Earlier this month, a federal court in South Carolina issued a startling decision that could have far-reaching implications for 340B.
The U.S. District Court sided with a nonprofit federally qualified health center in saying that the government’s longstanding definition of a 340B patient is too narrow.
The judge was careful to say that his decision in Genesis Health Care v. Becerra applies only to this case, which stands a good chance of being appealed. But it adds to a string of setbacks calling the Health Resources and Service Administration’s (HRSA) rulemaking authority into question, and it could open the door to other covered entities to cast a wider net in claiming 340B eligibility.
The case followed a long and convoluted path. It stems from an audit in 2017 that found Genesis in non-compliance because it dispensed 340B drugs to people who did not meet HRSA’s criteria for an eligible patient. HRSA then removed Genesis from the 340B program because it failed to maintain auditable records, sparking the 2018 lawsuit. However, it reinstated Genesis and voided the audit findings after the provider submitted corrective action plans.
With the audit findings vacated, the court ruled the lawsuit moot, but an appellate court disagreed and sent the case back, ruling there was an ongoing disagreement over the definition of a 340B patient. The Nov. 3 ruling concludes the case — for now, at least.
In his ruling, Chief District Judge R. Bryan Harwell focused on the portion of the 340B statute prohibiting the resale of covered drugs, which says that “a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity.” He noted that Congress declined to define patient when it drafted the statute in 1992.
At issue is how HRSA, in its role overseeing the 340B program, has defined “patient.”
In 1996, the Department of Health and Human Services (HHS) released guidance in which it established parameters around the definition of an eligible 340B patient. They included requirements that the individual have an established, ongoing relationship and care records with the covered entity, receive services from the covered entity or be referred to an unaffiliated provider by it, and receive services that are consistent with the entity’s grant funding or FQHC status.
Fast forward to 2015, when HHS proposed guidelines that significantly restricted the “patient” definition. Despite withdrawing those guidelines in 2017, Judge Harwell wrote that HRSA continues to lean on them by interpreting the phrase “patient of the entity” to mean that entities must have “initiated the healthcare service resulting in the prescription.” Harwell said that is “at odds with the plain language of the 340B statute, which simply prohibits the resale or transfer of a 340B drug to a person who is not a ‘patient’ of the ‘covered entity.’”
Similarly, Genesis asserted that HRSA’s definition of patient had “never been promulgated by regulation” and “contradicts the plain language of the statute.”
340B Stakeholder Reactions
“While the decision affirms that the agency has the authority to issue and act on guidelines based on their interpretations of federal law, it also makes clear that HRSA must be consistent when enforcing its interpretations,” Maureen Testoni, president and CEO of 340B Health, which filed an amicus brief supporting the plaintiff in the case, said in a statement. “Here, the judge found that HRSA was enforcing language that was not included in any of its published final interpretations, causing the court to enjoin HRSA enforcement in this case.
“The court underscores the importance of the government adhering to the plain and ordinary meaning of ‘patient’ as well as the broader application of 340B to assist safety-net providers amid high prescription drug prices, both as Congress intended.”
Some observers question whether the ruling has implications for HRSA compliance audits or conflicts with the agency’s ability to enforce its order from late October ending a pandemic-era waiver loosening restrictions on registering 340B child-site locations. Hospitals are already challenging that order in court, saying it exceeded the agency’s authority and conflicted with the statute.
Others have noted the decision is consistent with a federal court ruling earlier this year against HRSA in its dispute with drug manufacturers over restrictions on 340B contract pharmacies, saying the statute is silent on the issue. Two more circuit court decisions on that issue are pending. (Interestingly, five of those same pharmaceutical companies filed a brief in the case backing HRSA in its ability to enforce its definition of an eligible patient and limit the scope of 340B discounts.)
The healthcare industry “is likely to see new litigation around other interpretive policies HRSA has developed over the years” due to the ruling, Anil Shankar, a partner at Foley & Lardner, told Fierce Healthcare. The ruling also adds urgency to the various 340B reform efforts underway in Congress.
Right now, the entire 340B world is asking itself: Is HRSA out of its league on more than just the patient definition?