On November 3, 2023, a South Carolina District Court ruled that HRSA violated the 340B statute by interpreting the term “patient” of a covered entity as requiring that a covered entity must have initiated the health care service that resulted in an individual’s prescription (pg. 2) because that interpretation is inconsistent with the plain meaning of the term “patient.” This case has far-reaching implications for 340B covered entities and the scope of their 340B programs.

Background Facts

Based on Court filings, Genesis (an FQHC located in South Carolina), filled prescriptions with 340B drugs that were written by providers as the result of services furnished outside of Genesis if the patient had been seen at Genesis within the past two years. According to HRSA auditors, Genesis did not have a formal referral relationship with the providers who wrote those prescriptions. HRSA conducted an audit of Genesis and issued a diversion finding. HRSA then issued a letter to Genesis stating 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 billable FQHC encounter” (pg. 13). Genesis sued HRSA, and HRSA withdrew the audit findings. Nonetheless, Genesis asked that the Court issue a decision in the case because Genesis could be subject to audit findings in the future based on HRSA’s narrow interpretation of the definition of “patient.”

Court’s Decision

The Court noted that the purpose of the 340B statute is to help covered entities to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services” (e.g., pgs. 13, 19, 23, and 27). The Court stated that Congress’s decision not to define the term “patient” in the 340B statute means that Congress relied on a plain meaning of the term, such as the one found in the Merriam Webster dictionary: "an individual awaiting or under medical care and treatment" (pgs. 17 and 19). The Court determined that HRSA’s added requirements on the definition of patient were unlawful: 

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." … All the 340B statute requires is that the "covered entity" limit the resale of 340B drugs to "patients" of the "covered entity." (pgs. 19-20). 

The Court also held that the 340B statute does not set a time limit on recent health care encounters to demonstrate that an individual is a patient of the covered entity. The Court acknowledged that Genesis had voluntarily restricted its patients’ eligibility based on a two year look back period but noted that the American Medical Association’s definition of patient uses a three year look back period for other purposes. The Court declined to opine on how recent a health care encounter must be to establish a patient relationship and noted that the 340B statute did not require that a 340B-eligible prescription be written as the result of health care services provided at the covered entity. The Court agreed with HRSA, however, that the language of the 340B statute requires “an ongoing patient relationship between the individual and the ‘covered entity’” (pg. 21). 

Significantly, the Court opined that:

Bearing in mind that the purpose of the 340B statute was, in part, to make ‘covered entities’ profitable so they could stretch Federal resources as far as possible, reach more eligible patients, and provide more comprehensive services, a broad definition of the term ‘patient’ complies with congressional intent in that the more patients a ‘covered entity can sell discounted 340B drugs to, the greater the ‘covered entity's’ profit margin, and the greater the ability of the "covered entity" to provide services to the indigent and achieve the purpose of the 340B statute. (pg. 23).

Genesis also asked the Court to declare that “the plain wording of 42 U.S.C. § 256b(a)(5)(B) requires that any prescription from any source is available to a patient of a covered entity” (pg. 29). The Court declined to go that far. The Court also declined Genesis’s request to declare that HRSA does not have the authority to interpret the term “patient.” The Court stated that HRSA will be required to set forth its patient definition policies through the administrative dispute resolution process and that HRSA’s interpretations must be consistent with the plain language of the 340B statute. 

What is Next?

It is unclear whether the government will appeal the decision to the 4th Circuit. The Government has 60 days to file an appeal. The decision’s impact on the debate in Congress on 340B is unclear but, it is noteworthy that the Court reiterated that use of the 340B program was intended to be more, not less, expansive. This is counter to the drug industry’s arguments regarding the intended scope of the program. Further, the Court noted that any changes to the scope of the program must be made by Congress.

Implications of Decision

The Genesis decision is a significant victory for covered entities. It voids HRSA’s long-standing policy that, absent a referral relationship, prescriptions to be filled with 340B drugs must be written at a covered entity registered location as part of an outpatient visit (often referred to as the “location” test). Covered entities seeking to revise their 340B programs based on the Genesis decision should consider amending their 340B policies and procedures and seeking input from legal counsel.

Powers will continue to closely monitor developments in this case.