A pharmacist in Sidney, Neb., is asking the government to fix a loophole that lets drugmakers charge rural hospitals full price for specialty medications while still getting government discounts on the same drugs elsewhere.
The loophole applies to drugs with orphan designations — rare-disease labels — that treat common conditions. Rinvoq, which treats Crohn’s disease, carries an FDA orphan designation for juvenile idiopathic arthritis, a childhood arthritis that many of the pharmacy’s patients do not have. Manufacturers can prevent the pharmacy from buying those drugs at the government discount price because the pharmacy’s status as a critical access hospital excludes it from the 340B program for orphan-designated drugs at the manufacturers’ discretion.
The pharmacy serves patients who travel long distances to get medications like Rinvoq, and the pharmacist argues the system punishes rural providers while letting drugmakers keep their best deal.
The 340B Program and the Orphan Exclusion
The 340B program allows discounted medications to be sold to hospitals and certain clinics, with profits used for medication access, staffing, operations, and patient care. Hospitals like the author’s were brought into the program in 2010 via the Affordable Care Act, but some covered entities, including critical access hospitals, were shut out of 340B pricing on orphan-designated drugs at the manufacturers’ discretion.
HRSA issued a rule in 2013 saying the exclusion should apply only when an orphan drug is used for the rare condition it was designated for. A federal court vacated that rule in May 2014, finding HRSA lacked authority to issue it. HRSA reissued the position as interpretive guidance, which was struck down in October 2015 as contrary to the plain language of the statute.
The court ruled only Congress could rewrite the exclusion around use, since Congress had written it around designation.
The Pilot Plan That Skips Rinvoq
HRSA announced a 340B rebate pilot on Aug. 3, taking effect Jan. 1, 2027. Under the pilot, covered entities buy at full wholesale price, dispense the drug, submit claims-level data, and receive a rebate later. Manufacturers can choose whether to participate; covered entities like the author’s pharmacy cannot opt out once HRSA approves a manufacturer’s plan.
The pilot covers only drugs on Medicare’s negotiated price list for 2026 and 2027, estimated at under 5.5% of 340B sales, and Rinvoq is not among them. HRSA estimates the reporting cost to covered entities at roughly $34,000 a year per entity. The manufacturers pay for the IT platform of the new program. The data feed will include details of every transaction, including what was dispensed, how much, and how it was covered.
Rinvoq has nine FDA-approved indications, two of which carry orphan designations (juvenile idiopathic arthritis and giant cell arteritis).
Why the Diagnosis Matters
A 2021 report on 40 high-spending Medicare medications found that for Xgeva and Prolia, about 1% of dispensed units were for their orphan indications. The pharmacist argues that if HRSA added the diagnosis to the claims data it is collecting, policymakers could see how often orphan-designated drugs are used for common conditions.
The pharmacist also wants Congress to address the broader issue. The current system, he argues, lets manufacturers pick which drugs enter the rebate pilot while forcing covered entities to comply with whatever plan HRSA approves.
- Manufacturers decide which drugs enter the rebate pilot.
- Covered entities cannot opt out once HRSA approves a manufacturer’s plan.
- Rinvoq and other specialty drugs with orphan designations are excluded from the pilot entirely.
- Rural hospitals like the author’s pharmacy are left paying full price for medications they otherwise could buy at a discount.
The result is that smaller providers, who serve patients who travel long distances for care, face higher costs while the manufacturers who set the prices continue to collect the government discount elsewhere.
The Bottom Line
The pharmacist’s argument is simple: the law should not allow a drug to be priced as a common treatment while keeping its orphan designation for marketing purposes. The orphan designation exists to reward development of drugs for rare diseases. It should not become a shield for full-price sales to rural hospitals.
The pilot plan, even if it worked perfectly, skips the drugs that need the most attention. Rinvoq is not among the 2026 and 2027 Medicare negotiated price list drugs covered by the pilot, so rural providers who stock it will see no relief.
The reporting burden on covered entities adds insult to injury. HRSA estimates roughly $34,000 a year per entity for claims data submission, and the data feed includes every transaction detail — what was dispensed, how much, and how it was covered.
The pharmacist’s proposal is modest: add the diagnosis to the claims data. That would let policymakers see the actual distribution of orphan-designated drugs across common and rare uses. It would not solve the problem overnight, but it would give Congress the information it needs to rewrite the exclusion around use, as the court said only Congress could do.
Until then, rural providers like the author’s pharmacy will keep paying full price for medications that could otherwise be bought at a discount. The system rewards manufacturers for protecting their best deal while punishing the hospitals that serve the farthest patients. That is the gap the pharmacist wants the law to close.
Where the paper stands
The paper backs the pharmacist in Sidney, Neb., and is against the manufacturers’ ability to charge rural hospitals full price for specialty medications while still collecting government discounts on the same drugs elsewhere. The problem is not that orphan-designated drugs exist; it is that the system lets manufacturers keep their best deal while forcing hospitals to pay full price. The paper supports narrow rules against direct harm, such as forcing companies to disclose safety failures they hid, and opposes broad rules that hand the market to the incumbents.
The situation here is a moat, not a safeguard. The orphan exclusion was written so manufacturers can exclude hospitals from 340B discounts at their discretion, and the 340B rebate pilot compounds the problem by giving manufacturers the choice of which drugs enter the pilot while forcing hospitals to comply with whatever plan HRSA approves. This is the kind of licensing regime the paper warns against: compliance costs that only giants can afford, and a rule that locks out whoever would have challenged the manufacturers. Rinvoq is excluded from the pilot entirely, leaving rural hospitals paying full price for a drug that could otherwise be bought at a discount.
The pharmacist’s proposal is modest: add the diagnosis to the claims data. That would let policymakers see the actual distribution of orphan-designated drugs across common and rare uses, as the 2021 report on Xgeva and Prolia showed for other drugs. It would not solve the problem overnight, but it would give Congress the information it needs to rewrite the exclusion around use, as the court said only Congress could do. Until then, rural providers will keep paying full price. The reader should watch for any move that expands manufacturers’ discretion rather than narrows it, and for any attempt to make the reporting burden fall on hospitals rather than on the companies that set the prices.
Source material: “Opinion: The law has to catch up on orphan-designated drugs with multiple uses,” STAT.
Get the Notebook.
The day's best stories and every fresh verdict, in plain English, in your inbox by seven. One email a day, no more.