Genesis Healthcare Inc. v. Becerra: District Court Invalidates HRSA’s Patient Definition and Implementation in 340B Program
by Elizabeth “Issie” Karan, Karan Legal Group, Hemophilia Alliance Legal Counsel

On November 3, 2023, the US District Court for the District of South Carolina Florence Division ruled in favor of Genesis Healthcare Inc., a federally qualified health center and covered entity in the 340B Program. Genesis challenged the government’s interpretation of the 340B Program’s patient definition. Stakeholders collectively exhaled (and some outright exclaimed) after anxiously watching the case wind through the courts in recent years.

Genesis Healthcare Inc. v. Becerra, stems from a dispute over removal of Genesis from the 340B Program by HRSA following an on-site audit 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 prescriptions were included in Genesis’ 340B Program that were written by providers at private clinics for patients that were later referred to Genesis, after the prescription was written. However, within a week of Genesis filing its lawsuit challenging the diversion finding, the parties reached an agreement whereby HRSA permitted Genesis to be provisionally readmitted to the 340B program.

Despite reinstatement in the 340B Program, Genesis Healthcare filed an amended complaint, contending that the case should not be dismissed because it still must follow unlawful guidance. 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.

In the most recent ruling in the case, the court again sided with Genesis, stating that while the statute requires a covered entity to have an ongoing relationship with a patient in order to use 340B drugs, the government cannot further limit the use of 340B only to drugs that pertain to care that the covered entity initiated.

“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.”

So, what does the outcome of this case mean for HTCs? First, we do not recommend making any changes to the operations of your 340B Program because of this opinion. The court’s decision is only binding on Genesis. Additionally, the government may either appeal the case or issue new guidance on the 340B patient definition. As such, we believe it’s too soon for acting based on the case.

Second, the court’s decision could embolden other covered entities to include referral prescriptions more aggressively in their 340B Program. The court’s decision puts the long-standing policy on the 340B patient definition in flux. More explicitly, other covered entities may want to include HTC patients in their 340B Program. While most clinics do not have the expertise to manage bleeding and clotting disorder treatments, this threat is more possible with the loosening of the patient definition. So please closely monitor how your patients (and their prescribed treatments) qualify for inclusion in your 340B Program and any interactions with other 340B covered entities prescribing for them.

Finally, the decision increases uncertainty in the 340B Program and, as the quote above highlights, sets up more arguments for congressional action on 340B. Given the packed congressional calendar for the remainder of this year, Congress is unlikely to act on 340B in 2023. However, we anticipate the case could be used to increase urgency for legislation on the 340B Program next year.