As defined in 21 CFR 814.3(n), and updated by the 21st Century Cures Act, a HUD is a “medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in not more than 8,000 individuals in the United States per year.”
FDA makes its determination when you a request a HUD designation. You should submit your request for a HUD designation before submitting an application for a HDE. You should include FDA’s HUD designation letter in your application.
If the disease or conditions occurs in more than 8,000 patients per year, the device could be used in a subset of the disease or condition as long as the sponsor shows the subset is an "orphan subset" (Not just "readily identifiable"). An orphan subset is one in which use of the device is limited that subset because of some inherent property of the device and/or the disease. That is, the sponsor must explain why the device couldn't also be used in all patients with disease or condition.