Genesis Health Care office sign and facility
A South Carolina health center's lawsuit, now before a federal appeals court, challenges one of of the 340B program's basic elements—the definition of a “patient” eligible to receive 340B drugs.


While All Eyes are on 340B Contract Pharmacy Battle, Federal Appeals Court Hears Arguments in Key Case Challenging HRSA’s Patient Definition

Part 1 of Two-Part Deep Dive into One of the Most Important and Contentious Areas of 340B Program

While much of the 340B community’s attention has been focused on the contract pharmacy suits winding through the federal court system, there is other activity that the federal court system is grappling with that one could argue is equally or even more important.

A federal appeals court heard arguments last month in a South Carolina health center’s lawsuit challenging one of the 340B program’s bedrock principles—the definition of a “patient” eligible to receive 340B drugs.

The case, Genesis Healthcare v. Becerra, is the same one that caused the U.S. Health Resources and Services Administration (HRSA) starting in late 2019 to stop issuing 340B audit findings related to contract pharmacy and patient definition based solely on noncompliance with 340B program guidance.

That decision, and HRSA’s subsequent statements that its power to enforce 340B policies contained in guidance is limited unless there is a clear violation of the 340B statute, helped motivate drug manufacturers starting in July 2020 to impose conditions on 340B pricing when entities use contract pharmacies.

So far, HRSA’s policy reactions to the Genesis case haven’t prompted entities to test the limits of HRSA’s 340B patient definition to the same degree as leading drug manufacturers have regarding HRSA’s 340B contract pharmacy requirements, according to lawyers for and consultants to covered entities. That could change, however, depending on what happens next in the Genesis case.

Despite the case’s potential to upend HRSA’s 340B patient definition, it has progressed through the federal court system mostly unnoticed. News that it was argued before the U.S. Fourth Circuit Court of Appeals in Richmond, Va., on March 9 began spreading among lawyers and consultants only late last week. Some said privately they thought the case died just over two years ago.

Lawsuit’s Background

Genesis is appealing a federal district court’s December 2019 dismissal of its lawsuit over adverse 340B audit findings handed down in February 2018. The U.S. Health Resources and Services Administration (HRSA) told Genesis in those findings that it had dispensed 340B-purchased drugs to ineligible patients, would be expelled from 340B, and would have to repay manufacturers for drug purchases it made while ineligible.

HRSA expelled Genesis from 340B for eight days in 2018 but reinstated the FQHC system in the northeast corner of South Carolina on July 5, 2018, the same day that Genesis filed the lawsuit.

The health center’s case focuses mainly on HRSA’s instruction to it in a March 20, 2019, letter that it could not dispense 340B drugs to all its patients.

For an individual to qualify as a 340B patient, HRSA told Genesis, 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.”

“Contradicts Plain Language of the Statute”

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.”

“HRSA’s interpretation of ‘patient’ improperly focuses on a patient’s prescription, and who wrote it, rather than the existence of a patient relationship with Genesis (or any other covered entity) provided by the plain words of the statute … which clearly states to whom a covered entity may dispense a prescription,” the health center argued. “Under HRSA’s very narrow definition of the word ‘patient’ in the statute, many low income and indigent patients of Genesis will not be able to receive reduced priced drugs under the 340B program. HRSA’s interpretation thus undermines the purpose of the 340B program, endangers the health of the most vulnerable patient population, and forces extreme limitations on the 340B program, at the expense of Genesis and other 340B covered entities who provide medical care to those who can least afford prescription medications.”

Genesis asked a federal district 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.

HRSA Voids Audit Findings

Thirteen days after Genesis made those arguments and requests for relief in court, HRSA voided its audit findings against Genesis and closed the audit. It did not explain why.

“As the audit findings have been voided, [Genesis] has no further obligations or responsibilities in regard to the audit, including any actions to submit a CAP [corrective action plan] or perform the actions outlined in the CAP previously submitted,” HRSA said.

HRSA asked the district court to dismiss the case, arguing in part that its decision to void the audit and reinstate Genesis to the 340B program rendered the case moot. The court agreed and dismissed the case on Dec. 19, 2019.

Genesis appealed the dismissal on June 26, 2020. “HRSA’s unlawful interpretation and guidance regarding the definition of ‘patient’ remains in effect,” the health center argued. “Moreover, HRSA’s voluntary cessation of taking action against Genesis based on HRSA’s audit findings does not render Genesis’ claims moot, since HRSA has done nothing to make it absolutely clear its interpretation and guidance has changed.”

The U.S. Justice Department responded on HRSA’s behalf that the agency’s decision to void the audit “eliminated any dispute surrounding the audit’s conclusions or its consequences.”

“Genesis’s continued desire to obtain a pronouncement on the correctness of the agency’s audit findings is no longer embedded in any actual controversy about Genesis’s particular legal rights, and granting Genesis’s request would therefore amount to an impermissible advisory opinion,” it said.

We will report on the arguments made and questions asked during the March 9 hearing before the Fourth Circuit Court in Part 2.

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