On November 3, 2023, the US District Court for the District of South Carolina issued a landmark order in Genesis Health Care, Inc. v. Becerra, a case analyzing the definition of a “patient” under the 340B Program Statute. The court concluded that the government’s restrictive interpretation of the term was contrary to the plain language of the 340B Statute and would frustrate the goals of the 340B Program. In reaching this conclusion, the court focused on common definitions of the term “patient,” as well as the structure and congressional intent of the 340B Statute, to support a “broad reading” of the term “patient.” The court enjoined the Health Resources and Services Administration (HRSA) from enforcing its more restrictive interpretation of the term against the plaintiff, a federally funded health center.
Although this decision may bring this years-long litigation to an end, Genesis raises a host of new questions for 340B Program stakeholders, including the applicability of the decision to other covered entities, the practical import of the decision in enforcement actions, and how the court’s analysis will alter covered entity and manufacturer compliance with HRSA and Apexus guidance.
The Genesis case involves the definition of a “patient of the entity” as that term is used in the 340B Statute (42 USC § 256b). The 340B Statute prohibits a healthcare provider participating in the 340B Program (known as a “covered entity”) from reselling or otherwise transferring a 340B drug to a “person who is not a patient of the entity.” The scope of this definition (i.e., the conditions under which a covered entity can purchase a drug at the 340B discounted price) is consequential to both covered entities and drug manufacturers. A broad definition would increase the volume of drugs purchased at the discounted 340B prices, and a narrow definition would decrease the volume.
In 1996, HRSA published a final notice in the Federal Register purporting to define the term “patient of a covered entity” under the 340B Statute. The 1996 guidance provided that an individual would be considered a patient of a covered entity only if (in applicable part) both of the following were true:
- The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s healthcare.
- The individual receives healthcare services from a healthcare professional who is either employed by the covered entity or provides healthcare under contractual or other arrangements (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity.
The 1996 guidance provided that an individual would not be considered a “patient” of the entity if the only healthcare service received by the individual from a covered entity was the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting. The guidance was silent as to whether a prescription must be written during a visit to a covered entity or by a practitioner employed by or under contract with the covered entity to be eligible to be filled with 340B drugs.
In June 2017, HRSA conducted an audit of Genesis Health Care and determined that it had failed to maintain auditable records and had dispensed 340B drugs to ineligible patients. Specifically, the audit report claimed that Genesis’s in-house pharmacy and several of its contract pharmacies had dispensed 340B drugs to individuals without sufficient documentation of a provider-patient relationship between Genesis and those individuals. Genesis’s in-house pharmacy also had used 340B drugs to fill prescriptions that were written by private physician practices that were not eligible as 340B covered entity sites. Genesis did not have patient records to support Genesis’s responsibility for the care delivered by these private physician practices, nor was Genesis able to show that the individuals received healthcare services from a healthcare professional who was either employed by Genesis or under a contractual or other arrangement demonstrating Genesis’s responsibility for the individuals’ care.
Following issuance of the final audit report, HRSA took steps to remove Genesis from the 340B Program. Genesis subsequently filed suit challenging HRSA’s actions. Shortly after the suit was filed, HRSA reinstated Genesis in the 340B Program. However, HRSA maintained its position that Genesis had dispensed 340B drugs to patients who were not “patients of the entity” under the 340B Statute. HRSA issued a letter to Genesis on March 20, 2019, in which it “clarified” that in order for an individual to qualify as a patient of a 340B covered entity, the covered entity must have initiated the healthcare service resulting in the prescription. In its letter, HRSA stated:
HRSA would like to clarify that in order for an individual to qualify as a 340B patient, [Genesis] must have initiated the health care service resulting in the prescription, regardless if the patient had an unrelated billable [Genesis] encounter.
In December 2019, the district court indicated it would not issue a decision on Genesis’s case because there was no longer a live controversy since Genesis had been reinstated in the 340B Program. Genesis appealed the decision on the basis that HRSA’s definition of “patient” remained unclear and that a clear definition was necessary for Genesis to certify compliance with the 340B Statute. The US Court of Appeals for the Fourth Circuit sided with Genesis and remanded the case back to the district court for a determination of the 340B Program definition of “patient.”
In motions before the district court on remand, Genesis argued that the language in the 340B Statute is plain and unambiguous and therefore must be construed according to its terms. Genesis argued that HRSA does not have the authority to issue interpretations of the 340B Statute, its publications of definitions of the term “patient” are not enforceable, and the structure of the 340B Statute does not support HRSA’s restrictive interpretation that a “patient” of the covered entity must have received a prescription for a 340B-qualifying drug during a visit to the covered entity. In response, HRSA argued that it had properly interpreted the statutory phrase “patient of the entity” to mean that the covered entity “initiated the health care services resulting in the prescription,” and that it has the authority to state its interpretation of the 340B Statute.
THE DISTRICT COURT’S OPINION
On November 3, 2023, the district court issued an opinion in Genesis generally siding with Genesis and enjoining HRSA from enforcing against Genesis its interpretation of the definition of “patient” so far as it requires that prescriptions eligible for 340B pricing result from care initiated at the covered entity.
The court found that HRSA’s interpretation of the term “patient,” as set forth in its audit letter to Genesis, was contrary to the plain language of the 340B Statute. The court stated that “nothing 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.’”
The court went on to clarify that although the statute defines certain terms, it does not define “patient,” nor does it require that a prescription originate from a covered entity in order for an individual to be considered a “patient.” In reviewing various dictionary definitions of the word “patient,” the court found that the term has a fairly common definition and ordinary understanding that does not impose the restriction HRSA proposed reading into the definition.
The court found that the purpose of the 340B Statute was to combat the increase in prescription drug prices following the implementation of the Medicaid Drug Rebate Program (MDRP). Because of manufacturers’ drug price increases in response to the MDRP, covered entities experienced substantial increases in the costs of their outpatient drugs, which reduced the services that covered entities were able to provide to indigent individuals. With this purpose in mind, the court found it reasonable to conclude that Congress intended “patient” in the 340B Statute to have its plain and ordinary meaning, which would not reflect HRSA’s more restrictive interpretation. The court summarized:
Bearing in mind that the purpose of the 340B Statute was, in part, to make “covered entities” profitable so they could stretch Federal resources as far as possible, reach more eligible patients, and provide more comprehensive services, a broad definition of the term “patient” complies with congressional intent in that the more patients a “covered entity” can sell discounted 340B drugs to, the greater the “covered entity’s” profit margin, and the greater the ability of the “covered entity” to provide services to the indigent and achieve the purpose of the 340B Statute.
The court noted that HRSA did not direct the court to any attempt by HRSA to reconcile its restrictive definition of the term “patient” with the purpose of the 340B Statute. Indeed, in developing the restrictive definition of the term “patient,” HRSA “does not appear to have made any attempt to consider the purpose of the 340B Statute—the profitability of ‘covered entities’ in light of prescription drug price increases,” the court stated. To the contrary, the court concluded that HRSA’s restrictive definition “limits the scope of the 340B Program, limits the profitability of ‘covered entities,’ and frustrates the goal of the 340B Statute, which is to make ‘covered entities’ profitable in the face of prescription drug price increases that followed the Medicaid Drug Rebate Program and that continue to this day.”
Accordingly, the district court enjoined HRSA from enforcing its restrictive interpretation against Genesis.
The Genesis decision will have reverberations throughout the 340B Program, altering covered entities and manufacturers’ risk analyses of compliance with other HRSA interpretations of undefined terms in the 340B Statute.
The Patient Definition
While the district court enjoined HRSA from enforcing its March 20, 2019, interpretation of the term “patient” against Genesis, it did not address the enforceability of HRSA’s 1996 definition of “patient.” However, the court offered several common definitions of “patient” that covered entities could consider as potentially acceptable definitions. Some of these definitions are clearly broader than HRSA’s 1996 guidance, defining individuals as patients even if they are “awaiting” or “registered to receive” medical care and treatment, although other definitions cited by the court require the past or present care of a patient. Accordingly, the district court’s opinion leaves open whether prescriptions filled prior to a visit with a covered entity would qualify a patient as a “patient of the covered entity.”
To the extent that HRSA’s March 20, 2019, definition of “patient” is inconsistent with the 340B Statute, it would appear that a covered entity could reasonably interpret the 340B Statute as allowing it to purchase drugs at 340B prices and dispense them to its patients (either directly or through contract pharmacies) who have received prescriptions written by other providers or which resulted from visits to other providers as long as the individuals receiving the drugs are otherwise “patients of” the covered entity. For example, a covered entity could take the position that it could dispense a 340B-purchased drug to an individual who initiated the care resulting in the prescription at another provider, as long as the individual also received services from the covered entity to establish a patient relationship with the covered entity. The court did not explicitly address whether such services must be provided before or after the prescription at issue was written, nor did it address the clinical relationship of the covered entity services to the prescription.
The court limited its relief to solely to Genesis, without extending it to other covered entities. In other words, the court did not prohibit HRSA from enforcing its restrictive March 20, 2019, interpretation of the term “patient of the covered entity” on any other covered entity. Limitation of this relief to Genesis is consistent with other recent federal court decisions involving claims against the government, including those involving the 340B Program, that have limited relief to the named plaintiffs. For example, in Eli Lilly and Company v. Cochran, 526 F.Supp.3d 393, the US District Court for the Southern District of Indiana enjoined HRSA from implementing or enforcing its administrative dispute resolution regulations against Eli Lilly and Company but did not expressly enjoin HRSA from implementing or enforcing the regulations against any other manufacturers.
This means that if HRSA were to take enforcement action against a covered entity under the March 20, 2019, definition of “patient,” a covered entity could be required to bring its own claim against HRSA in federal court in order to obtain relief. While the Genesis decision would provide favorable precedent for finding HRSA’s interpretation invalid, there is no guarantee that another court would reach the same conclusion.
The Genesis decision provides a relatively clear analytical framework for 340B stakeholders to consider how a federal court might consider the enforceability of HRSA’s interpretations of the 340B Statute. This framework would consider the following:
- Is the interpretation consistent with the plain language of the 340B Statute?
- Is the interpretation consistent with the intent of the 340B Statute, i.e., to increase covered entity revenue opportunities deriving from participation in the 340B Program?
While the Genesis decision was limited to a particular interpretation of the “patient” definition, this analytical framework may be considered in other circumstances where HRSA has adopted an interpretation that would appear inconsistent with the plain language and intent of the 340B Statute.
For example, the Genesis analytical framework could be used when interpreting the scope of the 340B Program group purchasing organization (GPO) limitation. Under the 340B Statute, the GPO limitation excludes from the “covered entity” definition certain hospitals that obtain covered outpatient drugs through a GPO or other group purchasing organization. HRSA has historically interpreted this limitation as applying to drugs purchased before the setting in which they will be dispensed is determined (i.e., before it is known whether they will be dispensed to an outpatient and potentially as a “covered outpatient drug”). A covered entity may apply the reasoning in Genesis to evaluate whether HRSA’s current interpretation is consistent with the plain language of the 340B Statute and its intent to allow covered entities to maximize revenue opportunities from participation in the 340B Program.
Benefits of Affirmative Litigation
The Genesis decision highlights the benefits of covered entities engaging in affirmative litigation against the government. If Genesis had not pursued its claims, the enforceability of HRSA’s interpretation of the patient definition would still be unknown, and Genesis might have unnecessarily self-restricted the financial benefits that Congress intended it to have under the 340B Program.
The decision also highlights that covered entities cannot expect to necessarily benefit from favorable court rulings obtained by other covered entities and should consider joining in litigation to ensure that they receive the benefits of a favorable decision. In this case and in others, the court limited its relief to the covered entity that filed litigation. HRSA is not prohibited by this decision from continuing to pursue enforcement actions against other covered entities using its more restrictive definition of “patient of the covered entity.” As a result, covered entities could be forced to engage in their own litigation if HRSA takes future enforcement action against them.
Implications for Future HRSA Interpretations and Administrative Dispute Resolution
Of note, the district court opined that in order to administer the 340B administrative dispute resolution process, HRSA “necessarily will be obliged to set forth its understanding of various stakeholders’ obligations under the 340B Program, including an interpretation of the statutory term ‘patient.’” This position is consistent with the US District Court for the District of Columbia’s 2015 ruling in PhRMA v. HHS, 138 F.Supp. 3d 31, which opined that even in cases where HRSA lacks the authority to promulgate a rule as a binding statement of law, HRSA is not forbidden altogether from proffering its interpretation of the 340B Statute. These interpretations, however, if inconsistent with the plain language and intent of the 340B Statute, should be challenged by covered entities if the analytical framework in Genesis suggests that HRSA has overstepped or misapplied its authority.
Potential for Appeal
HRSA may respond to the Genesis case by appealing the decision to the Fourth Circuit and arguing that the March 20, 2019, definition is consistent with the 340B Statute and congressional intent for the 340B Program. While the district court’s opinion is generally viewed as a win for Genesis, because the court did not grant Genesis all of the relief it requested, Genesis could also appeal the court’s refusal to find that HRSA does not have authority to issue any interpretation of the definition of “patient of the entity.” The deadline for filing an appeal is January 2, 2024. Depending on the party filing the appeal and the specific issues being appealed, there remains some possibility that the Genesis saga is not over and, conceivably, some chance that HRSA’s March 20, 2019, definition could ultimately prevail.
Example Open Questions
While the Genesis decision clarifies one court’s position on a particular dispute relating to the patient definition, it leaves open many questions relating to the patient definition and the import of HRSA’s other guidance, as discussed above. The court noted that the statute does not state a specific temporal requirement for the term “patient,” and HRSA offered no suggestions for a temporal requirement. The court noted that a commenter raised this issue in 1996, but HRSA did not set a time limit. The court observed that the American Medical Association (AMA) considers an established patient to be an individual who has received a healthcare service from the provider within the last three years, but the district court acknowledged that the recency of a healthcare encounter with a “covered entity” as a requirement to be considered a “patient” of the “covered entity” was not the issue before the court. Accordingly, the court appears to have left open the possibility for HRSA to establish a temporal limitation in the future.
The decision also does not contemplate that a patient could be considered a patient of multiple entities at the same time. In such cases, there must be a determination of which covered entity may claim the patient relationship for purposes of particular drug dispenses. This decision determines which covered entity receives the financial benefit of the transaction and may not be easily evaluated at the time the drug is dispensed. Since many 340B drugs are dispensed through contract pharmacy arrangements using third-party administrator software to determine eligibility, this may place pharmacies and software vendors in the unenviable position of having to establish protocols for “tie breaking” or otherwise adjudicating disputes between clients as to who has the stronger argument for claiming the patient as their own.
Both manufacturers and covered entities should consider their policies and procedures relating to the criteria for determining whether an individual is a “patient” under the 340B Program and whether changes to the policies may be appropriate in response to the Genesis decision. Similarly, 340B contracting pharmacies, third-party administrators and other vendors should evaluate their criteria for associating a particular prescription with a particular covered entity and what changes may be necessitated by changing covered entity policies. More broadly, all 340B stakeholders should consider the court’s analytical framework in Genesis when evaluating how to apply HRSA’s interpretations of the 340B Statute to their operations and whether HRSA’s interpretations are subject to legal challenge and likely to be found enforceable by a court.
We will continue to watch the Genesis case and will provide updated information on developments through our 340B Litigation Tracking Tool.