Genesis Healthcare Inc. v. Becerra: Reevaluating HRSA’s Regulatory Authority for the 340B Program
by Elizabeth “Issie” Karan, Legal Counsel

While lawsuits related to the 340B Discount Drug Program have become commonplace, there is a new important court ruling that jeopardizes the longstanding “patient” definition under the 340B Program. HTCs should expect this lawsuit to be a hot topic in 340B Program circles for months to come.

The case, Genesis Healthcare Inc. v. Becerra, stems from a dispute over the removal of Genesis from the 340B Program following an on-site audit that HRSA conducted in June 2017. HRSA issued two findings: 1) that Genesis failed to comply with the statutory requirement of maintaining auditable records; and 2) that Genesis dispensed 340B drugs to ineligible individuals, causing diversion. HRSA issued the diversion finding because Genesis included prescriptions in its 340B program which were written by providers without a relationship to Genesis for patients that later went to Genesis for care. However, within a week of Genesis filing its lawsuit challenging the diversion finding, the parties reached an agreement that permitted it to be provisionally readmitted to the 340B program.

Despite this reinstatement, Genesis Healthcare filed an amended complaint that argued that it was still required to follow unlawful guidance. Genesis alleges that HRSA’s “patient” definition has “never been promulgated by regulation” and, in any event, “contradicts the plain language of the statute” by “improperly focusing on a patient’s prescription, and who wrote it, rather than the existence of a patient relationship with Genesis (or any other covered entity).” As a result, Genesis requested that the court invalidate HRSA guidance on the patient definition from 1996.

While the District Court dismissed the lawsuit as moot, the Fourth Circuit Court of Appeals agreed with Genesis, overruling the lower court decision, and sending the case back for a determination on its merits. This means that Genesis now has the opportunity to challenge the patient definition in federal court and potentially upend over 25 years of its enforcement.

This case comes at a unique time. A recent high-profile Supreme Court decision (West Virginia v. Environmental Protection Agency (2022)) suggests that the judiciary branch is giving less deference to agencies interpreting laws. You may recall that prior cases have limited HRSA’s rulemaking authority related to the 340B Program; in PhRMA v. HHS (2014), the US District Court of DC held that the 340B Program statute itself provides only limited grants of rulemaking authority in the following three areas: (1) the establishment of an administrative dispute resolution process for claims by manufacturers and covered entities; (2) standards and methodology for calculating ceiling prices; and (2) standards for the imposition of civil monetary penalties. These legal precedents enable the court in Genesis Healthcare Inc. v. Becerra to revisit the validity of the patient definition in the 340B Program.