USCA Fourth Circuit court building
A federal appeals court in Richmond, Va., heard arguments last month in a case involving the legality of the 340B program definition of "patient."

340B Patient Definition Is at the Heart of Case Debated Before Federal Appeals Court

Part 2 of a Two-Part Series About One of the Most Important and Contentious Areas of the 340B Program. Read Part 1 here.

An attorney for a South Carolina health center asked a federal appeals court in Richmond, Va., last month to reverse a lower court decision that left the longstanding 340B program definition of “patient” in effect—a definition that the health center says is at odds with the 340B statute’s actual requirements.

The federal government’s attorney told the three-judge panel that there is nothing to decide because the case is moot. The controversy ended, he said, when federal health officials vacated adverse 340B auditing findings against Genesis Healthcare in 2019. The declaration that the 340B patient definition is illegal that Genesis wants would amount to an impermissible advisory opinion, he said.

Forceful Disagreement from Judge

During the March 9 arguments, one of the three judges forcefully disagreed with the government’s position that there is no live controversy for a court to decide in the case, Genesis Healthcare v. Becerra.

“You got rid of the immediate sanction, but you didn’t address the patient definition issue,” Judge Paul Niemeyer told U.S. Justice Department attorney Brian Springer. “And you are now saying a court can’t do that. It seems to me that is an issue that is not decided or resolved” by government’s voluntary withdrawal of its adverse 340B audit findings against Genesis.  Niemeyer was appointed to the appeals court by President George H.W. Bush (R) in 1990.

“Aren’t they entitled to a decision by a court that you were wrong on the definition?” Niemeyer asked.

“They are not entitled to a decision in the abstract,” Springer answered.

“You kicked them out of the program,” Niemeyer interjected. “It cost them money. They want to be back in the program. You think that’s abstract?”

“Your honor, they have been readmitted to the program when the agency voided its findings, and the specific statement they object to … ” Springer was saying when Niemeyer cut him off.

“You don’t want us to decide what the definition of patient is,” the judge said flatly.

Later, Niemeyer pressed Springer to answer whether the U.S. Health Resources and Services Administration (HRSA) theoretically could today apply to Genesis the same 340B patient definition as it applied in its original 2018 audit.

“They are subject to the statute,” Springer answered.

“And to the same definition that was applied?” Niemeyer pressed.

“The guidance that was issued …” Springer began saying before Niemeyer cut him off. “I don’t want to hedge on these things,” the judge said. “I’m saying today they’re subject to the same guidance you enforced earlier.”

“Your honor, this is non-binding guidance,” the government’s lawyer said. “So I suppose Genesis does not have to follow it. But this is the normal way that things work out. An agency issues some kind of guidance to advise the industry …”

“Are they still subject to regulation today?” Niemeyer interjected.

“They are subject to the statute,” Springer repeated. “They are required to give a certification each year …”

“And the certification has to reflect conduct, things they do day in and day out, so today day in and day out they have to determine what patient means,” Niemeyer said. “And their reading of the law is different from the agency’s reading. And so now they are in this real dilemma, a real problem for them ongoing. So there’s another audit in a year, and you’ll apply the same guidance, unless you’ve changed your position. And if you’ve changed your position, you can make the case go away. But if you haven’t changed your position it’s going to repeat all over again.”

“There is no reason to think the agency is just going to continually close and reopen audits,” Springer said.

“But the fact is they are still subject to it,” Niemeyer said. “At any point in time you can come back and impose your very same definition. And that to me is what’s at the heart of the rest of the suit.”

“Regulated entities make decisions all the time about how aggressive to be in conforming their conduct to the law,” Springer said at the end of his presentation. “And to the extent there are disputes when the agency applies the law to particular conduct, those disputes can be litigated in court, as in the case here if Genesis is ever subjected to another audit.”

“Between the Rock and the Hard Place”

Genesis’ attorney James Griffin of the Griffin Davis law firm in Columbia, S.C., told the judges his client deserves a declaratory judgement from the lower court “so we can conform our behavior in compliance with whatever the statute means.”

“Genesis is between the rock and the hard place. … Genesis interprets ‘patient’ to be its patients,” Griffin said. “HRSA under 340B interprets that provision to be as it only applies to certain patients of Genesis. And those patients it applies to are only those individuals who receive a health care service from a Genesis physician and receive a prescription for that service. That would exclude from the definition of patient anyone who went to a specialist who wasn’t referred directly by Genesis and received prescription from the specialist.”

“And the real bind that Genesis is in because of this is that as an FQHC … they are required if a patient is at the 200% poverty level or below to give them a sliding scale discount,” he continued. “If they are at 100% of the poverty level Genesis is required to give them free health care.”

“Well, the specialty drugs that are prescribed by specialists are the most expensive drugs, Griffin said. “Those patients at that poverty level are going to come back to Genesis to fill that prescription because they know that Genesis will not and cannot charge them. Yet HRSA says you cannot use 340B.”

Other Judges’ Comments

Within the first minute of Griffin’s presentation of Genesis’ case, Judge G. Steven Agee pressed him to explain why the appeals court has jurisdiction over this matter—an indication that Agee has questions about whether there is a legal basis for the Fourth Circuit Court to consider and rule on the lower court’s decision. Agee was appointed to the appeals bench by President George W. Bush (R) in 2008.

“The federal agency applied” its 340B patient definition “to your client before taking it all back,” Agee told Griffin. “And they voided all the action taken against you. As of now, there is no application of this regulation or interpretation by the agency, correct?”

Griffin replied that Genesis must certify to HRSA every year that it complies with all 340B program requirements. “Genesis can proceed dangerously as to what they believe the statute means and run the risk of a 340B death penalty. Or they can toe the line as to what HRSA says the line is.”

At the very end of the hearing, Agee asked both sides to submit a letter “that tells us where we find, other than in the audit they did for [Genesis], this guidance that deals with the definition of patient. Because I’m still unclear whether this is something that’s extant and can be applied to you and all the other people in your field, or whether this ended up being a sort of one-off thing that just came up in your audit.”

Chief Judge Roger Gregory, in his questioning also indicated he has doubts about whether the Fourth Circuit Court can or should give Genesis the relief it seeks.  Gregory received a recess appointment by President Bill Clinton (D) in 2000 and was confirmed by the U.S. Senate in 2001 under the George W. Bush administration. 

“When you’re asking for a declaratory judgement, you’re asking us to opine on standard operating procedures, audit procedures,” Gregory said. “We would become accountants. … It’s not just defining patient, it’s in the context of how you are applying it. So, if you get a declaratory judgement, based upon your particular application, the standards of procedure for your audit, that would open the door for the other 13,000 people saying, ‘Well, I want that one, too. Let me get a free-standing declaratory judgement.’ Each one of them would be based on the facts of those things. It’s in the context of how you’re using patient.”

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