4) An entity receiving a grant under subpart II of part

[[Page 44018]]

C of title XXVI of the PHSA (relating to categorical grants for 
outpatient early intervention services for HIV disease); (5) A state-
operated AIDS drug purchasing assistance program receiving financial 
assistance under title XXVI of the PHSA; (6) A black lung clinic 
receiving funds under section 427(a) of the Black Lung Benefits Act; 
(7) A comprehensive hemophilia diagnostic treatment center receiving a 
grant under section 501(a)(2) of the SSA; (8) A native Hawaiian health 
center receiving funds under the Native Hawaiian Health Care Act of 
1988; (9) An urban Indian organization receiving funds under title V of 
the Indian Health Care Improvement Act; (10) Any entity receiving 
assistance under title XXVI of the PHSA (other than a state or unit of 
local government or an entity described in 340B(a)(4)(D)), but only if 
the entity is certified by the Secretary pursuant to paragraph 
340B(a)(7); (11) An entity receiving funds under section 318 of the 
PHSA (relating to treatment of sexually transmitted diseases) or 
section 317(j)(2) (relating to treatment of tuberculosis) through a 
state or unit of local government, but only if the entity is certified 
by the Secretary pursuant to paragraph 340B(a)(7); (12) A subsection 
(d) hospital (as defined in section 1886(d)(1)(B) of the SSA) that--(i) 
is owned or operated by a unit of state or local government, is a 
public or private non-profit corporation which is formally granted 
governmental powers by a unit of state or local government, or is a 
private non-profit hospital which has a contract with a state or local 
government to provide health care services to low income individuals 
who are not entitled to benefits under title XVIII of the SSA or 
eligible for assistance under the state plan under this title; (ii) for 
the most recent cost reporting period that ended before the calendar 
quarter involved, had a disproportionate share adjustment percentage 
(as determined under section 1886(d)(5)(F) of the SSA) greater than 
11.75 percent or was described in section 1886(d)(5)(F)(i)(II) of the 
SSA; and (iii) does not obtain covered outpatient drugs through a GPO 
or other group purchasing arrangement; (13) A children's hospital 
excluded from the Medicare prospective payment system pursuant to 
section 1886(d)(1)(B)(iii) of the SSA, or a free-standing cancer 
hospital excluded from the Medicare prospective payment system pursuant 
to section 1886(d)(1)(B)(v) of the SSA, that would meet the 
requirements of 340B(a)(4)(L), including the disproportionate share 
adjustment percentage requirement under clause (ii) of such 
subparagraph, if the hospital were a subsection (d) hospital as defined 
by section 1886(d)(1)(B) of the SSA; (14) An entity that is a critical 
access hospital (as determined under section 1820(c)(2) of the SSA), 
and that meets the requirements of subparagraph 340B(a)(4)(L)(i); and 
(15) An entity that is a rural referral center, as defined by section 
1886(d)(5)(C)(i) of the SSA, or a sole community hospital, as defined 
by section 1886(d)(5)(C)(iii) of the SSA, and that both meets the 
requirements of subparagraph 340B(a)(4)(L)(i) and has a 
disproportionate share adjustment percentage equal to or greater than 8 
percent.

Drugs Eligible for Discounted Purchase Under 340B (Subpart C)

    Under Sec.  10.20, covered entities are generally eligible to 
purchase ``covered outpatient drugs'' as defined in section 1927(k)(2) 
of the SSA. Under Sec.  10.21, certain drugs are excluded from the 
definition of ``covered outpatient drugs'' in Sec.  10.20 for certain 
categories of covered entities. These drugs are orphan drugs used for 
rare diseases or conditions for which the orphan drug was designated 
under section 526 of the FFDCA.
    As provided under section 340B(a)(10) of the PHSA, the law does not 
prohibit manufacturers from charging a price for a drug that is lower 
than the maximum price that may be charged under section 340B(a)(1). 
CMS has the authority to issue regulations on the Medicaid best price 
exemption. In the absence of specific guidance, manufacturers may make 
reasonable assumptions in their calculations, consistent with the 
general requirements and intent of section 1927 of the Social Security 
Act, Federal regulations, the Medicaid drug rebate agreement, and their 
customary business practices.
    Section 340B(e) of the PHSA does not alter a manufacturer's 
obligation to sell covered outpatient drugs at no greater than the 340B 
ceiling price to the designated covered entities. A manufacturer may 
not condition the offer of statutory discounts upon a covered entity's 
assurance to the manufacturer of compliance with section 340B 
provisions. However, a covered entity is required to be in compliance 
with the statutory and regulatory provisions of the 340B Program. 
Failure to do so may result in the entity's obligation to repay a 
manufacturer for the inappropriate purchase and use of 340B drugs.
    Section 10.21(a) establishes that, for the covered entities 
described in Sec.  10.21(b), a covered outpatient drug does not include 
orphan drugs that are transferred, prescribed, sold, or otherwise used 
for the rare condition or disease for which that orphan drug was 
designated under section 526 of the FFDCA.
    Section 10.21(b) describes the covered entities for which the 
orphan drug exclusion applies when used for the rare condition or 
disease for which that orphan drug was designated under section 526 of 
the FFDCA, including covered entities qualifying under PHSA sections 
340B(a)(4)(M) (other than a children's hospital described in 
subparagraph (M)) (free-standing cancer hospitals), 340B(a)(4)(N) 
(critical access hospitals), and 340B(a)(4)(O) (rural referral centers 
and sole community hospitals). The exclusion does not apply to covered 
entities that meet the 340B Program eligibility requirements and are 
enrolled under sections 340B(a)(4)(A) through 340B(a)(4)(L) or to a 
children's hospital described in section 340B(a)(4)(M). Furthermore, if 
a hospital potentially qualifies under more than one section, such as a 
340B(a)(4)(L) disproportionate share hospital and 340B(a)(4)(O) sole 
community hospital, the hospital must select which enrollment type it 
chooses to qualify under and comply with the related regulatory and 
program requirements. During the registration and annual 
recertification processes, an entity is required to certify that it 
meets the requirements for such an enrollment type, including the 
orphan drug exclusion.
    Section 10.21(c) establishes that it is the responsibility of the 
covered entities to which this provision applies to ensure that orphan 
drugs that are purchased through the 340B Program are not transferred, 
prescribed, sold, or otherwise used for the rare condition or disease 
for which orphan drugs are designated under section 526 of the FFDCA. 
These covered entities are required to keep auditable records and 
provide them upon HRSA's request or upon a government-approved 
manufacturer audit request that directly pertains to the covered 
entity's compliance with section 340B(e) of the PHSA. Any HRSA audit of 
an affected covered entity will include a review of the covered 
entity's auditable records that demonstrate compliance with this 
regulation, if applicable. Additionally, in accordance with section 
340B(a)(5) of the PHSA, with government approval, a manufacturer has 
the right to audit an affected covered entity's compliance with this 
section.
    Under Sec.  10.21(c), a covered entity listed in Sec.  10.21(b) 
that cannot or does not wish to maintain auditable records

[[Page 44019]]

sufficient to demonstrate compliance this rule, must notify HRSA and 
purchase all orphan drugs outside of the 340B Program regardless of the 
indication for which the drug is used. Once a hospital is enrolled in 
340B, it may change its decision to purchase all orphan drugs outside 
of the 340B Program on a quarterly basis by notifying HRSA. This 
documentation will be made public. This information will also be 
verified during the annual recertification process.
    Section 10.21(d) clarifies that a free-standing cancer hospital 
enrolled under section 340B(a)(4)(M) of the PHSA must still comply with 
the prohibition against using a GPO for covered outpatient drugs under 
section 340B(a)(4)(L)(iii) of the PHSA. As stated in Section 10.21(a), 
when an orphan drug is used for the rare condition or disease for which 
that orphan drug was designated under section 526 of the FFDCA, it is 
not considered a covered outpatient drug for purposes of the 340B 
Program. Therefore, a free-standing cancer hospital could use a GPO 
when an orphan drug is used for a rare disease or condition if it is 
able to track by indication, as these drugs are not considered covered 
outpatient drugs and the GPO prohibition only applies to covered 
outpatient drugs. When an orphan drug is used for a non-rare condition 
or disease, it is considered a covered outpatient drug and a free-
standing cancer hospital cannot use a GPO. If the free-standing cancer 
hospital is unable track by indication, it would not be able to 
demonstrate the difference between when an orphan drug is used for a 
rare disease or condition as compared to a non-rare disease or 
condition. Therefore, a free-standing cancer hospital must purchase all 
orphan drugs, regardless of indication, outside of the 340B Program and 
it is not permitted to use a GPO to purchase those orphan drugs because 
the hospital would be purchasing orphan drugs that are considered 
covered outpatient drugs through a GPO.
    An enrolled critical access hospital, rural referral center, or 
sole community hospital is permitted to use a GPO for covered 
outpatient drugs even if enrolled in the 340B Program. Thus, these 
types of entities can use a GPO to purchase an orphan drug whether or 
not it is used for a rare disease or condition, if it chooses not to 
purchase any designated orphan drugs under the 340B Program.
    Section 10.21(e) directs manufacturers and covered entities to 
information and orphan drug lists that will be published on HRSA's 
public Web site. Because of the need for recordkeeping and tracking by 
covered entities which are limited in purchasing orphan drugs for rare 
conditions, the 340B Program will use the FDA's list of drugs on a 
quarterly basis. HRSA will publish on its public Web site FDA's section 
526 list of drugs on the first day of the month prior to the end of the 
calendar quarter to govern the following quarter's purchases. 
Manufacturers and covered entities will use HRSA's published orphan 
drug list to determine whether a drug is designated under section 526 
of the FFDCA and, if so, the rare indication for which it is 
designated. This information, which includes the name of the drug 
sponsor, can be accessed by the public at http://www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm.

III. Comments and Responses

    HHS received a total of 50 comments in response to the notice of 
proposed rulemaking published on May 20, 2011, in the Federal Register 
(76 FR 29183). The comments raised numerous issues and included general 
support of, and general opposition to, the proposed rule implementing 
section 340B(e) of the PHSA. All comments were considered in developing 
this final rule.
    The following section presents a summary of all major issues raised 
in the comment letters, grouped by subject, as well as a response to 
each comment.

1. Interpretation of Statutory Language

    Comment: Several commenters supported the proposed rule as 
clarifying how orphan drugs should be purchased under the 340B Program. 
Several commenters noted that HRSA's interpretation of the statutory 
language supports the intent of Congress to improve access to 340B 
discounted drugs for the newly-eligible entities, while recognizing the 
issues associated with orphan drug use for rare conditions and 
diseases, and that a broader interpretation of the prohibition would 
undermine new covered entity participation and place a substantial 
burden on affected entities. Commenters asserted that orphan drugs were 
commonly used for many treatments in addition to the rare condition or 
disease for which FDA had designated it an orphan drug. Some entities 
have chosen not to participate in the 340B Program because the costs of 
paying non-340B prices for all drugs with at least one orphan drug 
indication could have exceeded the cost saving benefits of other non-
orphan designated 340B drugs. Several commenters believe the 
interpretation of the statutory language reflected in the proposed rule 
follows the spirit of the 340B Program, giving covered entities access 
to orphan drugs for non-rare indications under the 340B Program while 
preserving financial incentives for manufacturers.
    Response: HRSA believes the interpretation as set forth in this 
rule reflects the intent of Congress to expand eligible entities and 
restrict purchases of certain orphan drugs by both providing 340B 
savings for newly-eligible covered entities including commonly 
prescribed uses of orphan drugs and protecting the financial incentives 
for manufacturing orphan drugs designated for a rare disease or 
condition.
    Comment: Several commenters noted that the limitation of the orphan 
drug exclusion to FDA-designated orphan drugs when used to treat an 
orphan indication is consistent with the limitations of the orphan drug 
statute, implementing regulations, and policy placed on the tax 
benefits, market exclusivity, and other incentives otherwise given to 
orphan drug manufacturers. Commenters stated that applying a broader 
application of the 340B orphan drug exclusion whereby affected entities 
could not purchase an FDA designated orphan drug for any treatment 
purpose would be inconsistent with section 526 of the FFDCA, and would 
limit the covered drugs available to the newly covered entities in the 
340B Program in such a way as to significantly limit their ability to 
participate in the 340B Program.
    Response: HRSA agrees with these comments and has proposed a 
balanced expansion to the 340B discounts to new entities and continued 
benefits for the development of orphan drugs for rare diseases and 
conditions.
    Comment: Several of the commenters supported the clear statement in 
the proposed rule that manufacturers are prohibited from placing 
conditions or limitations on the purchase of orphan drugs for non-
orphan conditions.
    Response: HRSA has sought to make clear that all orphan drugs that 
meet the definition of covered outpatient drug for these four types of 
entities are subject to the same requirements applicable to all other 
340B covered outpatient drugs. Therefore, orphan drugs used for common 
conditions are subject to the same general rules and requirements under 
the 340B Program as all other covered outpatient drugs (e.g., pricing, 
availability, etc.). Section 340B(e) of the PHSA does not alter a 
manufacturer's obligation to sell covered outpatient drugs at no 
greater than the ceiling price to the designated covered entities. A 
manufacturer may not condition the offer of statutory discounts upon a 
covered entity's assurance of

[[Page 44020]]

compliance with section 340B provisions. At the same time, an affected 
entity is required to maintain systems that distinguish the use of such 
drugs for orphan and non-orphan use. If an entity cannot maintain such 
systems of records, it cannot purchase orphan drugs, regardless of the 
indication, through the 340B Program. Failure to do so may result in 
the entity's obligation to repay a manufacturer for the inappropriate 
purchase and use of 340B orphan drugs for prohibited purposes.
    Comment: Several comments from manufacturers included the assertion 
that the plain text of the 340B orphan drug exclusion does not permit 
an indication-specific interpretation. Others stated that the statutory 
language unambiguously applied to drugs and not a particular use of a 
drug. Some urged HRSA to reach the same conclusion on the grounds that 
if Congress had intended the statute to be interpreted on the basis of 
the indication, that the statute would have expressly stated that it 
only applied when utilized for the rare designation or indication. One 
commenter stated that when Congress intends to distinguish between 
different indications of a drug, the term ``indication'' is expressly 
stated in the statute and that in the absence of express references to 
particular indications, a reference to ``a drug'' designated under 
section 526 for a rare disease or condition applies to all uses of the 
drug. In support of this statement the commenter stated that the 
relevant provisions of FFDCA section 736(a)(1)(F) and the Patient 
Protection and Affordable Care Act section 9008(e)(3) contain 
``indication-specific'' language.
    Response: This rule is consistent with the language of the orphan 
drug exclusion in 340B(e) of the PHSA, which states that it applies to 
drugs ``for a rare disease or condition.'' Interpreting the statutory 
language to exclude all uses of drugs with an orphan designation, 
including indications for other diseases and conditions, would nullify 
the benefits of the expansion of the 340B Program for those entities. 
Therefore, we believe that interpreting the statutory language to 
exclude all indications for a drug that has an orphan drug designation 
is contrary to Congressional intent to balance the interests of orphan 
drug research and the expansion of the 340B Program to new entities. 
Drugs that are marketed for a rare disease are in some cases also 
approved for other indications; some of these drugs are among the most 
widely used today. This rule recognizes the unique issues associated 
with orphan drugs, when the drug with such a designation is used for a 
rare disease or condition, by excluding them from the 340B Program for 
these entities. This approach is consistent with the implementation of 
the FFDCA by FDA. Some orphan designated drugs have not yet been 
approved for marketing for the rare condition or disease, but may have 
marketing approval for other indications. The fact that drugs can have 
multiple indications, only some of which qualify for orphan 
designation, has led HHS to conclude, consistent with the statutory 
language, that the exemption from the term ``covered outpatient drug'' 
under section 340B(e) of the PHSA applies to orphan drugs only when 
they are transferred, prescribed, sold, or otherwise used for the rare 
condition or disease for which the orphan drug was designated.
    Comment: Some of the commenters asked the agency to make further 
clarifications in its interpretation of section 340B(e) of the PHSA. 
Some asked that HRSA clarify the confusion that will exist because of 
``designated'' versus ``designated/approved'' products on the FDA 
orphan drug list.
    Response: HRSA believes that the rule clarifies orphan drug 
designations as it applies to section 340B(e) of the PHSA. A drug is 
designated by the FDA as ``a drug for a rare disease or condition'' 
pursuant to section 526 of the FFDCA if, at the request of the sponsor, 
FDA finds that the drug is being or will be investigated for a rare 
disease or condition. This designation is referred to as ``orphan-
drug'' designation. The award of an orphan drug designation does not 
alter the standard regulatory requirements and process for obtaining 
marketing approval, which is a separate process administered by the 
FDA's Center for Drug Evaluation and Research and the Center for 
Biologics Evaluation and Research. In fact, a large majority of drugs 
with orphan designations do not have approval to be marketed in the 
United States. Only outpatient drugs that have been approved for 
marketing in the United States are included in the 340B Program. Thus, 
among outpatient drugs that have received an orphan designation, only 
those that have also received marketing approval by the FDA can be 
included as covered outpatient drugs in the 340B Program.
    Comment: Some commenters stated that HRSA should clarify that the 
340B orphan drug exclusion will only apply for a drug manufactured by 
the sponsor of the orphan drug--not generic drugs or other 
manufacturers of the same drug for non-orphan conditions.
    Response: HRSA believes that it is clear that the exclusion only 
applies to those drugs that match the section 526 listing by the FDA, 
which includes the name of the drug's sponsor. HRSA has further 
clarified in the preamble that the exclusion is limited to the drug 
that is specific to the sponsor listed.
    Comment: Some commenters said that the 340B orphan drug exclusion 
should only apply through the 7-year market exclusivity period granted 
to orphan drugs. They contend that section 340B(e) of the PHSA should 
not apply for orphan drugs that have exceeded this exclusivity period.
    Response: Given that section 340B(e) of the PHSA makes no mention 
of marketing exclusivity, HRSA does not interpret the statutory 
language to only apply through the exclusivity period. Regardless of 
exclusivity, an orphan drug maintains its designation status by FDA 
indefinitely, even after the exclusivity period.

2. Administrative Burden

    Comment: Nearly all of the comments submitted in support of the 
proposed rule expressed concern about the potential burdens of 
maintaining records to demonstrate compliance, as described in proposed 
Sec.  10.21(c). While many noted it was appropriate that the 
responsibility for demonstrating compliance remain with the covered 
entity, most asserted that Sec.  10.21(c) would be challenging for 
covered entities and asked HRSA to recognize the burdens and allow 
flexibility regarding the particular approaches covered entities use 
for compliance. A commenter representing hospitals said its members 
recognized the challenges but reported they would be able to ensure, on 
a drug-by-drug basis, compliance with Sec.  10.21(c) of the proposed 
rule. The commenter asked HRSA to allow hospitals to use alternative 
compliance systems that do not require separate purchasing accounts. 
Other commenters asserted that current split-billing software cannot 
track or provide auditable records regarding patients and their 
diagnoses.
    Response: HRSA recognizes that compliance with this rule may be 
challenging for the subset of covered entities to which it applies. 
HRSA's OPA will provide technical assistance to covered entities 
seeking information concerning the new auditable records requirements. 
However, to ensure program integrity, the ability of a covered entity 
to determine which drugs are going to the entity's eligible patients 
has always been an essential element of covered entity participation. 
Under this rule, failure to comply with the applicable requirements is 
treated as violating the prohibition under sections 340B(a)(5)(B) and 
340B(a)(5)(C) of the

[[Page 44021]]

PHSA. Utilization of the 340B Program is voluntary and covered entities 
should take into account any burden they may have in ensuring 
compliance. The covered entity is responsible for ensuring that records 
that document its compliance are auditable by the government or 
manufacturers in accordance with section 340B(a)(5)(C) of the PHSA. 
HRSA has instituted a covered entity audit program, and in these audits 
HRSA will include a review of covered entities' auditable records that 
demonstrate compliance with this regulation, when applicable. 
Additionally, in accordance with section 340B(a)(5) of the PHSA, 
manufacturers have the right to audit covered entities' compliance with 
these requirements. As already permitted by this program, the covered 
entity may also document its compliance by developing an alternative 
system to tracking each discounted drug through the purchasing and 
dispensing process. (59 FR 25113 (May 13, 1994)). Alternative tracking 
systems must be approved and will be considered by HRSA on a case-by-
case basis. Under Sec.  10.21(c), affected covered entities that cannot 
or do not wish to maintain auditable records sufficient to demonstrate 
compliance with this rule, must purchase all orphan drugs, regardless 
of indication, outside of the 340B Program.
    Comment: While noting it will be burdensome to make necessary 
adaptations, some commenters stated that their current split-billing 
software and other systems can be updated to track drug purchases with 
patient diagnoses to create auditable records that show compliance. One 
hospital said it will be using ICD-9-CM codes and noted this should be 
a relatively simple approach that most hospitals should be able to use. 
The commenter thought this approach would likely be over-inclusive 
regarding orphan drug transactions, so there would be a low risk of 
non-compliance. One hospital said it would be difficult, but it would 
be able to mine data from clinical systems to support an audit trail to 
comply with the recordkeeping requirements. A few commenters recognized 
there will be expenses involved in complying with the recordkeeping 
requirements of Sec.  10.21(c), but believed the costs would be more 
than offset by realized savings. A few covered entity commenters 
mentioned they would be ready and willing to respond to government or 
government-approved manufacturer audit requests, as described under 
proposed Sec.  10.21(c).
    Response: HRSA believes that maintaining auditable records and 
tracking the use of orphan drugs by indication is achievable. The rule 
continues to recognize that participation in the 340B Program is 
voluntary and allows covered entities to determine whether to 
participate. Likewise, covered entities that are unable or unwilling to 
respond to an appropriate audit request should not participate in the 
340B Program. In addition, covered entities can propose alternative 
tracking systems for approval by HRSA on a case-by-case basis. While 
not applicable to all covered entities, HRSA believes the benefits of 
purchasing orphan drugs in the 340B Program will typically outweigh the 
costs of implementing these systems.
    Comment: Many commenters pointed out that diagnosis codes and other 
information are not readily available for prescriptions handled in the 
retail setting. Concerned that resulting costs in the retail setting 
could outweigh the benefits of participation in the 340B Program, 
commenters asked HRSA to create alternatives and take the necessary 
steps in developing the final rule to make certain covered entities 
have a chance of participating and benefitting from the 340B Program.
    Response: HRSA recognizes that these new requirements will require 
additional procedures and system capabilities. The affected hospitals 
will need to determine how they will meet these requirements and the 
cost of ensuring compliance with this rule. HRSA will continue to work 
with the covered entities to which this provision applies to provide 
information and technical assistance to find efficient and effective 
means of participating in the 340B Program. HRSA guidelines (59 FR 
25113 (May 13, 1994)) allow the covered entity discretion to develop an 
alternative system, short of tracking each discounted drug through the 
purchasing and dispensing process, to prove compliance. If an alternate 
system of tracking is proposed, it must be approved by HRSA. Each 
alternate system of compliance will be reviewed on a case-by-case basis 
(59 FR 25113 (May 13, 1994)). Under Sec.  10.21(c), affected covered 
entities that cannot or do not wish to maintain auditable records 
sufficient to demonstrate compliance with this rule, must purchase all 
orphan drugs, regardless of indication, outside of the 340B Program.
    Comment: Many commenters suggested, as an alternative in both 
hospital and retail settings, that HRSA allow entities to conduct a 
retrospective review or track historical utilization of orphan drugs as 
a proxy for current utilization rather than a drug-by-drug analysis. 
Commenters suggested that covered entities would submit these 
alternative tracking systems to HRSA for advance approval and said a 
flexible approach would help ensure broader participation in the 340B 
Program while maintaining program integrity. One commenter suggested 
HRSA could limit the burdens by requiring covered entities to maintain 
records of orphan drugs that are actually used for the orphan 
indication rather than tracking all uses since orphan drug use is rare 
by definition.
    Response: HRSA believes the legislative language permits an orphan 
drug to be dispensed only for a non-orphan condition under the 340B 
Program. In order to ensure compliance, the entity must maintain 
auditable records sufficient to demonstrate compliance with this rule. 
A proxy for current utilization will not meet auditable records 
compliance requirements to determine if the orphan drugs are used for a 
rare disease or condition. However, HRSA is amenable to alternate 
recordkeeping systems that would permit such analysis.
    Comment: One commenter expressed concern about whether covered 
entities could comply with proposed Sec.  10.21(c), without additional 
guidance from HRSA. For instance, the commenter noted that FDA's Web 
site does not include National Drug Codes (NDCs) for orphan products, 
and said that HRSA should provide guidance regarding whether all drugs 
appearing on the FDA orphan drug list would be eligible for purchase 
for off-label uses.
    Response: HRSA believes that the rule provides sufficient direction 
for covered entities to identify drugs that are subject to the orphan 
drug provision and will provide additional assistance as appropriate. 
The rule specifies the circumstances under which an orphan drug meets 
the definition of covered drug for the purposes of the 340B Program. 
This information can be accessed by the public at http://www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm. Because of 
the need for recordkeeping and tracking by covered entities which are 
limited in purchasing orphan drugs for rare conditions, the 340B 
Program will use the FDA's list of drugs on a quarterly basis. HRSA 
will publish on its public Web site FDA's section 526 list of drugs on 
the first day of the month prior to the end of the calendar quarter to 
govern the following quarter's purchases. Manufacturers and covered 
entities will use HRSA's published orphan drug list to determine 
whether a drug is designated under section 526 of the

[[Page 44022]]

FFDCA and, if so, the rare indication for which it is designated.
    Comment: One wholesaler noted its position in the middle of the 
supply chain would likely make it necessary to institute additional 
compliance activities and/or offer additional assistance to covered 
entities to help them meet their compliance responsibilities under 
proposed Sec.  10.21(c). The wholesaler noted this could add costs to 
its daily operations.
    Response: HRSA encourages all stakeholders to develop mechanisms to 
ensure efficiency and compliance. HRSA will continue to provide 
technical assistance to stakeholders regarding compliance requirements 
and implementation of this rule.
    Comment: Some commenters expressed that the proposed rule failed to 
address compliance issues and enforcement of hospital noncompliance. 
One commenter asserted that manufacturers would be unable to audit 
covered entities' compliance with section 340B(e) until existing audit 
guidelines are amended through a notice and comment process.
    Response: The rule interprets the meaning of section 340B(e) of the 
PHSA and makes clear that failure to comply is treated as a failure to 
comply with the prohibition on transferring drugs to individuals other 
than patients of the entity under section 340B(a)(5)(B) of the PHSA. 
This is consistent with previous guidance issued by the Department 
after notice and comment (59 FR 25113 (May 13, 1994)), which indicates 
that use of 340B discounted drugs in excluded services (e.g., inpatient 
setting, ineligible site) is drug diversion and therefore violates 
section 340B(a)(5)(B) of the PHSA. The current manufacturer audit 
guidelines (61 FR 65406 (December 12, 1996)) apply to violations of 
section 340B(a)(5)(B) of the PHSA, and therefore manufacturers have the 
ability to audit covered entities' compliance with the orphan drug 
provision pursuant to those guidelines. A hospital's non-compliance 
with the requirements of this rule will be pursued by the Department 
similarly to any other violation of sections 340B(a)(5)(A) and 
340B(a)(5)(B). HRSA has instituted audits of covered entities, and in 
future audits, HRSA will include a review of covered entities' 
auditable records that demonstrate compliance with this regulation, 
where applicable. In addition, HRSA permits manufacturer audits of 
covered entities in which the manufacturer demonstrates reasonable 
cause that the entity is violating statutory prohibitions against 
duplicate discounts (340B(a)(5)(A)) or diversion (340B(a)(5)(B)).
    Comment: Some commenters asserted that, at the time of purchase, a 
given drug's indication will be unknown and that after the drug is used 
it will be impossible, under current coding procedures, to determine 
whether the drug was used for a rare indication or otherwise.
    Response: In those cases where a covered entity cannot comply with 
the requirement to maintain auditable records demonstrating compliance 
with the orphan drug rule, the rule states the covered entity must 
purchase all orphan drugs, regardless of indication, outside the 340B 
Program to ensure compliance. Prior to purchasing orphan drugs, an 
entity is required to notify HRSA if it is able to comply with this 
rule and if it will be purchasing all orphan drugs outside the 340B 
Program. HRSA will add this information for relevant entities to its 
public Web site so stakeholders are aware of a covered entity's 
purchasing practices under this rule. Covered entities will have the 
option of either developing additional documentation, using drugs 
purchased outside 340B, or developing an alternative method of 
compliance. Alternate tracking systems will be reviewed for approval by 
HRSA on a case-by-case basis (59 FR 25113 (May 13, 1994)).
    Comment: Several manufacturers asserted that the proposed rule 
would require manufacturers to participate in a complex new framework 
in which they would have to sell their orphan drugs to newly-eligible 
entities through two different accounts; determine whether particular 
sales were going through proper accounts; monitor the newly-eligible 
entities, in an effort to ensure that their 340B purchases of orphan 
drugs were limited to circumstances where the drugs were ultimately 
used for non-orphan indications; and reduce the risks of payment error 
by attempting to educate the newly-eligible entities about the rare 
disease(s) for which the manufacturer's orphan drugs were designated 
and how those diseases should be identified on claims forms. In the 
aggregate, the costs of performing these various new functions 
(including costs of personnel, data systems, services of relevant 
consultants, etc.) would be significant, and would drain resources from 
tasks central to the company's mission.
    Response: The regulation does not create new requirements or 
mandatory functions for manufacturers that participate in the 340B 
Program. The 340B Program already includes circumstances where covered 
entities purchase a drug from the manufacturer both inside and outside 
of the 340B Program (e.g., drugs that may be either inpatient or 
outpatient, drugs subject to Medicaid rebate claims, drugs for 
individuals not eligible as patients).

3. Best Price

    Comment: Several manufacturers commented that HRSA cannot require 
manufacturers to sell orphan drugs to the newly-eligible entities at 
340B prices until CMS issues guidance confirming explicitly that sales 
of orphan drugs to newly-eligible entities at (or below) 340B prices 
are exempt from Medicaid Best Price determinations.
    Response: HRSA does not believe that compliance with the 340B 
Program is contingent upon implementing regulations expressly 
addressing the effect on Medicaid Best Price for orphan drugs. As 
provided under section 340B(a)(10) of the PHSA, the law does not 
prohibit manufacturers from charging a price for a drug that is lower 
than the maximum price that may be charged under section 340B(a)(1). 
CMS has the authority to issue regulations on the Medicaid best price 
exemption. In the absence of specific guidance, manufacturers may make 
reasonable assumptions in their calculations, consistent with the 
general requirements and intent of section 1927 of the Social Security 
Act, Federal Regulations, the Medicaid drug rebate agreement, and their 
customary business practices.

4. Must Offer

    Comment: One commenter asserted that the proposed rulemaking 
represents an impermissible attempt to implement the ``must offer'' 
provision of the Affordable Care Act and that the ``must offer'' 
provision can only be implemented if it is written into the PPA. 
Section 340B(a)(1) of the PHSA indicates that the PPA shall require ``. 
. . that the manufacturer offer each covered entity covered outpatient 
drugs for purchase at or below the applicable ceiling price if such 
drug is made available to any other purchaser at any price.'' Several 
other manufacturers commented on the must offer provision and expressed 
concerns about how that language would be implemented. One commenter 
argued that section 340B(a)(1) of the PHSA, as amended by the 
Affordable Care Act to require manufacturers to ``offer each covered 
entity covered drugs for purchase at or below the applicable ceiling 
price if such drug is made available to any other purchaser at any 
price,'' means that manufacturers ``must sell'' orphan drugs to covered 
entities under the terms of

[[Page 44023]]

the statute, as interpreted by HRSA in the proposed rule.
    Response: This regulation is not dependent upon implementation of 
the ``must offer'' provision, and even if it were, this regulation 
would be a permissible implementation of that provision. Long before 
the recent inclusion of the ``must offer'' provision in the 340B 
statute by the Affordable Care Act, the Department has consistently 
held that manufacturers may not single out covered entities from their 
other customers for restrictive conditions that would undermine the 
statutory objective, and that manufacturers must not place limitations 
on transactions which would have the effect of discouraging entities 
from participating in the program (59 FR 25113 (May 13, 1994)). This 
would include a requirement that manufacturers offer drugs at the 340B 
discount to 340B covered entities on the same basis as its other 
customers. A refusal to offer orphan drugs to a 340B covered entity on 
the basis of 340B Program participation would violate the 340B 
statutory requirements.
    Section 340B(e) of the PHSA does not alter a manufacturer's 
obligation to sell covered outpatient drugs at no greater than the 
ceiling price to the designated covered entities. In addition, the 
``must offer'' provision would not need to be specifically written into 
the PPA prior to taking effect. As the U.S. Supreme Court recently 
confirmed (Astra USA v. Santa Clara County, 131 S.Ct. 1342 (2011)), 
PPAs are not transactional, bargained-for contracts, but simply serve 
as the means by which drug manufacturers opt into the statutory 
framework of the 340B Program.

5. GPO Prohibition

    Comment: Several manufacturers commented that the proposed rule 
permitting the use of a GPO to purchase orphan drugs when used for the 
orphan designated purpose was contrary to statute and stated that there 
were no statutory exceptions to the GPO prohibition. Several 
manufacturers expressed the view that the proposed rule's treatment of 
the GPO prohibition as applied to free-standing cancer hospitals was 
inconsistent with prior application and would substantially undermine 
the GPO prohibition.
    Response: Section 340B(a)(4)(L)(iii) of the PHSA requires certain 
hospitals participating in the 340B Program to ``not obtain covered 
outpatient drugs through a group purchasing organization or other group 
purchasing arrangement.'' The 340B statute prevents disproportionate 
share hospitals, children's hospitals, and free-standing cancer 
hospitals from obtaining covered outpatient drugs through a GPO. Of 
those entities, only free-standing cancer hospitals are impacted by the 
orphan drug exclusion. In this final rule, free-standing cancer 
hospitals are permitted to use a GPO to purchase orphan drugs only when 
they are transferred, prescribed, sold, or otherwise used for the rare 
condition or disease for which that orphan drug was designated under 
section 526 of the FFDCA, as these drugs are not covered outpatient 
drugs for these hospitals for purposes of the 340B Program. If the 
free-standing cancer hospital chooses to use a GPO for purchasing 
orphan drugs when used for a rare disease or condition for which it was 
designated, it is required to maintain auditable records that 
demonstrate full compliance with orphan drug purchasing requirements 
and limitations. If a free-standing cancer hospital does not have the 
necessary tracking systems in place to ensure compliance with the GPO 
prohibition for the use of orphan drugs in non-designated situations, 
it must purchase all orphan drugs, regardless of indication, through a 
separate purchasing account outside of the 340B Program and would not 
be permitted to use a GPO for any of those drugs. HRSA agrees that a 
free-standing cancer hospital prohibited from using a GPO under the 
340B Program should not use a GPO for the purchase of all orphan drugs 
if the hospital cannot or is unwilling to create auditable records 
concerning orphan drug purchases. Allowing a free-standing cancer 
hospital to purchase all of its orphan drugs through GPOs would, in 
effect, allow hospitals to purchase orphan drugs that are included in 
the definition of ``covered outpatient drugs,'' which is prohibited. 
The rule has been amended to reflect this distinction.
    Comment: Entities and their stakeholder groups generally supported 
proposed Sec.  10.21(d), which allows a free-standing cancer hospital 
that decides not to use 340B for orphan drugs to purchase orphan drugs 
through a GPO instead. One commenter explained that HRSA has the legal 
authority to interpret the GPO prohibition provision flexibly to permit 
a free-standing cancer hospital to use a GPO for all orphan drugs if it 
decides not to track non-orphan use. The commenters stated that this 
approach provides cancer hospitals, which use a much higher volume of 
orphan drugs than other affected covered entities, flexibility as they 
evaluate their compliance options.
    Response: HRSA disagrees with the commenters who state that HRSA 
has the flexibility to permit a free-standing cancer hospital to use a 
GPO for all orphan drugs if it decides not to track non-orphan use. 
Under this assertion, the free-standing cancer hospital could use a GPO 
for any orphan drug, whether used for a common condition or used for 
the orphan designation. However, as noted above, the statute is clear 
that certain entities, including a free-standing cancer hospital, 
cannot use a GPO for obtaining covered outpatient drugs. HRSA has 
concluded that the statute does not permit the commenter's proposed 
alternative because orphan drugs being used for non-rare indications 
are covered outpatient drugs and included in the 340B Program. While 
HRSA recognizes that the volume of drugs utilized by a free-standing 
cancer hospital is substantial, and such a hospital has the desire to 
minimize administrative burden, it does not change the definition of 
covered outpatient drug for purposes of the GPO prohibition. A hospital 
can choose not to enroll in the 340B Program if it calculates that the 
benefits are not sufficient given the program requirements to track 
purchases.

6. Impact on Orphan Drug Incentives

    Comment: Several manufacturers expressed that the proposed rule 
would significantly undermine financial benefits for manufacturers by 
sharply reducing economic incentives for the manufacturing of therapies 
to treat rare diseases. In contrast, other commenters suggest that the 
rule as proposed would upset the balance in the marketplace by creating 
incentives for the manufacturer to seek the development of drugs for 
rare diseases or conditions.
    Response: This rule implements the PHSA statute for the 340B 
Program. It does not, nor does HRSA have the authority, to alter the 
statutory incentives for orphan drug development under the FFDCA. 
Manufacturers that seek orphan-drug designations for rare diseases 
under the FFDCA continue to receive the full statutory benefits for 
those designations under this rule. The incentives provided to 
manufacturers of orphan drugs are specific to an orphan drug 
designation for a rare disease or condition.
    Comment: Some covered entity commenters assert that the orphan drug 
exclusion, as proposed, follows the spirit of the 340B Program, 
providing new entities access to the program while preserving financial 
incentives for manufacturers. According to these comments, the proposed 
rule is consistent with the FDA's approach of

[[Page 44024]]

tying tax credits, market exclusivity, orphan drug research grants, 
user fee exemptions, and other orphan drug incentives to orphan drug 
indications. One commenter pointed out that the exclusion of orphan 
drugs from 340B pricing for certain newly-eligible entities is, in 
effect, yet another incentive to promote investment in drugs for the 
diagnosis or treatment of rare diseases or conditions. This commenter 
believes the incentive is properly limited to orphan drugs when used 
for a rare disease or condition and is consistent with Congressional 
intent that the 340B orphan drug exclusion protect those drugs used for 
orphan diseases and populations.
    Response: HRSA agrees that the orphan drug exclusion as outlined in 
this regulation follows the intent of the 340B Program by providing the 
newly added entities access to the program benefits while preserving 
financial incentives for manufacturers to develop orphan drugs for rare 
diseases or conditions.

7. Impact on Covered Entities

    Comment: All of the comments from covered entities and their 
stakeholder groups concurred with HRSA's estimate that the proposed 
rule would result in a net savings for affected covered entities. Some 
said the savings would be difficult to quantify, but one commenter 
noted that orphan drugs made up only 1.5 percent of their pharmacy 
inventory last year, but accounted for 52 percent of inventory costs. 
Many comments from covered entities provided HRSA with estimates of 
potential savings estimated to be between $360,000 and $3,000,000 
annually. All of the commenters said that significant savings from the 
340B Program are needed to safeguard the financial stability of safety-
net providers and allow them to extend improved care to their patients. 
Another said the funds saved on orphan drugs through the 340B Program 
are desperately needed to help patients in rural communities. A few 
commenters said that a broad interpretation of the exclusion that 
includes drugs used for non-rare indications would so substantially 
reduce program savings so as to make the overall costs outweigh the 
benefits of 340B participation.
    Response: HRSA continues to believe that although difficult to 
estimate with specificity, the final rule strikes the appropriate 
balance between providing 340B covered entity legislatively-required 
discounts, while preserving the incentives of manufacturers to continue 
to produce orphan drug products for rare diseases and conditions. The 
final rule is expected to benefit the affected covered entities by 
establishing certainty as to the applicability of the exclusion and 
ensuring the option of continued access to drugs that, although 
designated as orphan drugs for certain indications, are approved for 
broader uses.

8. Impact on Patient Populations

    Comment: Some comments from manufacturers and manufacturer groups 
expressed the view that the proposed rule would threaten the well-being 
of vulnerable populations by decreasing access to needed orphan drugs 
by delaying the purchase and dispensing of medications due to the need 
to do so on an indication basis.
    Response: Hospitals that participate in the 340B Program are 
already required to manage drug purchases to ensure that drugs used in 
the 340B Program are for outpatient purposes only. Participation in the 
340B Program is voluntary and covered entities are not prohibited under 
section 340B from purchasing drugs outside of the 340B Program. Covered 
entities are never encouraged to delay dispensing drugs in any manner 
that would threaten the health and safety of a patient.
    Comment: Some manufacturers expressed that the proposed rule would 
jeopardize the economic viability of a product by substantially 
reducing its commercial marketplace.
    Response: HRSA believes that the final rule's interpretation best 
meets the intent of Congress in the enactment of section 340B(e) of the 
PHSA, and that implementation of this rule will not result in 
jeopardizing the economic viability of orphan drug products. The impact 
of this final rule is narrowed by the fact that the orphan drug 
exclusion only applies to a subset of newly-eligible entities which are 
expected to make up a small percentage of the total purchases of 
covered outpatient drugs through the 340B Program. Covered entity drug 
purchases under the entire 340B Program are estimated at $6 billion, 
making up an estimated 2 percent of the total prescription drug market. 
In fiscal year 2012, the covered entities to which this rule applies 
comprised an estimated 3.13 percent of total 340B sales for all covered 
entities. The purchase of orphan drugs would be a subset of these 
purchases. All other eligible 340B entities may purchase orphan drugs 
for any disease or condition.
    Comment: Several entities commented that they use the additional 
savings from the purchase of orphan drugs for non-orphan indications at 
340B pricing to benefit their patients and communities. One called the 
proposal an important step in supporting access and comprehensive 
provision of healthcare for millions of Americans. Certain comments 
from the four most recently eligible entities noted specific plans to 
use savings to expand pharmacy services, reduce medication costs for 
the neediest patients, provide medication therapy management services, 
and reduce readmission rates at their institutions. Several commenters 
said they needed the benefits of 340B Program participation to help 
offset the costs of uncompensated care they provide to their 
communities each year. One comment asserts the inability of covered 
entities to obtain orphan drugs under the 340B Program would have a 
huge negative impact on the ability of patients to treat their diseases 
when these drugs become too expensive and unattainable.
    Response: HRSA believes that this rule's interpretation provides 
clarity in the marketplace, reflects the intent of Congress to maintain 
the 340B savings for newly-eligible covered entities, and protects the 
financial incentives for manufacturing orphan drugs designated for a 
rare disease or condition.

9. Effective Date/Application on Past vs. Prospective

    Comment: Some manufacturers commented that the rule should only be 
applied prospectively. One stated that a good faith interpretation 
prior to the finalization of a regulation should be allowed to stand. 
Some stated that applying the standard to prior sales would be 
inappropriate and administratively burdensome.
    Response: HRSA agrees that attempting to apply the final rule 
retrospectively would be administratively burdensome and difficult to 
implement for all stakeholders. The final rule will only apply 
prospectively.

10. Miscellaneous

    Comment: One commenter asked HRSA to clarify how the rule would 
apply to contract pharmacies of affected covered entities. In 
particular, the commenter asked HRSA to allow covered entities to use a 
different compliance approach at their main and contract facilities. 
Under this scenario, the main facility would maintain auditable records 
to show compliance under Sec.  10.21(c), while a satellite facility 
using a contract pharmacy would be allowed not to comply with the 
recordkeeping requirements and purchase all orphan drugs outside the 
340B Program.
    Response: Covered entities and their contract pharmacies are 
required to

[[Page 44025]]

keep auditable records and provide them upon either HRSA's request or 
upon a government-approved manufacturer audit request, provided that 
audit request directly pertains to the covered entity's compliance with 
section 340B(e) of the PHSA. Contract pharmacies are under the same 
compliance requirements with this rule as a covered entity. Affected 
covered entities with contract pharmacies that cannot or do not wish to 
maintain auditable records sufficient to demonstrate compliance with 
this rule, must purchase all orphan drugs, regardless of indication, 
outside the 340B Program. A covered entity that is listed on the 340B 
database and compliant with the auditable records requirement for 
orphan drugs purchased under 340B can have an outpatient facility that 
chooses not to comply with the recordkeeping requirement if the 
outpatient facility makes all of its orphan drug purchases outside the 
340B Program.
    A covered entity that cannot or does not wish to maintain auditable 
records sufficient to demonstrate compliance with this rule, must 
inform HRSA and purchase all orphan drugs outside of the 340B Program 
regardless of the indication for which the drug is used. Once a 
hospital is enrolled in 340B, it may change its decision to purchase 
all orphan drugs outside of the 340B Program on a quarterly basis by 
notifying HRSA.
    Comment: One manufacturer requested that HRSA clarify that covered 
entities that lose their eligibility for the 340B Program are not 
permitted to participate while seeking to meet eligibility 
requirements.
    Response: Once a covered entity is no longer eligible for the 340B 
Program and removed from the 340B public database, that entity is not 
eligible to purchase 340B drugs.

IV. Economic and Regulatory Impact

    Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, or 
reducing costs, of harmonizing rules, and of promoting flexibility. 
This rule has been designated a ``significant action'' under section 
3(f) of Executive Order 12866. The rule has been reviewed by the Office 
of Management and Budget.

Impact of the New Rule

Analysis of Impacts
    HHS has examined the impact of this final rule under Executive 
Order 12866 and the Regulatory Flexibility Act (5 U.S.C. 601-612), and 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). By way of 
background, the requirement that all covered entities maintain 
auditable records of 340B purchases is mandated by statute 
(340B(a)(5)(C) of the PHSA) and pre-dates this rule. Therefore, this 
regulation does not increase the burden of tracking or making available 
auditable records of 340B drug purchases not impacted by the orphan 
drug exclusion.
    This regulation does implement a revision to the preexisting 
statutory recordkeeping requirement by necessitating that newly covered 
entities listed in Sec.  10.21(b) be responsible for ensuring that any 
orphan drugs purchased through the 340B Program are not transferred, 
prescribed, sold, or otherwise used for the rare condition or disease 
for which the orphan drugs are designated under section 526 of the 
FFDCA. A newly covered entity will be required to declare whether it 
will purchase orphan drugs under 340B in its initial application, 
annual recertification, or change request. Only when a newly covered 
entity can maintain and provide auditable records that track the 
indication for 340B purchases of orphan drugs, will the entity be in 
compliance with this regulation. Tracking the indication for orphan 
drugs may increase the administrative burden of utilizing orphan drugs 
under the 340B Program. HRSA has no data or experience to employ in 
projecting a burden estimate in these cases.
    Our approach at implementation complies with statutory requirements 
while giving covered entities the flexibility to develop an alternative 
system of compliance (which must be approved by the Secretary) or 
decide not to use orphan drugs under the statute should they determine 
the burden to be excessive. Finally, none of the comments received 
provided a less burdensome alternative that meets the existing 
statutory requirements or provided information to quantify the burden 
under the Paperwork Reduction Act.
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
regulatory options that would minimize any significant impact of a rule 
on small entities. For purposes of the regulatory flexibility analysis, 
we consider all health care providers to be small entities either by 
virtue of meeting the SBA size standard for a small business, or for 
being a nonprofit organization that is not dominant in its market. The 
current SBA size standard for health care providers ranges from annual 
receipts of $7 million to $34.5 million. States and individuals are not 
considered small entities under the RFA.
    Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before promulgating any final rule 
that includes any Federal mandate that may result in the expenditure by 
state, local, and tribal governments, in the aggregate, or by the 
private sector, of $100,000,000 or more (adjusted annually for 
inflation) in any one year. The current threshold after adjustment for 
inflation is $139 million, using the most current (2011) Implicit Price 
Deflator for the Gross Domestic Product. HHS does not expect this final 
rule to result in any 1-year expenditure that would meet or exceed this 
amount.
    In accordance with Executive Order 12866, we analyzed the potential 
economic effects of the proposed rule. As stated above, we are unable 
to quantify either the costs or the benefits of the final rule. 
However, we expect the benefits to exceed the costs as explained below.
    HHS has reviewed this final rule in accordance with Executive Order 
13132 regarding federalism, and has determined that it does not have 
``federalism implications.'' This rule would not ``have substantial 
direct effects on the states, or on the relationship between the 
national government and the states, or on the distribution of power and 
responsibilities among the various levels of government.''
    The requirements set forth in this final rule will not adversely 
affect the following family elements: family safety, family stability, 
marital commitment; parental rights in the education, nurture and 
supervision of their children; family functioning, disposable income or 
poverty; or the behavior and personal responsibility of youth, as 
determined under section 654(c) of the Treasury and General Government 
Appropriations Act of 1999.
A. Costs, Benefits and Transfer Effects of the Regulation
1. Impact on Covered Entities
    The final rule provides covered entities with clarity on the 
meaning of section 340B(e) of the PHSA and

[[Page 44026]]

provides flexibility in making purchasing decisions. Under the final 
rule, covered entities will have the choice to either purchase a drug 
with an orphan designation under the FFDCA outside of the 340B Program 
or to purchase such drugs under the 340B Program while maintaining 
auditable records required under section 340B(a)(5)(C) of the PHSA that 
show that such drugs are not used for an orphan drug indication. HHS is 
not able at this time to estimate the costs of showing compliance for 
those affected entities that choose to purchase orphan drugs under 
340B. However, as of April 1, 2013, 967 parent facilities and 2212 
outpatient/child sites of the four types of affected entities are 
enrolled. Affected entities make up 10.3 percent of all covered entity 
types.
    HHS has received anecdotal information suggesting that, absent this 
final rule, some manufacturers have refused to offer any orphan drugs 
for any indication under 340B to the newly-affected covered entities. 
By clarifying that such actions are inconsistent with drug 
manufacturers' participation agreements related to the 340B Program, 
the final rule is expected to increase affected covered entities' 
access to 340B price reductions on orphan drugs when those drugs are 
used for indications other than those for which the drug received an 
orphan drug designation. HHS does not have sufficient information to 
make a comprehensive assessment.
    The total amount in reduced expenditures of drugs resulting from 
this rule depends on market activity absent this regulation, compared 
with market activity following promulgation of this final rule. We have 
estimates that the orphan drug market as a whole for both inpatient and 
outpatient services is approximately $40 billion. In general, covered 
entity purchases under the entire 340B Program are estimated at $6 
billion and make up an estimated 2 percent of the total prescription 
drug market. The only covered entities impacted by this final rule are 
the entities listed in 340B(e). In fiscal year 2012, these covered 
entities only made up an estimated 3.13 percent of total 340B sales for 
all covered entities. The purchase of orphan drugs would be a subset of 
these purchases.
    The savings for entities purchasing under 340B varies considerably, 
with savings as high as 50 percent. HHS estimates that the final rule 
will help ensure sales at or below the 340B ceiling price in 50 to 75 
percent of such sales to the newly-eligible entities where orphan 
designated drugs are used for an indication other than the rare disease 
or indication for which the orphan drug received its designation. Based 
upon these estimates, HHS projects that the final rule may result in a 
$6 to $9 million reduction in the cost to acquire drugs by the affected 
covered entities versus what these affected entities are paying to 
orphan drug manufacturers without the proposed rule for the purchase of 
these drugs for non-rare indications. HHS does not have sufficient data 
on the breakout of inpatient versus outpatient drug use. This cost 
reduction would be less if outpatient purchases by these covered 
entities were significantly less than inpatient purchases (e.g., if 
outpatient drugs were 50 percent of orphan drug purchases, then the 
cost reduction would only be $10 to $15 million). While concrete 
estimates cannot be provided, HHS concludes that this rule will result 
in a net economic benefit to the affected covered entities. This 
conclusion is based upon the assumption that the final rule will result 
in greater access to 340B pricing on drugs that have an orphan 
designation and are being purchased for non-rare uses, than without the 
rule, on the grounds that the flexibility provided to covered entities 
will permit them to utilize the program only where there is a net 
economic benefit. Without a rule, there would be continued uncertainty 
and variability with a general tendency among many manufacturers to 
broadly interpret the exclusion which would minimize or eliminate 
savings to the covered entities.
2. Impact on Participating Manufacturers
    The final rule creates no new reporting or record-keeping 
requirements for manufacturers that have a 340B PPA with the Secretary. 
The final rule clarifies section 340B(e) to assist manufacturers in 
complying with their statutory responsibilities. As noted above, by 
definition, all 340B drugs must have marketing approval for at least 
one indication. There are approximately 390 drugs that have been 
approved by the FDA for rare diseases and conditions. There is 
relatively little quantitative data published on the orphan drug sector 
and the data published emphasizes approval for rare indications. Data 
currently publicly available from the FDA on orphan designated drugs 
tends to focus on approval for rare indications as opposed to non-rare 
indications. Of those drugs, only those used for outpatients and for 
non-rare indications are eligible for purchase under the 340B Program. 
The pharmaceutical manufacturers of these orphan designated drugs with 
at least one marketing approval will be affected by this rule.
    The impact of this final rule is narrowed by the fact that the 
orphan drug exclusion only applies to a subset of newly-eligible rural 
hospitals, critical access hospitals, and free-standing cancer 
hospitals which in fiscal year 2012, made up an estimated 3.13 percent 
of total 340B sales for all covered entities. The overall economic 
impact is therefore difficult to estimate. In general, having a drug 
subject to the 340B ceiling price provides a cost savings to the 
purchasing covered entities and, if the drug would have otherwise been 
purchased at higher cost, a loss of that additional revenue to the 
manufacturer. The impact of this rule would vary considerably from drug 
to drug, depending on such factors as the level of utilization of drugs 
with orphan designations by the affected covered entities for non-rare 
indications, the elasticity of demand by the affected patient 
population, and the availability and cost of alternative treatments. 
Such anticipated cost savings and revenue losses would not occur when 
orphan designated drugs are purchased for their designated rare uses.
3. Impact on other Parties
    HHS has concluded that this final rule will not have a significant 
impact on those third party firms that do business with covered 
entities and drug manufacturers. To the extent that third parties are 
indirectly affected, HHS estimates that this will result in lowered 
cost due to increased certainty in the market place and reduced 
likelihood of disputes as to whether a covered entity was properly 
charged, and decrease the number of disputes between wholesalers and 
manufacturers.
B. Regulatory Flexibility Analysis
    The final rule provides flexibility for the affected covered 
entities while supporting all statutory requirements. Alternative 
interpretations of section 340B(e) would reduce flexibility for covered 
entities, and particular smaller covered entities, and potentially 
undermine the addition of entities added to section 340B(a)(4) by the 
Affordable Care Act, by making it less economically feasible for these 
entities to participate.

Paperwork Reduction Act

    The final rule contains information-collection activities for 
certain covered entities that voluntarily choose to purchase designated 
orphan drugs by requiring them to establish internal data systems to 
ensure compliance with the statute. The information collection

[[Page 44027]]

requirements will assist covered entities in maintaining program 
integrity and compliance with the requirements in Section 340B of the 
PHSA. The existing information collection activities are based on data 
collection requirements approved by the Office of Management and Budget 
(OMB No. 0915-0176 and OMB No. 0915-0327). The new statutory orphan 
drug requirements will necessitate an additional level of data to 
include the indication for which the orphan drug was prescribed or 
used.
    In some cases the existing systems may include sufficient 
information to determine the indication for which the drug was used, in 
other cases new systems will need to be developed if the covered entity 
chooses to purchase orphan drugs under 340B. The administrative burden 
of making this change is difficult to estimate and no comments were 
received to assist us in doing so.
    The final rule references statutory requirements to maintain 
auditable records sufficient to demonstrate program requirements. As 
required by the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3507(d)), a copy of this final rule was submitted to the Office of 
Management and Budget for its review of the collection of information.

    Dated: May 20, 2013.
Mary K. Wakefield,
Administrator, Health Resources and Services Administration.
    Approved: July 15, 2013.
Kathleen Sebelius,
Secretary.

List of Subjects in 42 CFR Part 10

    Biologics, Business and industry, Diseases, Drugs, Health, Health 
care, Health facilities, Hospitals, Orphan drugs, 340B Drug Pricing 
Program.

    For the reasons stated in the preamble, the Department of Health 
and Human Services, Health Resources and Services Administration adds 
42 CFR part 10 to subchapter A to read as follows:

PART 10--340B DRUG PRICING PROGRAM

Sec.
Subpart A--General Provisions
10.1 Purpose.
10.2 Summary of 340B Drug Pricing Program.
10.3 Definitions.
Subpart B--Eligibility To Purchase 340B Drugs
10.10 Entities eligible to participate in the 340B Drug Pricing 
Program.
Subpart C--Drugs Eligible for Purchase under 340B
10.20 Drugs eligible for purchase Under 340B.
10.21 Exclusion of orphan drugs for certain covered entities.

    Authority: Sec. 340B of the Public Health Service Act (42 U.S.C. 
256b), as amended; Sec. 215 of the Public Health Service Act (42 
U.S.C. 216), as amended; Sec. 526 of the Federal Food, Drug, and 
Cosmetic Act, as amended (21 U.S.C. 360bb); Sec. 701(a) of the 
Federal Food, Drug, and Cosmetic Act, as amended (21 U.S.C. 371(a)); 
Sec. 1927 of the Social Security Act, as amended (42 U.S.C. 1396r-
8).

Subpart A--General Provisions


Sec.  10.1  Purpose.

    This part implements section 340B of the Public Health Service Act 
(PHSA) ``Limitation on Prices of Drugs Purchased by Covered Entities.''


Sec.  10.2  Summary of 340B Drug Pricing Program.

    Section 340B of the PHSA instructs the Secretary of Health and 
Human Services to enter into agreements with manufacturers of covered 
drugs under which the amount required to be paid to these manufacturers 
by certain statutorily-defined entities does not exceed the average 
manufacturer price for the drug under title XIX of the Social Security 
Act (SSA) reduced by a rebate percentage which is calculated as 
indicated in 340B(a)(1) and 340B(a)(2)(A). Manufacturers participating 
in the 340B Drug Pricing Program (340B Program) are required to provide 
these discounts on all covered outpatient drugs sold to participating 
340B covered entities.


Sec.  10.3  Definitions.

    Ceiling price means the maximum statutory price established under 
section 340B(a)(1) of the PHSA.
    Covered entity means an entity that meets the requirements under 
section 340B(a)(5) of the PHSA and is listed in section 340B(a)(4) of 
the PHSA.
    Covered outpatient drug has the meaning set forth in section 
1927(k) of the SSA.
    Group purchasing organization (GPO) is an entity that contracts 
with purchasers, such as hospitals, nursing homes, and home health 
agencies, to aggregate purchasing volume and negotiate final prices 
with manufacturers, distributors, and other vendors.
    Manufacturer has the same meaning as set forth in section 
1927(k)(5) of the SSA.
    Orphan drug means a drug designated by the Secretary under section 
526 of the Federal Food, Drug, and Cosmetic Act (FFDCA).
    Participating drug manufacturer means a manufacturer that has 
entered into a Pharmaceutical Pricing Agreement with the Secretary.
    Pharmaceutical Pricing Agreement (PPA) means an agreement described 
in section 340B(a)(1) of the PHSA.
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human 
Services to whom the authority involved has been delegated.
    Section 340B means section 340B of the PHSA.

Subpart B--Eligibility To Purchase 340B Drugs


Sec.  10.10  Entities eligible to participate in the 340B Drug Pricing 
Program.

    Only organizations meeting the definition of a covered entity and 
listed on the 340B database are eligible to purchase covered outpatient 
drugs under the 340B Program. A covered entity remains responsible for 
complying with all other 340B requirements and applicable Federal, 
state, and local laws.

Subpart C--Drugs Eligible for Purchase Under 340B


Sec.  10.20  Drugs eligible for purchase under 340B.

    The definition of a covered outpatient drug has the meaning given 
to such term in section 1927(k)(2) of the SSA except as provided in 
Sec.  10.21 of this part.


Sec.  10.21  Exclusion of orphan drugs for certain covered entities.

    (a) General. For the covered entities described in paragraph (b) of 
this section, a covered outpatient drug does not include orphan drugs 
that are transferred, prescribed, sold, or otherwise used for the rare 
condition or disease for which that orphan drug was designated under 
section 526 of the FFDCA. A covered outpatient drug includes drugs that 
are designated under section 526 of the FFDCA when they are 
transferred, prescribed, sold, or otherwise used for any medically-
accepted indication other than treating the rare disease or condition 
for which the drug was designated under section 526 of the FFDCA.
    (b) Covered entities to which the orphan drug exclusion applies. 
(1) The exclusion of orphan drugs when used to treat the rare disease 
or condition for which the drug was designated under section 526 of the 
FFDCA from the definition of covered outpatient drugs described in 
paragraph (a) of this

[[Page 44028]]

section shall only apply to the following covered entities: free-
standing cancer hospitals qualifying under section 340B(a)(4)(M) of the 
PHSA, critical access hospitals qualifying under section 340B(a)(4)(N) 
of the PHSA, and rural referral centers and sole community hospitals 
qualifying under section 340B(a)(4)(O) of the PHSA. The exclusion does 
not apply to the remaining covered entities that meet the 340B Program 
eligibility requirements.
    (2) When an entity described in this paragraph (b) meets more than 
one eligibility criterion as a covered entity, the entity shall select 
its eligibility type and notify the Secretary. These eligible entities 
are limited to participating in the 340B Program under only one covered 
entity hospital type and shall abide by all applicable restrictions and 
requirements for that entity type. A covered entity subject to this 
provision may only change its participation type to another hospital 
entity type on a quarterly basis upon express written confirmation from 
the Secretary.
    (c) Covered entity responsibility to maintain records of 
compliance. (1) A covered entity listed in paragraph (b) of this 
section is responsible for ensuring that any orphan drugs purchased 
through the 340B Program are not transferred, prescribed, sold, or 
otherwise used for the rare condition or disease for which the orphan 
drugs are designated under section 526 of the FFDCA. A covered entity 
listed in paragraph (b) of this section that purchases orphan drugs 
under the 340B Program is required to maintain and provide auditable 
records on request which document the covered entity's compliance with 
this requirement available for audit by the Federal Government or, with 
Federal Government approval, by the manufacturer.
    (2) A covered entity may develop an alternative system by which it 
can prove compliance. Any alternate system must be approved by the 
Secretary prior to implementation. Each alternate system of compliance 
will be reviewed on a case-by-case basis.
    (3) A covered entity listed in paragraph (b) of this section that 
cannot or does not wish to maintain auditable records sufficient to 
demonstrate compliance with this rule, must notify HRSA and purchase 
all orphan drugs outside of the 340B Program regardless of the 
indication for which the drug is used. Once a hospital is enrolled in 
340B, it may change its decision to purchase all orphan drugs outside 
of the 340B Program on a quarterly basis by notifying HRSA.
    This documentation will be made public. This information will also 
be verified during the annual recertification process.
    (d) Use of group purchasing organizations by a free-standing cancer 
hospital. (1) A free-standing cancer hospital enrolled under section 
340B(a)(4)(M) must also comply with the prohibition against using a GPO 
under section 340B(a)(4)(L)(iii) of the PHSA for the purchase of any 
covered outpatient drug.
    (2) A covered entity that is a free-standing cancer hospital cannot 
use a GPO to purchase orphan drugs when they are transferred, 
prescribed, sold, or otherwise used for an indication other than the 
rare condition or disease for which that orphan drug was designated 
under section 526 of the FFDCA.
    (3) A covered entity that is a free-standing cancer hospital may 
use a GPO for purchasing orphan drugs when orphan drugs are 
transferred, prescribed, sold, or otherwise used for the rare disease 
or condition for which it was designated under section 526 of the 
FFDCA.
    (4) If a covered entity that is a free-standing cancer hospital 
chooses to use a GPO for purchasing an orphan drug used for a rare 
disease or condition for which it is designated, it is required to 
maintain auditable records that demonstrate full compliance with the 
orphan drug purchasing requirements and limitations. A free-standing 
cancer hospital covered entity that cannot or does not wish to maintain 
auditable records sufficient to demonstrate compliance, must notify 
HRSA and purchase all orphan drugs outside of the 340B Program, 
regardless of indication for which the drug is used, and is not 
permitted to use a GPO to purchase those drugs. Once a free-standing 
cancer hospital is enrolled in 340B, it may change its decision to 
purchase all orphan drugs outside of the 340B Program on a quarterly 
basis by notifying HRSA. This documentation will be made public. This 
information will also be verified during the annual recertification 
process.
    (e) Identification of orphan drugs. Designations under section 526 
of the FFDCA are the responsibility of and administered by the FDA. 
Only covered outpatient drugs that match the listing and sponsor of the 
orphan designation are considered orphan drugs for purposes of this 
section. HRSA will publish on its public Web site FDA's section 526 
list of drugs that will govern the next quarter's purchases.
    (f) Failure to comply. Failure to comply with this section shall be 
considered a violation of sections 340B(a)(5) and 340B(e) of the PHSA, 
as applicable.

[FR Doc. 2013-17547 Filed 7-22-13; 8:45 am]
BILLING CODE 4165-15-P