District Court Allows for Expanded Interpretation of Eligible Patient in Impactful 340B Program Ruling

In a decision likely to send shockwaves through the 340B Program space, the United States District Court of South Carolina recently provided a favorable ruling to 340B-participating covered entities hoping to take a more expansive view of who can reasonably constitute a 340B-eligible patient.

Background:

The case originated more than five years ago when Genesis Health Care, a federally qualified healthcare center (FQHC), was temporarily removed from the 340B Program shortly after a formal government audit determined that it was dispensing high volumes of 340B drugs to individuals who were not 340B-eligible “patients” of Genesis (i.e., 340B diversion). Genesis filed suit and argued that HRSA’s interpretation of an eligible “patient” was unduly restrictive and not aligned with the plain wording of the 340B statute. Further detail on the case’s long and winding history can be found here.

The Court’s Analysis:

In its ruling, the District Court largely focused on HRSA’s “current interpretation” of a 340B-eligible patient as reflected in a March 20, 2019 letter to Genesis, which stated that “in order for an individual to qualify as a 340B patient, [the covered entity] must have initiated the healthcare service resulting in the prescription. . . .” Genesis argued in its filings that the 340B statute only states that 340B drugs may not be sold or resold to “a person who is not a patient of the covered entity,” and does not otherwise condition patient eligibility on when or where a specific service was initiated, or to which service a drug order or prescription was tied.

The Court largely agreed with Genesis, stating that because “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,’” HRSA’s interpretation of a 340B-eligible patient is “contrary to the plain language of the 340B statute.” In addition to the plain reading of the statutory language itself, the Court pointed to extensive evidence in the legislative history that Congress intended “patient” to be interpreted more broadly and “to have its plain and ordinary meaning: ‘an individual awaiting or under medical care and treatment.’” The Court also noted that HRSA has never provided any specific time limitation as to when the patient must have received services from the covered entity in order to constitute 340B eligibility for prescriptions written for that patient.

Although the Court acknowledged that its ruling could significantly expand the number of patients covered entities could consider 340B-eligible, it stated that a legislative change would be necessary if stakeholders wanted to limit the 340B-eligible patient definition:

“If there is a desire to restrict the 340B Program and limit the ability of ‘covered entities’ to remain profitable in the face of prescription drug price increases, Congress is the appropriate entity to take the necessary action. It is not the role of HRSA to legislate and limit the 340B program by restricting the definition of the term ‘patient,’ thereby frustrating the ability of the 340B statute to accomplish its purpose.”

Ultimately, after stepping through its legal analysis, the Court made the following declarations:

1. “The only statutory requirement for 340B eligibility of a person is that the person be a patient of a covered entity, as clearly stated in 42 U.S.C. § 256b(a)(5)(B).”
2. “The plain wording of the 340B statute does not require the ‘covered entity’ to have initiated the healthcare service resulting in the prescription.”
3. “Agency interpretations in contradiction of the plain wording of a statute are not entitled to deference and are not enforceable.”
4. While HRSA does possess authority to implement its interpretations of the statutory term “patient” in 42 U.S.C. § 256b(a)(5)(B). HRSA's interpretation of the term “patient” must be consistent with the plain language of the statute and the intent of Congress. As explained above, HRSA's present interpretation of the term “patient” as reflected in the March 20, 2019 now-voided audit letter is inconsistent with the plain language of the statute and the intent of Congress in passing the 340B statute.

What Comes Next?:

The Court’s decision only provides relief to Genesis specifically by enjoining the enforcement of HRSA’s patient definition in the 2019 letter (as opposed to invalidating HRSA’s guidance more broadly). Nonetheless, this decision provides a strong legal footing for future and broader challenges against HRSA’s eligible patient standards. At this time, it is unclear if HHS will appeal the District Court’s ruling. We will continue to update this article as the situation develops.

If you have any questions about the ruling or how it may impact your entity’s 340B Program operations, please contact your Quarles & Brady attorney or:

• Michael French: (312) 715-5261 / michael.french@quarles.com
• Richard B. Davis: (414) 277-5844 / richard.davis@quarles.com
• Brenda Maloney Shafer: (602) 229-5774 / brenda.shafer@quarles.com