Genesis Opinion Provides Opportunity for District Court to Determine Definition of "Patient" for 340B Covered Entities

A federal district court likely will determine the 340B program definition of "patient" following a decision by the US Court of Appeals for the Fourth Circuit in Genesis Healthcare v. Becerra. The issue was whether the district court erred in dismissing Genesis's case against the US Department of Health and Human Services before determining whether the definition of "patient" used by the Health Resources and Services Administration (HRSA) for purposes of enforcing the 340B drug diversion prohibition was consistent with the 340B statute. The Fourth Circuit ruled that the district court was wrong to dismiss the case and sent the case back to the district court for further deliberations. This case could have wide-reaching effects on how 340B covered entities determine who is eligible to receive drugs purchased through the 340B program.

IN DEPTH

Background

Following an audit in which HRSA found that Genesis was dispensing 340B drugs to ineligible individuals, HRSA determined that Genesis was no longer eligible to participate in the 340B program. Genesis sued HRSA. HRSA voided the audit findings, reinstated Genesis in the 340B program and argued that the case was moot. HRSA continued to instruct Genesis that it was required to comply with the 340B program "patient" definition guidance issued in 1996, however. The district court agreed with HRSA and dismissed the case.

On appeal, Genesis argued that HRSA's continued use of the 1996 patient definition guidance undermined the purposes of the 340B program and would require Genesis to make changes to its operations that would materially affect Genesis. Genesis argued that it was therefore improper for the district court to have dismissed the case as moot. HRSA argued that by voiding the audit findings that led to this lawsuit, it precluded the basis for the lawsuit. Any court interpretation of the definition of "patient" would only satisfy Genesis' curiosity and advise on what the law would be based upon a hypothetical set of facts, HRSA argued.

Fourth Circuit Opinion

On July 1, 2022, the Fourth Circuit issued its opinion in the case, reversing the district court's judgment and remanding the case back to the district court for further proceedings. The Fourth Circuit concluded that there was in fact a "live controversy" between Genesis and HRSA because Genesis continued to be governed by a definition of "patient" that it viewed as illegal and harmful.

The Fourth Circuit explained that the Constitution limits which cases can be heard by federal courts. At all stages of a federal court proceeding, a case must involve a dispute that is "definite and concrete" and "real and substantial," and it must seek "specific relief" as opposed to an opinion advising what the law would be based upon a hypothetical set of facts. If circumstances arise following the filing of a lawsuit that resolve the dispute at issue, then the case should be dismissed as moot.

The Fourth Circuit found it significant that when HRSA voided its audit findings and reinstated Genesis in the 340B program, it failed to instruct Genesis on how it should continue to conduct itself under the 340B program and failed to address its 1996 "patient" definition guidance, which was the basis of its enforcement against Genesis. Despite this failure, Genesis remained subject to a HRSA audit and would have to continue to comply with HRSA's 1996 "patient" definition guidance, the Fourth Circuit reasoned. The Fourth Circuit determined that "the real issue thus remains . . . whether the 1996 Guidelines are inconsistent with the statute, as Genesis Healthcare has alleged and with respect to which Genesis Healthcare sought a declaratory judgment."

The Fourth Circuit agreed with Genesis that the district court should not have dismissed its case and remanded the case back to the district court for further deliberations. The district court will likely proceed in addressing Genesis' claim that the 1996 patient definition is inconsistent with the 340B statute.

Analysis

Despite challenges presented by the ongoing litigation regarding the use of contract pharmacies, the Fourth Circuit's opinion in Genesis marks the second recent win for covered entities following the Supreme Court of the United States' decision in the Medicare payment cut case American Hospital Association, et al. v. Becerra, et al.

The definition of "patient" has long been an area of confusion and frustration for covered entities. The statute itself does not provide much insight into what a "patient" is, and understanding the definition requires a review of subsequent guidance issued by HRSA. HRSA has used varying interpretations of the definition during audits, many of which have not been publicly available. A federal district court will now have the opportunity to determine the 340B program definition of "patient" and, in doing so, would provide much needed clarification.

We will continue to watch the Genesis case in the district court and will provide updated information on developments through our 340B Litigation Tracking Tool.