How Are Orphan Drugs Treated Under the 340B Drug Program?

Healthcare providers eligible to participate in the federal 340B Drug Discount Program have access to a variety of prescription medications at discounted prices. The list of covered drugs is determined by the HRSA. Here is the big question: are orphan drugs ever on that list?

Orphan drugs are treated differently across the board due to their nature. An orphan drug is defined as:

• One developed to treat a rare disease or condition affecting fewer than 200,000 U.S. patients; or
• One that is not expected to be profitable within 7 years of FDA approval.

A patient load of 200,000 may seem significant at first glance but compared against a total U.S. population of more than 335 million, it is not very sizable at all. Drug companies do not expect to sell a large volume of orphan drugs even though they are expected to develop such drugs.

Not Covered Under 340B

Ravin Consultants, a Florida consulting firm specializing in 340B eligibility and program management explains that orphan drugs are not part of the program. This is to say that participating manufacturers are not required to offer orphan drugs at discounted prices. They can voluntarily do so, but they are not forced to by virtue of their participation in 340B.

In the absence of a federal mandate, it stands to reason that most pharmaceutical companies would not discount their orphan drugs. Manufacturers can spend millions of dollars developing a new drug. It can take them a decade or longer to gain FDA approval. There are the very reasons the FDA grants exclusive manufacturing rights on any new drug for the first 10 years. This allows manufacturers to recoup their investments.

Orphan drugs are of special concern because manufacturers do not sell nearly the same volume. It could take them longer to recover the money spent on developing a new orphan drug. Therefore, the federal government does not force them to include orphan drugs in the 340B program. They do not tend to voluntarily do so either. It is just cost prohibitive.

The Government Tries to Encourage Them

In fairness, the government tries to encourage manufacturers to offer orphan drugs under 340B. They do so through a number of incentives designed to help manufacturers recover their costs more quickly. Incentives include everything from tax breaks to financial grants to fund clinical trials.

Even government incentives don’t seem to be enough to convince manufacturers to sell discounted orphan drugs under 340B. The tax breaks and government grants only reduce the costs of developing a new drug. They do not actually add to a drug’s profitability. In the end, profitability is about sales. And if drug companies are selling orphan drugs to fewer than 200,000 patients, they aren’t generating the kinds of sales they need to meet profit margins.

Nothing Is Likely to Change

The very nature of orphan drugs suggests that nothing is likely to change in the future. Orphan drugs are just too expensive to produce to make them a good fit for 340B participation. As it is, even getting insurance coverage for certain orphan drugs is a challenge.

The unfortunate loser in all of this is the patient who needs an orphan drug but cannot afford it. No discounts are available in most cases, so patients rely on health insurance and government programs to pay the bill. It is just one of the unavoidable pitfalls of our healthcare system.

On the other hand, orphan drugs are critical to so many patients. Perhaps pharmaceutical manufacturers can find some way to reduce retail prices. Don’t hold your breath waiting for it to happen.