Why the Genesis 340B Patient Definition Court Decision Could Resolve the Contract Pharmacy Impasse

By Ted Slafsky

In what legal experts describe as a landmark decision, the U.S. District Court for the District of South Carolina ruled Nov. 3 that the plain wording of the 340B statute does not require a covered entity to have initiated a healthcare service resulting in a prescription filled with a 340B discounted drug.

As Powers Law summarized in its analysis of the decision, “the court stated that it was Congress’s decision not to define the term ‘patient’ in the 340B statute and suggests that Congress relied on the plain meaning of the term, as found in the Merriam-Webster dictionary: ‘an individual awaiting or under medical care and treatment.’ Additionally, the court ruled that the 340B statute does not impose a time limit on recent healthcare encounters to establish an individual’s status as a patient of the covered entity.”

While the decision was limited to the South Carolina based-community health center Genesis Healthcare, it could have broad implications for the future applicability and enforcement of the 340B patient definition, as well as other hotly contested matters, such as the contract pharmacy program.

In the ruling, Chief Judge R. Bryan Harwell, an appointee of President George W. Bush, criticized the Health Resources and Services Administration (HRSA) for not recognizing 340B’s purpose. The judge said the purpose partly was “to make ‘covered entities’ profitable in the face of the prescription drug price increases that followed the Medicaid Drug Rebate Program and that continue to this day.” The judge referenced the legislative history of the program and cited the congressional report language that accompanied the 340B statute. That described the program’s purpose as “to enable ‘covered entities’ to stretch federal resources as far as possible and reach as many eligible patients as possible, while providing more comprehensive services.”

Harwell’s ruling is fascinating. On one hand, he clearly admonished the government for trying to impose a more restrictive definition of “patient” than is permitted by law. On the other hand, he declined Genesis’ and the manufacturers’ requests to declare that HRSA lacks broad rulemaking authority to define the statutory prohibition on diverting 340B drugs to ineligible patients. In fact, the judge gave more power to HRSA to oversee and enforce the program (including the patient definition and the contract pharmacy program) through the long-delayed administrative dispute resolution (ADR) process. The judge said HRSA “will be obliged to set forth its understanding of various stakeholder’s obligations under the 340B program.”

 Dichotomy of Responses

 Providers groups were generally pleased with the decision. “This case should put an end to the drug industry attacks on congressional intent and growth in the 340B program,” said Shannon Burger, president of Ryan White Clinics for 340B and CEO of Cempa Community Care. “The court was very clear—340B is meant to combat the increase in prescription drug prices and help us provide more services to more patients and our communities.”

Maureen Testoni, president and CEO of 340B Health, said, “The court underscores the importance of the government adhering to the plain and ordinary meaning of ‘patient’ as well as the broader application of 340B to assist safety-net providers amid high prescription drug prices, both as Congress intended.”

Meanwhile, the pharmaceutical industry panned the decision and expressed deep concern that it would result, as the law firm Hogan Lovells, described it, “as a limitless patient definition that would effectively nullify the statutory prohibition against diversion.” John Shakow, a drug industry lawyer at King & Spalding, who co-authored amicus brief filings for AbbVie and Bristol Myers Squibb in the case, told 340B Report, “We are disappointed with the court’s decision and the many errors in its understanding of the 340B program.”

Pharmaceutical Research and Manufacturers of America and drug manufacturers are urging HRSA to appeal the decision. As of now, it is unclear whether an appeal will happen, although the Biden administration will need to decide by January 2. Some attorneys I conferred with expect an appeal, others doubt it, given HRSA’s lackluster track record in its appeal of high-profile legal cases. Either way, the writing could be on the wall when it comes to where we are headed. The pharmaceutical industry is likely to push for quick enactment of laws to narrow the definition of patient even further than HRSA’s current definition. Providers, on the other hand, now have more leverage in the battle over 340B’s future. They will point out that a Republican appointed judge in a ruby red state ruled in favor of a very broad definition of patient. HRSA also will want Congress to intervene to keep the definition from expanding.

Impetus to a Grand Compromise?

Most 340B providers generally would support HRSA’s current patient definition (not the more restrictive one that HRSA tried to enforce in the Genesis case) in return for full access to the contract pharmacy program. The patient definition, which has been in place since 1996, requires all of the following:

1. The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s healthcare.
2. The individual receives healthcare services from a healthcare professional who is either employed by the covered entity or provides healthcare under contractual or other arrangements (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity.
3. In the case of grantees and sub-grantees, the patient must receive health services from the covered entity that are consistent with the services for which grant funding has been provided to the entity.

As McDermott, Will & Emery law firm described in its analysis of the Genesis decision, “the 1996 guidance provided that an individual would not be considered a ‘patient’ of the entity if the only healthcare service received by the individual from a covered entity was the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting. The guidance was silent as to whether a prescription must be written during a visit to a covered entity or by a practitioner employed by or under contract with the covered entity to be eligible to be filled with 340B drugs.”

The Resolution

Since the government sides with the drug industry when it comes to limiting the patient definition but sides with providers in restoring access to the contract pharmacy program, we have the ingredients for a grand compromise. Congress should enact legislation that both codifies the 1996 patient definition guidelines and restores the contract pharmacy program with proper safeguards to prevent instances in which drug manufacturers are exposed to duplicate discounts on Medicaid transactions. This deal would serve the interests of all parties: providers, patients and the drug industry, and would have the backing of the federal government. One can only hope that lawmakers and the administration are working now to resolve these critically important matters.

Ted Slafsky is the Publisher and CEO of 340B Report, the only news and intelligence service exclusively covering the 340B program.  Slafsky, who has over 25 years of leadership experience with the 340B program, is also Founder and Principal of Wexford Solutions.  Ted can be reached at ted.slafsky@340Breport.com.

Disclaimer: The views and opinions expressed in this blog are those of the authors. They do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.