Background

On June 28, 2018, Genesis, a federally qualified health center (FQHC) and 340B covered entity, brought litigation against HRSA after a HRSA audit led to Genesis’s termination from the 340B program. The audit found, among other things, that Genesis dispensed 340B drugs to individuals who did not qualify as “patients” under HRSA’s interpretation of the statutory term. HRSA’s audit letter to Genesis stated that, “in order for an individual to qualify as a 340B patient, [Genesis] must have initiated the healthcare service resulting in the prescription, regardless if the patient had an unrelated FQHC encounter.” This interpretation, set forth in the audit letter to Genesis, was not previously spelled out in the 1996 HRSA guidance on the 340B patient definition, available here.

The court originally ruled that the litigation was moot after HRSA rescinded its audit findings and reinstated Genesis into the 340B program. On appeal, the U.S. Court of Appeals for the Fourth Circuit ruled that the case was not moot because HRSA maintained the right to enforce its interpretation of “patient” upon Genesis.

On remand, Genesis filed a motion for summary judgment, arguing that the 340B statute “says nothing about the origin of the prescription being filled by a 340B covered entity,” and that “HRSA’s addition of a requirement for the covered entity to have also generated the prescription in question is unlawful and an improper unauthorized amendment of” the statute. In response, HRSA argued that its interpretation was consistent with the statute and that accepting Genesis’s interpretation of the patient definition would mean there is “no limitation . . . on a covered entity’s dispensing of 340B drugs – whether or not the individual received the prescription from the covered entity; went to the covered entity for services unrelated to the prescription; or had no relationship with the covered entity beyond filling the prescription.”

Several manufacturers filed amicus briefs to raise concerns that Genesis’s position would result in a limitless patient definition that would effectively nullify the statutory prohibition against diversion. The manufacturers were also concerned that the government was not adequately representing their position in the litigation, noting that HRSA had failed to enforce the 340B statute against Genesis despite evidence demonstrating Genesis’s repeated violations.

Decision

In granting Genesis’s motion for summary judgment, the District Court held, among other things, that:

• The term “patient” in the statute is unambiguous in not requiring the covered entity to deliver the service that originates the prescription. Specifically, the court found that the statute is unambiguous and thereby forecloses any interpretation that there be a link between the origination of the prescription and the service delivered by the covered entity to the patient: “The 340B statute does not mention the origination of a prescription in order for an individual to be an eligible 340B patient, nor does the statute place any requirement that the 340B prescription be initiated from a ‘covered entity’ or contract provider for that ‘covered entity.’"

• The 340B statute does not impose a temporal requirement on the term “patient.” The court rejected the concerns of HRSA and amici drug manufacturers that a ruling in favor of Genesis would allow covered entities to divert drugs to individuals who had not had a health care encounter with the covered entity for years, stating that the statute does not contain a temporal requirement and, regardless, that this was not the issue before the court.

• The court suggested that the purpose of the 340B statute is to “make ‘covered entities’ profitable.” The court repeatedly suggested throughout the opinion that Congress’s purpose in establishing the 340B program was, in part, to make covered entities profitable: “HRSA’s restrictive definition of the term ‘patient’ 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 the prescription drug price increases that followed the Medicaid Drug Rebate Program and that continue to this day.”

Despite granting Genesis’s motion for summary judgment in large part, the court declined to grant Genesis’s request for a declaration that “HRSA did not have the broad ruling authority necessary to implement its interpretations and restrictions to the plain language,” finding instead that HRSA “does possess authority to interpret the statutory term ‘patient’” in the course of administering the 340B Administrative Dispute Resolution program. But the court observed that, in doing so, “HRSA's interpretation of the term ‘patient’ must be consistent with the plain language of the statute and the intent of Congress.”

Next Steps

The government will have 60 days to decide whether to appeal. Manufacturers should carefully consider the impact of this decision with respect to their 340B program compliance and interactions with other program stakeholders.

The Hogan Lovells Government Price Reporting Team will continue to monitor any developments related to the litigation. Please feel free to contact the Hogan Lovells Government Price Reporting Team if you have any questions or concerns.

Authored by Alice Valder Curran, Ken Choe, Cate Stetson, Susan Cook, Kathleen Peterson, Samantha D. Marshall, Mahmud Brifkani, Rianna Modi, and Drew Savage