The 340B Program in 2024: A Tumultuous Year in Review

By Brenda Maloney Shafer, Richard Davis and Michael French on Posted in Contract Pharmacies, Legislation

The 340B Program has continued to undergo significant upheaval in 2024 that has the potential to bring about impactful changes to how the 340B Program operates moving forward. These developments have left 340B stakeholders in a position of increasing uncertainty. This article synthesizes these key developments of 340B Program developments and trends from the past year. In the coming weeks, we will also publish a companion piece detailing how we expect these developments to impact 340B stakeholders prospectively in 2025 and beyond.

Proposed Rebate Models

In arguably the most significant 340B development this year, several drug manufacturers introduced dramatic changes in their 340B sales model that fundamentally change how 340B covered entities purchase 340B medications and realize the corresponding benefit. Specifically, rather than offer a discounted 340B price to qualifying entities up-front when the purchase is made, these manufacturers would instead implement a rebate model whereby the covered entity would initially purchase the drug at a higher, non-340B price and receive a “rebate” from the manufacturer for the difference between the 340B and non-340B price once certain claim information is submitted by the covered entity to a manufacturer-aligned digital platform.

Manufacturers claim that these rebate models are necessary to curb purported 340B Program abuses by covered entities. For example, in a letter discussing its proposed model, Johnson & Johnson (the first manufacturer to propose a transition to 340B rebate payments) indicated that such a model would allow it “to carry out its 340B obligations while protecting program integrity, consistent with the 340B statute’s prohibitions against duplicate discounts and diversion.”1 On the other hand, covered entity-aligned stakeholders have starkly criticized these rebate models, pointing to the significant cash flow difficulties many safety nets providers would experience if forced to make up-front drug payments at substantially higher costs. These stakeholders have also criticized lack of defined timeframe for rebate payments from manufacturers, along with the fact that manufacturers would have full control of whether submitted claims qualified for a “rebate” with little to no Health Resources and Services Administration (HRSA) oversight. Notably, the proposed data submission parameters for the rebate request would include the National Provider Identifier (NPI) of the billing provider, allowing manufacturers to disqualify all claims from contract pharmacies that do not align with manufacturer restrictions on contract pharmacy arrangements.

To date, the HRSA/U.S. Department of Health & Human Services (HHS) has rejected these rebate proposals and forcefully stated that operating these models without HHS Secretary approval violates the 340B statute and would both threaten the manufacturers’ continued ability to be reimbursed under Medicare Part B and Medicaid and lead to significant civil monetary penalties.2 Unsurprisingly, several manufacturers, including Johnson & Johnson,3 Eli Lilly,4 and Bristol-Myer Squibb,5 have sued HHS, claiming that its rebate models both comply with the 340B statute and do not require HHS approval before operationalizing. While these cases are all in their infancy, 340B stakeholders will closely monitor these cases due to their potentially significant impact on 340B Program operations for both covered entity and manufacturer-aligned entities.

Ongoing Manufacturer Contract Pharmacy Restrictions

A large number of manufacturers (at least 37 at the time of publication) have continued to significantly restrict 340B pricing available for drugs dispensed via contract pharmacy arrangements. Despite ongoing legal challenges by HRSA, courts have continued to affirm manufacturers’ ability to impose these restrictions. For example, the U.S. Court of Appeals for the District of Columbia sided with manufacturers earlier in the year, unanimously ruling that drug manufacturers may impose at least some limits on how they distribute discounted drugs to 340B providers in the contract pharmacy context. Tracking closely with the reasoning of a January 2023 Third Circuit decision considering many of the same issues, the D.C. Court found that the 340B statute’s silence on distribution conditions preserves manufacturers’ rights to set limits, but notably signaled that some types of restrictions could violate the 340B statute (although no examples were provided).

 Importantly, the U.S. 7th Circuit Court of Appeals is expected to soon release a decision in a separate case regarding the same manufacturer-imposed contract pharmacy restrictions. If decided differently than the other two federal appellate courts, the 7th Circuit decision could result in a “circuit split” and potentially be taken up by the United States Supreme Court.

In the meantime, the manufacturers appear comfortable keeping restrictions in place pending resolution of the ongoing litigation. In fact, numerous manufacturers have made their contract pharmacy 340B pricing policies even more restrictive over the last 12 months, including broadening applicability to clinic/grantee covered entities and increasing claim reporting obligations necessary to “unlock” 340B pricing for selected contract pharmacy locations.6

Proposed Federal Legislation

With HRSA’s authority to enforce its sub-regulatory guidance (such as its contract pharmacy requirements) continuing to erode, it is increasingly likely that new legislation will be required to address areas of ongoing 340B Program uncertainty. Although there are several proposed pieces of federal legislation7 that directly or indirectly impact the 340B Program, the 340B SUSTAIN Act seemed to gather the most traction in 2024 and may have the needed momentum for eventual passage. Although the bill has not yet been formally proposed, a draft bill released by its bipartisan group of sponsors signaled an intent to compromise between various stakeholder interests and more clearly define 340B Program parameters. Among other items, the proposed bill is expected to (1) formalize contract pharmacy arrangements within the 340B statute and impose penalty on manufacturers that refuse to offer/impose conditions on 340B pricing availability, (2) establish a neutral, centralized clearinghouse to process claim information submitted by covered entities and state Medicaid agencies to reduce opportunities for Medicaid duplicate discounts, (3) introduce a “user fee” on covered entities to fund 340B Program oversight measures, and (4) clarify the 340B eligible patient definition. While release of the proposed bill has been delayed and likely will not be released until early 2025, this particular bill remains one to watch in 2025.

State-Level Activity

While efforts to address 340B Program issues on the federal level have been slow to develop, state legislatures have stepped in with increasing frequency in 2024.

Contract Pharmacy Access Laws. In direct response to ongoing manufacturer-imposed restrictions in the 340B contract pharmacy space, a growing number of states have enacted laws to protect contract pharmacy access for 340B-participating covered entities. These laws typically require manufacturers to offer 340B pricing to covered entities in the state for an unlimited number of validly registered contract pharmacies. As of late 2024, eight states have enacted contract pharmacy access laws– Minnesota, Kansas, Missouri, West Virginia, Maryland, Arkansas, Mississippi, and Louisiana–with similar bills being introduced in over a dozen others, including several that have secured passage in at least one legislative chamber.

These laws have consistently withstood legal challenge thus far from manufacturers. In the most high-profile example, the 8th Circuit Appellate Court upheld the validity of Arkansas’s version of the law earlier this year, reasoning that that because 340B statute is silent on 340B drug distribution, states are not preempted from regulating that specific space. Notably, the Supreme Court recently declined to hear an appeal of this decision, further strengthening the law’s validity.

Transparency Initiatives. A handful of states have also enacted laws that introduce covered entity reporting requirements related to 340B savings utilization generated through the 340B Program, ostensibly to improve 340B Program transparency. 2024 provided the first example of a state (Minnesota) releasing a report summarizing the results of this type of reporting.8 While the report garnered criticism for lacking context, some 340B stakeholders are concerned that other states may use it as a template for introducing similar reporting requirements in their states.

PBM/Insurers Anti-Discrimination Protections. In a continuing trend, more than half of the states have enacted laws prohibiting PBMs and health insurers from reducing reimbursement for 340B drugs billed, with many also prohibiting additional conditions on 340B-participating pharmacies for network participation. Covered entity-aligned groups continued to push for similar bills in several additional states in 2024, including Missouri and Delaware.9

New 340B Alternative Dispute Resolution Process

After a long wait, HRSA issued its revised final rule pertaining to the 340B Administrative Dispute Resolute (ADR) process in mid-2024. The new ADR rule provides a defined process that can be used by covered entities and manufacturers to resolve disputes related to potential overcharges, 340B diversion, and Medicaid duplicate discounts. Notably, the revised version differs from the previously released ADR rule in several key ways:

  • Covered entities will be permitted to directly challenge ongoing manufacturer policies restricting 340B pricing availability via contract pharmacy arrangements. The previous version did not allow the ADR process to be used if the disputed issue was actively being litigated.
  • The ADR Panel may consider duplicate discount disputes tied to Medicaid fee-for-service (FFS) and Medicaid Managed Care Organization claims (the previous version only allowed for disputes over FFS claims).
  • The revised rule removed minimum dollar thresholds necessary to bring forth claims.

Numerous parties have filed claims under the new ADR rule and are currently navigating the updated process. The first decisions by the newly formed ADR panel are expected in 2025.

HRSA Audit Trends

Despite ongoing litigation threatening HRSA’s enforcement authority over requirements contained outside the 340B statute itself, HRSA continues to conduct its audits based on requirements identified in sub-regulatory guidance. For example, HRSA continues to assess claim eligibility based on its historic 1996 eligible patient definition,10 and also continues to enforce cost report-based child site registration requirements found outside of the 340B Program statute. At this stage, it does not appear that HRSA will modify its audit approach, although continuing to enforce requirements solely found in sub-regulatory guidance could open the door for additional legal challenges to those findings.

Check back in soon for a companion piece covering what to expect in the 340B Program in 2025, detailing how many of the developments discussed in this article will drive activity in the space moving forward.

END NOTES

1 Johnson & Johnson Health Care Systems Inc. 340B Rebate Model, available here.

2 HRSA Letter to Johnson & Johnson, available here.

3 Johnson & Johnson Health Care Systems Inc. v. Becerra et al., available here.

4 Eli Lily & Co. v. Becerra et al., available here.

5 Bristol Myers Squibb Co. v. Johnson et al., available here.

6 See Novo Nordisk: Notice Regarding Revised Limitation on Hospital and Grantee 340B Contract Pharmacy Distribution, available here.

7 See 340B ACCESS Act, available here.

8 340B Covered Entity Report, Minnesota Department of Health, available here.

9 See Mo. S.B. 1213, available here.

10 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, available here. 

HHS’ Long-Awaited 340B Alternative Dispute Resolution Rule Is Finalized

By Richard Davis, Michael French, Brenda Maloney Shafer and Madison Hartman on Posted in Contract Pharmacies, Legislation, Manufacturers

In a move long anticipated by 340B Program participants, the Department of Health and Human Services (HHS) recently published its finalized 340B Administrative Dispute Resolution (ADR) rule, establishing formal processes for resolving certain types of disputes between 340B covered entities and drug manufacturers. 340B Program observers are cautiously optimistic that the ADR process will serve as a less time and resource-intensive alternative to formal litigation, while also imbuing the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs (OPA) with at least some authority to enforce its interpretation of the 340B statute. The final rule is substantially similar (although not identical) to the proposed version released back in 2022. At a high level, the ADR process can be used by (1) covered entities alleging that a manufacturer may have overcharged for covered outpatient drugs, or (2) manufacturers of 340B drugs alleging, after a manufacturer-conducted audit of a covered entity, that a covered entity may have violated the prohibitions against duplicate discounts or diversion.

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340B Developments in 2024 – Litigation and Legislation

By Richard Davis, Brenda Maloney Shafer, Madison Hartman and Michael French on Posted in Legislation, Litigation

Although we are only two and a half months in, 2024 has already seen its fair share of impactful 340B developments on both the litigation and legislative fronts.

Litigation Update

Although 340B stakeholders still await the 7th Circuit and the DC Court of appeals to weigh in on the permissibility of manufacturer contract pharmacy restrictions, another Appellate Court ruling reinforced the growing efforts on the state level to prohibit these same restrictions imposed against covered entities. On March 12, 2024, the 8th Circuit Court of Appeals upheld an Arkansas law prohibiting manufacturer restrictions on the acquisition or delivery of 340B drugs to covered entities and their contract pharmacies located within the state. Affirming the District Court’s ruling, the court agreed that Congressional silence within the 340B statute on pharmacies indicates that Congress did not intend to preempt state-level laws related to 340B drug delivery to those pharmacies. The decision is sure to be well-received by 340B covered entities and related advocacy groups.

While Arkansas is one of two states with current laws that bar manufacturer contract pharmacy restrictions (Louisiana is the other), there are at least 19 additional states that have introduced similar proposed legislation. The 8th Circuit Decision reinforcing the validity of the Arkansas version of these covered entity protections may spur even more states to propose similar legislation in the coming months.

Proposed Federal Legislation

On the legislative front, Senator Doris Matsui introduced the 340B PATIENTS Act, a federal bill that would prohibit manufacturers from restricting 340B pricing availability for contract pharmacy relationships or otherwise imposing conditions on offering 340B pricing via those arrangements. The bill is substantively similar to the numerous state-level laws described above and would formally codify the concept of contract pharmacies (and a covered entity’s ability to receive 340B pricing through those relationships) within the 340B statute itself.

Importantly, federal legislative activity has not been limited to addressing 340B contract pharmacy relationships, as other more comprehensive efforts to address 340B Program uncertainties are also being considered. Most notably, a group of six bipartisan Senators recently released the Supporting Underserved and Strengthening Transparency, Accountability, and Integrity Now and for the Future of the 340B Act (“SUSTAIN Act”), a draft discussion bill addressing many areas of uncertainty that exist in the current 340B Program space. Many 340B stakeholders are viewing the draft SUSTAIN Act as an important initial step to crafting comprehensive “compromise” legislation that better and more clearly defines 340B Program parameters. As the SUSTAIN Act contains benefits and concessions for and from both covered entities and manufacturers, there is a material chance that this legislation may gain traction in Congress.

At a high level, the SUSTAIN Act proposes the following key changes:

  • Contract Pharmacy Use: Formalizes covered entity contract pharmacy arrangements within the 340B statute and imposes a penalty on drug manufacturers that refuse to offer or otherwise impose conditions on 340B pricing available for drugs utilized in contract pharmacy arrangements. This provision is similar to the protections within Arkansas’ now upheld Act 1103 and the proposed 340B PATIENTS Act on the federal level, both mentioned above.
  • Patient Definition: Includes placeholder for a definition of the term “patient,” allowing stakeholders to propose an appropriate definition. This is particularly relevant in light of the recent Genesis decision, which highlighted the lack of statutory clarity as to who is a “patient” for 340B Program purposes.
  • Child Sites: Clarifies child site eligibility criteria and directly ties eligibility to existing Medicare provider-based rules.
  • Transparency: Requires covered entities to provide additional reports on the use of the 340B savings generated.
  • Program Integrity: Allows for more extensive government oversight and auditing of 340B Program participants.
  • Duplicate Discounts: Establishes a neutral, centralized clearing house to process claim information submitted by covered entities and state Medicaid agencies.
  • PBM Anti-Discrimination: Enacts federal prohibitions on PBM discrimination against covered entities, in line with similar legislation enacted in a majority of states.
  • Miscellaneous Provisions: Introduces a 340B “user fee” on covered entities, facilitates studies and reports regarding duplicate discounts and contract pharmacy dispensing fees, and approves an additional $3 million per year in funding from 2025 to 2029 for 340B Program audits, oversight, investigations, and enforcement activities.

The six Senators included a request for information (“RFI”) in their release, giving interested stakeholders an opportunity to provide feedback on various proposed aspects of the draft bill. Responses to the RFI are due by April 1, 2024.

The RFI gives 340B stakeholders a unique opportunity to weigh in on the SUSTAIN Act and influence what could ultimately serve as the basis for comprehensive and consequential changes to the 340B Program.

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

By Michael French, Richard Davis and Brenda Maloney Shafer on Posted in Covered Entities

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:

HRSA Notice Provides Clarity on 340B Child Site Registration Requirements

By Richard Davis, Michael French, Madison Hartman and Brenda Maloney Shafer on Posted in Covered Entities, Guidance

After months of relative uncertainty, the Health Resources and Services Administration (HRSA) published a Notice today confirming the end to a COVID-19 pandemic-era flexibility that allowed unregistered child sites to utilize 340B Program benefits in some circumstances. However, HRSA also introduced new “transition periods” in its Notice, providing covered entities a longer runway to come into compliance while minimizing negative operational impacts.

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CMS Proposal to Make One-Time $9 Billion Lump Sum Payment to 340B-Covered Entity Hospitals

By Brenda Maloney Shafer, Richard Davis, Michael French and Madison Hartman on Posted in Compliance, Guidance

The Centers for Medicare & Medicaid Services (“CMS”) recently announced its proposal to make a one-time lump sum payment of roughly $9 billion to 340B-covered entity hospitals that were impacted by the agency’s unlawful reimbursement reductions for 340B drugs billed to Medicare Part B from 2018 to 2022. This proposal comes after the Supreme Court sided with affected 340B participating hospitals last June in American Hospital Association v. Becerra, ruling that the government must provide a remedy to the approximately 1,600 impacted hospitals for historical amounts owed.

The authority for these payments comes from proposed rule CMS 1793-P (“Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022”), which will be formally published on the Federal Register’s website on July 11, 2023. The rule has a stakeholder comment period ending on September 5, 2023. Pending any changes to the proposed rule, we expect CMS to begin making this lump-sum payment shortly after the proposed rule is finalized, likely later this year.

In an effort to remain budget neutral, CMS’s proposal involves offsetting the majority of the proposed lump sum repayments with corresponding hospital reimbursement cuts for services and non-drug items, although these cuts would be spread over approximately 16 years.

While hospital entities and advocacy groups have initially stated appreciation for the lump sum format of the repayments owed, there is some disappointment that the repayments do not include interest, and that CMS proposed corresponding repayment cuts that impact 340B and non-340B hospitals alike.

Continuing Changes in the 340B Space: New Restrictions and Shifting Alliances

By Brenda Maloney Shafer, Richard Davis, Michael French and Madison Hartman on Posted in Compliance, Contract Pharmacies, Covered Entities, Legislation

As detailed further in our article on the current state of the 340B Program and what to expect in 2023, a growing list of manufacturers have taken the step of significantly restricting 340B pricing for fills completed by contract pharmacies. Over the last few weeks, the number and scope of these restrictions have only continued to grow. Most notably, on February 15, 2023, Johnson & Johnson (“J&J”) released an updated policy with the most restrictive terms yet, limiting 340B hospitals to receiving 340B pricing at only one contract pharmacy location within 40 miles of the hospital, effectively eliminating the possibility of utilizing most mail order or specialty pharmacies for J&J 340B fills via a contract pharmacy arrangement. Moreover, if a hospital covered entity wants to obtain 340B pricing for a single contract pharmacy location, J&J now requires such hospitals to submit 340B claims data to 340B ESP for the hospital’s entity-owned pharmacies (if applicable). This is the first such manufacturer policy to require claim data submission outside of the contract pharmacy space.

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The Current State of 340B and What to Expect in 2023

By Brenda Maloney Shafer, Richard Davis, Michael French and Madison Hartman on Posted in Legislation, Litigation

2022 was an eventful year on the 340B front, packed with updates to consequential litigation, proposed new rules, ongoing uncertainty into the Health Resources and Services Administration’s (HRSA) underlying enforcement authority, and changes to 340B-related laws on the state level. We saw the Supreme Court side with 340B hospitals in a significant $1.6 billion Medicare Part B drug payment ruling. There were developments in the impactful Genesis case regarding the definition of a 340B-eligible patient. We saw multiple states either enact or propose anti-discrimination laws restricting the ability of payors and pharmacy benefit managers (PBMs) to reimburse 340B-eligible claims at a lower rate. HRSA proposed a revised ADR rule outlining a more informal dispute resolution process. We saw the continuation of litigation surrounding manufacturers’ 340B pricing restrictions for prescriptions filled at contract pharmacy locations. Given the multitude of developments in 2022, we expect 2023 to be another action-packed year for 340B covered entities and stakeholders. Below, we discuss the 340B issues to track and where additional developments are likely to occur.

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Brenda Shafer, Michael French and Richard Davis Author Law360 Article on Questions Related to Section 340B Drug Pricing

By Brenda Maloney Shafer, Michael French and Richard Davis on Posted in Contract Pharmacies, Legislation, Litigation

Quarles Health & Life Sciences attorneys Brenda Shafer, Michael French and Richard Davis recently wrote an article for Law360 about questions surrounding the ability of the Health Resources and Services Administration’s ability to enforce key requirements related to the Section 340B drug pricing program.

In the article, Shafer, French and Davis address aspects of the 340B program such as manufacturer contract pharmacy pricing restrictions and associated litigation, Section 340B PBM anti-discrimination laws and Section 340B HRSA audit trends.

An excerpt from the article:

The Section 340B program, Public Health Service Act Section 340B, Title 42 of the U.S. Code, Section 256b, allows qualifying safety net providers to purchase certain outpatient medications at significant discounts. Savings resulting from program participation are significant and relied upon by participating hospitals and clinics to serve their patient populations more effectively.

…

The HRSA primarily defined the contours of the 340B program, especially those related to contract pharmacy relationships, through subregulatory guidance documents and FAQs.

Until late 2019, Section 340B stakeholders operated within the parameters of this subregulatory guidance. However, in late 2019, the HRSA appeared to question and reevaluate its own enforcement authority based on Executive Order 13892, which was geared toward limiting the prevalence and enforceability of administrative guidance documents promulgated outside of the formal rule making process.

With this regulatory background in mind, four recent developments in the Section 340B space are discussed below, with guidance about what each means for your clients.

https://www.law360.com/lifesciences/articles/1558075/navigating-uncertainties-in-section-340b-drug-pricing

340B Program Changes on the Horizon? Start Planning Now for Potentially Seismic Impact of Upcoming Genesis Decision

By Madison Hartman, Michael French, Brenda Maloney Shafer and Richard Davis on Posted in Covered Entities, Guidance, Litigation

As the extensively covered Genesis Healthcare, Inc. v. Azar case continues to proceed, 340B covered entities expect to soon receive much-anticipated clarification on what can reasonably constitute a 340B eligible patient. In the meantime, covered entities should begin planning and strategizing now for how such a significant change to the 340B Program would impact its 340B services and operations.

Genesis Healthcare, Inc. v. Azar is an ongoing case that arose from a 2017 Health Resources and Services Administration (“HRSA”) audit and subsequent exclusion of the covered entity from the 340B Program on February 14, 2018. HRSA’s audit determined that Genesis Healthcare (“Genesis”), a system of 340B-participating Federally Qualified Health Centers (FQHCs), was no longer eligible to participate in the 340B Program because it was dispensing 340B drugs to individuals who were not 340B-eligible “patients” of Genesis (i.e., 340B diversion). Genesis filed suit a few months later in June 2018, arguing that HRSA’s interpretation of an eligible “patient” was not aligned with the 340B statute itself1 and was instead based on nonbinding, sub-regulatory guidance originally released in 1996.2 In apparent response to the lawsuit, HRSA allowed Genesis back in to the 340B Program on September 24, 2018, but continued to insist that Genesis comply with the more restrictive 1996 eligible patient guidance. Genesis filed an amended complaint, alleging that HRSA continued to seek enforcement of an unreasonably narrowed definition of “patient” and was relying on nonbinding sub-regulatory guidance as support.

In December 2019, a federal district court sided with HRSA and dismissed Genesis’ case as moot. Genesis subsequently filed an appeal of the dismissal with the U.S. Fourth Circuit of Appeals. The Fourth Circuit ultimately sided with Genesis, remanding the case back to the federal district court with instructions to consider Genesis’s broader interpretation of a 340B-eligible patient rooted in the actual 340B statute. The Fourth Circuit stated that the situation presented an “ongoing controversy” since Genesis “remains subject to audit and, as the record stands, would still have to comply with HRSA’s 1996 Guidelines.”

With the upcoming federal district court’s decision on the horizon, covered entities have some important items to consider. If the federal district court rules in Genesis’s favor, covered entities may be able to rely solely upon the “patient” reference in the 340B statute and conceivably take a much broader approach to which of its patients are 340B-eligible (i.e., any patient that it considers a “patient” of the covered entity, without any other stipulations on when or where that patient was treated or how the associated medication related to that treatment). Covered entities may consider planning ahead as to how the decision may impact their 340B Program and provide opportunities for additional 340B benefit capture, including changes to third party administrator settings, and policy and procedure updates, among others. The district court may also direct HRSA to produce formal regulatory guidance for the definition of “patient,” which may allow covered entities the unique opportunity to provide input on a key aspect of 340B Program regulation.

1 The 340B statute does not clearly define a 340B-eligible patient, and simply states that “a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity.” 42 U.S. Code § 256b(5)(B).

2 61 FR 55157-58

Quarles & Brady attorneys will be closely monitoring this rapidly evolving case. If you have any questions or are interested in strategizing for these potentially seismic changes, please contact your Quarles & Brady attorney or:

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