Key Takeaways:

  • On November 3, 2023, a Federal District Court issued a decision invalidating the Health Resources and Services Administration's (HRSA's) 340B “patient” definition.
  • HRSA's “patient” definition is key to determining the individuals for whom a 340B-covered entity may obtain discounted drugs under the program; purchasing 340B drugs for non-patients constitutes prohibited “diversion.”
  • The decision applies only to the plaintiff-covered entity and will almost certainly be appealed by HRSA. However, if upheld, the decision may limit HRSA's ability to establish a narrow patient definition, further expanding the scope of the 340B program by broadening the population of individuals potentially eligible for 340B-purchased drugs.

On Friday, November 3, 2023, the U.S. District Court for the District of South Carolina issued a long-awaited decision in Genesis Health Care, Inc. v. Becerra—a case dating back to 2017 contesting HRSA's definition of “patient” for purposes of the 340B Drug Pricing Program. Genesis had alleged that HRSA's definition of “patient” has “never been promulgated by regulation” and “contradicts the plain language of the statute” by “improperly focus[ing] on a patient's prescription, and who wrote it, rather than the existence of a patient relationship with Genesis [Healthcare] (or any other covered entity).” The court agreed and granted summary judgment to Genesis, in part, and denied HHS' motion for summary judgment. Notably, HHS is enjoined from enforcing its patient definition only against Genesis, and we expect that HRSA is likely to appeal the decision.

Background

In 2017, HRSA audited Genesis Health Care, a federally qualified health center (FQHC) in South Carolina, over its dispensing of 340B drugs to patients who did not meet HRSA's patient definition, subsequently removing Genesis from the 340B program over Genesis' failure to maintain auditable records. After Genesis sued, HRSA reinstated them to the program, voiding the audit finding once Genesis had created a Corrective Action Plan. The District Court initially ruled that the case was moot because the audit finding was a final agency action that had been vacated. However, the Fourth Circuit disagreed, and remanded the case on the grounds that Genesis could still reasonably argue a case or controversy from the damages of having to comply with the patient definition, and because Genesis likely could still challenge either the audit result or the HRSA patient definition as a final agency action.

The District Court's November 3, 2023 Decision 

In a nutshell, the current dispute revolves around whether HRSA has properly interpreted the statutory phrase “patient of the entity” to refer only to those individuals whose drugs were prescribed in connection with services provided by the entity. This interpretation was first set forth in a subsequently withdrawn 2015 guidance (revising HRSA's longstanding patient definition set forth in 1996) but was reiterated in a 2019 letter to Genesis. Genesis argued that HRSA is not authorized to promulgate this narrower interpretation of the 340B statute. The court agreed and declared, "the only statutory requirement for 340B eligibility of a person is that the person be a patient of a covered entity" and that “the plain wording of the 340B statute does not require the 'covered entity' to have initiated the healthcare service resulting in the prescription."

Notably, HRSA asserted neither Chevron nor Auer deference regarding its 340B patient definition first established in 1996, or its interpretation of the patient definition in the March 2019 letter to Genesis. The court thus assessed HHS' patient definition under the Skidmore framework, under which the agency's interpretation must be found “persuasive” to receive deference. Applying this standard, the court found HRSA's interpretation was not persuasive based on the statute's failure to restrict what it means to be a “patient” of a covered entity. Specifically, the court held that “[n]othing in the statute conditions an individual's eligibility as a 340B patient on whether the health care service resulting in the prescription was initiated by the 'covered entity.' Accordingly, HRSA's restrictive interpretation of the statutory term 'patient' is unpersuasive.” The court also cited the lack of consistency between HRSA's 1996 and 2019 patient definitions, as well as the agency's failure to consider the purpose of the program—which, according to the court, was enacted to ensure “the profitability of 'covered entities' in light of prescription drug price increases.”

Implications Going Forward

While the court's ruling applies only to Genesis, and will almost certainly be appealed by HRSA, the court's reasoning has potentially significant implications with respect to the scope of the 340B program going forward. As a threshold matter, while courts have previously found that HRSA lacks broad 340B rulemaking authority, here the court disagreed with Genesis that HRSA could not promulgate a patient definition via rulemaking. Specifically, the court held that a patient definition is a necessary part of the dispute resolution process for which Congress has granted HRSA rulemaking authority.

However, the court's ruling may nonetheless significantly limit HRSA's ability to establish a robust patient definition. HRSA cannot establish a patient definition that conflicts with the plain language of the statute, even via rulemaking. Not only did the court question whether the statute authorizes HRSA to require a prescribing relationship between an individual and covered entity, the court also expressed doubt over whether the statute authorizes HRSA to impose temporal limitations on how frequently an individual must have visited a covered entity to qualify as a patient. Accordingly, a court may be likely to strike down even a regulatory patient definition that includes such limitations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Erin Estey Hertzog
Foley Hoag LLP
1717 K Street, N.W.
Washington, DC
UNITED STATES
Tel: 6178321000
Fax: 617 8327000
E-mail: sfiliault@foleyhoag.com
URL: www.foleyhoag.com

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