WASHINGTON — A federal judge has struck down a new rule requiring drug companies to offer certain drugs at discounted prices, saying the Obama administration had no authority to issue the rule.
Federal officials said the decision could provide a windfall to drug makers. However, the pharmaceutical industry said that the administration was stretching the Affordable Care Act to provide discounts on more drugs for more people, and that the rule was “inconsistent with the plain language of the statute.”
The administration said it was still reviewing the decision, issued in late May by Judge Rudolph Contreras of the Federal District Court here, and had not decided whether to appeal.
In his ruling, Judge Contreras, who was appointed in 2012 by President Obama, said the administration had “acted beyond the bounds of its statutory authority.” He issued an injunction blocking the rule.
Ted Slafsky, the president of Safety Net Hospitals for Pharmaceutical Access, which represents hospitals participating in the drug discount program, said, “The court decision will have a devastating impact on rural hospitals and free-standing cancer hospitals, which will pay a lot more for expensive drugs.”
But James M. Spears, executive vice president and general counsel of thePharmaceutical Research and Manufacturers of America, an industry group that filed the lawsuit, said, “We are extremely pleased with the court’s decision.”
The effects of the ruling already are being felt. Citing the court decision, Genentech, a leading biotechnology company owned by Roche, said last week that it had stopped providing discounts on some medicines sold to some hospitals newly eligible for the program.
At issue is a federal program created in 1992 to limit the prices that drug companies can charge for medications sold to certain hospitals and clinics serving low-income patients. The discounts typically range from 20 percent to 50 percent.
In passing the Affordable Care Act in 2010, Congress expanded the program to make the discounts available to many rural hospitals and cancer hospitals.
At the same time, Congress wanted to preserve financial incentives for the development of drugs to treat rare diseases and disorders, so it said that the discounts would not be required for such “orphan drugs.”
But drugs often have multiple uses. Orphan drugs are not used exclusively to treat rare diseases, and Congress did not make clear whether the discounts would be available when those same drugs were used to treat other, more common illnesses.
“The statute is silent or ambiguous as to whether it covers all uses of drugs that have received an orphan-drug designation or only those uses related to the designated orphan disease or condition,” the Obama administration told the court.
The court decision comes at a pivotal moment for the drug discount program, widely known as the 340B program, after the relevant section of the Public Health Service Act.
Drug companies have become increasingly concerned about the rapid growth of the program, which limits their revenues. Republicans in Congress are investigating the program.
In a recent report, the inspector general for the Department of Health and Human Services, Daniel R. Levinson, said that hospitals participating in the program did not always offer discounted prices to uninsured patients.
The Obama administration was planning to issue new eligibility standards and compliance requirements this month, but the future of those proposals is uncertain because of the court decision.
Mr. Slafsky, who represents hospitals that receive drug discounts, said, “The program is under attack by drug companies and their surrogates, which want to see it scaled back.”
Drug makers said they just wanted to restore the program to its original purpose of helping vulnerable uninsured patients.
The rule at the center of the court case — issued by Mary K. Wakefield, a top federal health official — requires drug companies to provide discounts on orphan drugs when they are prescribed for common diseases. Under the rule, orphan drugs are exempt from price controls only in limited circumstances — when they are used to treat a rare disease or condition, which generally means a disease or condition affecting fewer than 200,000 people in the United States.
Ms. Wakefield said the rule balanced the goals of allowing more patients and hospitals to benefit from drug discounts while preserving incentives for drug manufacturers to develop new treatments for rare diseases.