The orphan drug exclusion is a provision in the 340B statute that limits which covered outpatient drugs certain hospital-type entities can purchase at 340B prices. Specifically, for rural referral centers (RRC), sole community hospitals (SCH), critical access hospitals (CAH), and free-standing cancer hospitals (CAN), the term ‘covered outpatient drug’ does not include drugs designated by the FDA under the Orphan Drug Act for rare diseases.
This means manufacturers are not required to offer 340B pricing on orphan-designated drugs to these specific entity types. They may choose to do so voluntarily, but they are not obligated. The exclusion does not apply to FQHCs, Ryan White grantees, or other non-hospital covered entity types.
Covered entities subject to the orphan drug exclusion must have processes to identify orphan-designated drugs and ensure they are not purchasing them at 340B prices unless the manufacturer has voluntarily offered 340B pricing on those products. Purchasing orphan drugs at 340B prices without the manufacturer’s authorization is a compliance violation.
Frequently Asked Questions
Which covered entities are subject to the orphan drug exclusion?
The orphan drug exclusion applies to rural referral centers (RRC), sole community hospitals (SCH), critical access hospitals (CAH), and free-standing cancer hospitals (CAN). FQHCs, Ryan White grantees, and other non-hospital entity types are not subject to this exclusion.
What is an orphan drug?
An orphan drug is a drug designated by the FDA under the Orphan Drug Act for the treatment of a rare disease or condition (affecting fewer than 200,000 people in the U.S.). The FDA maintains a list of currently designated orphan drugs.
Can hospital entities still access 340B pricing on orphan drugs?
Manufacturers are not required to offer 340B pricing on orphan drugs to the excluded hospital types, but they may do so voluntarily. Covered entities should verify manufacturer authorization before purchasing orphan-designated drugs at 340B prices.
Why Orphan Drug Exclusion (340B) Matters
Hospital-type entities subject to the orphan drug exclusion must actively manage which drugs they can purchase at 340B prices. Purchasing orphan-designated drugs at 340B prices without manufacturer authorization is a compliance violation that can result in audit findings and repayment.
How Virtue 340B Uses It
Virtue 340B helps hospital-type covered entities identify orphan-designated drugs in their formularies and ensure their purchasing systems are configured to exclude these drugs from 340B purchasing unless manufacturer authorization has been obtained.
