Genesis health care pharmacy workers wearing face masks
A federal appeals court gave South Carolina-based Genesis Health Care another chance to challenge the legality of the 340B drug pricing program's patient definition.

Judge Orders HHS to Respond to Ruling Letting Health Center Challenge 340B Patient Definition

A federal district judge on Tuesday gave federal health officials a Sept. 22 deadline to respond to a higher court’s ruling last month that a South Carolina health center has the right to challenge the legality of the government’s 340B patient definition.

Chief Judge R. Bryan Harwell of the U.S. District Court for the District of South Carolina signed the order on Aug. 23. Harwell at the same time formally reopened the lawsuit Genesis Health Care filed against the U.S. Health Resources and Services Administration (HRSA) in July 2018.

The 340B patient definition is one of the 340B program’s core precepts. A court decision striking it down could reshape the program profoundly.

HRSA expelled Genesis from the 340B program for eight days in 2018 after auditors found that it dispensed 340B-purchased drugs to ineligible patients. HRSA reinstated Genesis on the same day that the health center sued.

When it expelled Genesis, HRSA told the health center that for an individual to qualify as a 340B patient, a covered entity must initiate the healthcare service resulting in the prescription. “A covered entity may refer one of its patients to an outside provider and receive documentation of that episode of care that results in a 340B eligible prescription,” HRSA said. “However, a referral that begins at a private practice to the covered entity, would not qualify a prescription written by the private practitioner as 340B eligible.”

Genesis, HRSA said, “must be able to demonstrate that the individual first receives a health care service from a health care professional who is either employed by [Genesis] or provides health care under contractual or other arrangements such as referral for consultation, which demonstrates responsibility for care remains with [Genesis], in order to meet patient definition guidelines.”

Genesis countered in a May 24, 2019, court filing that “HRSA seeks to enforce a definition of ‘patient’ that contradicts the plain language of the statute and that has never been promulgated by regulation.”

It asked the court to declare that:

  • the only statutory requirement for 340B eligibility of a person is that the person be a patient of a covered entity
  • the plain meaning of the wording of the 340B statute requires that any prescription from any source is available to a patient of a covered entity
  • HRSA interpretations of or guidance on the 340B statute’s prohibition on resale of drugs to a person who is not a patient of the entity is unlawful and unenforceable.

About two weeks after Genesis made those arguments, HRSA voided its audit findings against Genesis and closed the audit. It asked the court to dismiss the case as moot and the court agreed in December 2019.

HRSA separately told the U.S. Government Accountability Office that, after Genesis sued it in 2019, it “evaluated its ability to require and enforce corrective action, and it concluded that in the absence of binding and enforceable regulations, the agency would no longer issue findings based solely on noncompliance with guidance,” according to a report GAO issued in December 2020. GAO said HRSA told it there were instances among fiscal 2019 audits in which it “did not issue diversion findings for dispensing 340B drugs to ineligible individuals as defined by HRSA guidance because the 340B statute does not provide criteria for determining patient eligibility.”

Genesis appealed the dismissal of its case to the U.S. Fourth Circuit Court of Appeals, arguing that HRSA at any point in the future could audit it again, apply the same patient definition that Genesis says is illegal, and once again kick it out of 340B. The appeals court agreed with Genesis in July that the lower court incorrectly dismissed the health center’s lawsuit as moot.

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