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Introduction

The 340B Drug Pricing Program continued to evolve in 2023, and further changes may be forthcoming as a result of ongoing lawsuits and regulatory action. For years, the program has become increasingly controversial, due to a lack of consensus between covered entities¹ and pharmaceutical manufacturers over the permissible scope of purchasing under the 340B Program and the rightful beneficiaries of the savings it generates.²

In 2023, key aspects of the 340B Program were addressed by courts, which reversed certain key guidance documents issued by the Health Resources and Services Administration (HRSA). The reversals introduce new uncertainty in the program and multiple new decisions on similar cases are still pending. The conflicts have caught the attention of Congress, which ultimately may decide the direction of the program.

The Shifting Legal Landscape

Below are key areas to watch related to the 340B Program. Each is described in more detail below.

• Restrictions on contract pharmacy use cleared for now, but challenges remain. In February 2023, the Third Circuit³ issued a decision clearing the way—for now—for drug manufactures to impose limitations on the distribution of 340B drugs to contracted pharmacies. Two other circuit decisions are pending, and district courts are also reviewing the issue in multiple cases. Congress and state legislatures may also weigh in.
• New standards defining 340B patient eligibility can be expected. The government’s attempts to enforce limits on 340B patient eligibility determinations by one covered entity were thwarted by the 2023 ruling in Genesis Healthcare, Inc. v. Becerra.⁴ The government is considering how to modify its procedures for auditing patient eligibility issues for other covered entities.
• Covered entities began to receive $1.96 billion in past payment cuts under the 340B program. After years of litigation focusing on Medicare payment reductions on 340B covered drugs, CMS has started refunding covered entities. The remedy was implemented in a budget neutral way that will affect payments to all hospitals starting in 2026 for approximately 16 years.
• Delays on adding new 340B eligible sites have been re-introduced. Pandemic era flexibilities that permitted registration of new off-campus sites in the 340B Program without lengthy delays have now expired. As a result, the government has reverted to its prior position of not allowing new sites to be registered eligible for 340B until a calendar quarter after they appear on a filed Medicare cost report.

Key Trends in 340B

Contract Pharmacy

Beginning in 2020, several drug manufacturers implemented policies that halted or limited the shipment of 340B drugs to locations that are not directly operated by an entity enrolled in the 340B and qualified as a “covered entity,” including to retail pharmacies that contract with covered entity. The federal government aimed to prevent manufacturers from implementing these policies, citing its own guidance from 2010 that permitted covered entities to contract with multiple contract pharmacies.

Several manufacturers filed suit against the government, arguing that HRSA’s 2010 guidance was not authoritative and was not grounded in the 340B statute, which is silent on methods of distribution of 340B drugs. In February 2023, the Third Circuit issued a decision ruling against the government, concluding that it is permissible for drug manufacturers to impose limitations on the distribution of 340B drugs to contracted pharmacies.⁵

Following this decision, additional drug manufacturers have implemented similar policies. However, two other circuit decisions remain pending, as well as multiple cases still in district courts. The disputes have drawn the attention of both Congress and state legislatures and stakeholders should be prepared for further changes in this area.⁶

Genesis Healthcare v. Becerra

On November 3, 2023, the District of South Carolina granted a partial ruling in Genesis Healthcare,⁷ a case involving the 340B definition of “patient,” which defines the scope of who is eligible to receive drugs purchased under the 340B program. The 340B statute does not define “patient,” but it has been subject to interpretation by HRSA both in formally issued guidance, FAQs, or in policies imposed during audits of 340B covered entities.

The Genesis court ruled that HRSA’s interpretation of the term "patient," as it had been applied to the plaintiff covered entity, was inconsistent with the common (dictionary) meaning of the term “patient” and, therefore, with the 340B statute. Specifically, the court ruled that an individual's eligibility as a 340B patient cannot be solely conditioned, “on whether the health care service resulting in the prescription was initiated by the ‘covered entity.’”

In other words, the covered entity was permitted to purchase 340B drugs for prescriptions written by unaffiliated physicians, if the patient had a connection to the covered entity. The government did not appeal the decision but has issued a statement on its website indicating that the decision is only binding with respect to the plaintiffs in Genesis.⁸

Past Medicare Payment Cuts Rectified

In 2023, CMS implemented for hospitals a long-awaited remedy for the payment reductions for 340B hospital under Medicare’s 2018 to 2022 outpatient prospective payment system (OPPS), which were declared unlawful by the Supreme Court in late 2022.⁹ The remedy will rectify approximately $1.96 billion in past payment cuts under the 340B program, and was implemented in a “budget neutral” way that will affect the OPPS payments to all hospitals starting in 2026 for approximately 16 years.¹⁰

CMS’ solution was silent on payments to 340B hospitals through Medicare Advantage plans, and a group of plaintiffs has filed suit,¹¹ alleging that CMS breached its obligations by unlawfully reducing payments owed to them for nearly five years, resulting in a windfall for the plans.

Registration Requirements for Off-Campus Hospital Sites Resume

Prior to the COVID-19 Public Health Emergency (PHE), HRSA guidance imposed significant delays on the ability of 340B hospitals to access 340B drugs for patients treated at new off-campus locations of the hospital. These delays were the result of HRSA’s determination that off-campus sites were not eligible to be registered until a calendar quarter after they had appeared on a filed Medicare cost report, which required operating the location for periods of up to 21 months before 340B is available.

These delays were waived during the PHE, but were recently reinstated via HRSA’s issuance of a Notice.¹² Hospitals opening up new outpatient departments should be aware of these delays. A group of 340B hospitals has filed suit, alleging that the Notice contradicts the 340B statute.¹³

Looking Ahead

Monitoring judicial decisions and regulatory guidance is essential, especially with the potential for congressional involvement via the SUSTAIN 340B Act,¹⁴ and with new revisions to HRSA’s Administrative Dispute Resolution (ADR) process for hearing disputes related to the 340B Program.¹⁵ Staying abreast of these developments allows for proactive compliance and strategic adaptation to changes in the legal and regulatory landscape.

References

1. These are entities identified by statute (42 U.S.C. § 256b) as eligible to participate in the 340B program.

2. See Katie Thomas & Jessica Silver-Greenberg, How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits, NY Times, (Sept. 27, 2022), available at https://www.nytimes.com/2022/09/24/health/bon-secours-mercy-health-profit-poor-neighborhood.html.

3. Sanofi Aventis U.S. LLC v. United States HHS, 58 F.4th 696, 2023 U.S. App. LEXIS 2321, 2023 WL 1325507 (3d Cir. 2024).

4. Genesis Health Care, Inc. v. Becerra, Civ. Action No. 4:19-cv-01531-RBH,2023 U.S. Dist. LEXIS 205365 (D.S.C Nov. 3,2023).

5. Sanofi Aventis, 58 F.4th 696.

6. See Proposed Bill SUSTAIN 340B Act; see also H.R. 548, 118th Gen Asssemb., Reg. Sess. (La. 2023).

7. Genesis Health Care, No. 4:19-cv-01531-RBH.

8. HRSA, 340B Patient Definition Compliance Resources, (Jan. 2024), available at https://www.hrsa.gov/opa/educational-resources/patient-definition-resources.

9. See American Hospital Association, et al. v. Xavier Becerra, Secretary of Health and Human Services, et al., 596 US _ (2022); see alsoHealth Care Law Today, 340B Hospitals Win in Medicare OPPS Supreme Court Decision, Foley & Lardner, (June 21, 2022), available at https://www.foley.com/insights/publications/2022/06/340b-hospitals-win-medicare-opps-decision/.

10. See 88 Fed. Reg. 77150 (Nov. 2023)

11. Baptist Health v. Health Value Management, Inc., et. al., Case No. 2:24-cv-00077-SMD (Feb. 2024). On March 1, 2024, Defendants filed a motion to dismiss for failure to state a claim. The court’s verdict is still pending.

12. See88 Fed. Reg. 73859 (Oct. 2023).

13. See Albany Med Health System et. al. v. Healthcare Resources and Services Admin., et. al., Case No. 1:23-cv-3252 (Oct. 2023).

14. See U.S. Senate, Discussion Draft Explanatory Statement and Supplemental Request for Information for SUSTAIN 340B Act, available at https://www.thune.senate.gov/public/_cache/files/5e99f492-7a5e-428d-a25e-f4722cfd4b38/26132C0D072A3EF9EB32FB58CFEF5819.340b-discussion-draft-explanatory-document-and-subsequent-rfi.pdf.

15. Dept. Of H. & Hum. Svcs, 340B Drug Pricing Program; Administrative Dispute Resolution Regulation, RIN 0906-AB28, 89 Fed. Reg. 28643 (Apr. 19, 2024).