340B Program Changes on the Horizon? Start Planning Now for Potentially Seismic Impact of Upcoming Genesis Decision

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As the extensively covered Genesis Healthcare, Inc. v. Azar case continues to proceed, 340B covered entities expect to soon receive much-anticipated clarification on what can reasonably constitute a 340B eligible patient. In the meantime, covered entities should begin planning and strategizing now for how such a significant change to the 340B Program would impact its 340B services and operations.

Genesis Healthcare, Inc. v. Azar is an ongoing case that arose from a 2017 Health Resources and Services Administration (“HRSA”) audit and subsequent exclusion of the covered entity from the 340B Program on February 14, 2018. HRSA’s audit determined that Genesis Healthcare (“Genesis”), a system of 340B-participating Federally Qualified Health Centers (FQHCs), was no longer eligible to participate in the 340B Program because it was dispensing 340B drugs to individuals who were not 340B-eligible “patients” of Genesis (i.e., 340B diversion). Genesis filed suit a few months later in June 2018, arguing that HRSA’s interpretation of an eligible “patient” was not aligned with the 340B statute itself1 and was instead based on nonbinding, sub-regulatory guidance originally released in 1996.2 In apparent response to the lawsuit, HRSA allowed Genesis back in to the 340B Program on September 24, 2018, but continued to insist that Genesis comply with the more restrictive 1996 eligible patient guidance. Genesis filed an amended complaint, alleging that HRSA continued to seek enforcement of an unreasonably narrowed definition of “patient” and was relying on nonbinding sub-regulatory guidance as support.

In December 2019, a federal district court sided with HRSA and dismissed Genesis’ case as moot. Genesis subsequently filed an appeal of the dismissal with the U.S. Fourth Circuit of Appeals. The Fourth Circuit ultimately sided with Genesis, remanding the case back to the federal district court with instructions to consider Genesis’s broader interpretation of a 340B-eligible patient rooted in the actual 340B statute. The Fourth Circuit stated that the situation presented an “ongoing controversy” since Genesis “remains subject to audit and, as the record stands, would still have to comply with HRSA’s 1996 Guidelines.”

With the upcoming federal district court’s decision on the horizon, covered entities have some important items to consider. If the federal district court rules in Genesis’s favor, covered entities may be able to rely solely upon the “patient” reference in the 340B statute and conceivably take a much broader approach to which of its patients are 340B-eligible (i.e., any patient that it considers a “patient” of the covered entity, without any other stipulations on when or where that patient was treated or how the associated medication related to that treatment). Covered entities may consider planning ahead as to how the decision may impact their 340B Program and provide opportunities for additional 340B benefit capture, including changes to third party administrator settings, and policy and procedure updates, among others. The district court may also direct HRSA to produce formal regulatory guidance for the definition of “patient,” which may allow covered entities the unique opportunity to provide input on a key aspect of 340B Program regulation.

1 The 340B statute does not clearly define a 340B-eligible patient, and simply states that “a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity.” 42 U.S. Code § 256b(5)(B).

2 61 FR 55157-58

Quarles & Brady attorneys will be closely monitoring this rapidly evolving case. If you have any questions or are interested in strategizing for these potentially seismic changes, please contact your Quarles & Brady attorney or:

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