K&L Gates will analyze and report on the regulations and any further federal guidance involving the 340B program.Notes:[1] 42 U.S.C. § 256b.[2] P.L. 102-585 § 602 (1992).[3]SeeAstra USA, Inc. v. Santa Clara Cnty., Cal., 131 S. Ct. 1342, 1345 (2011).

Finally, this second defeat of HRSA could also serve to embolden parties seeking to challenge the separately issued 340B “Mega Guidance,” if and when it is finalized.Notes:[1]PhRMA v. HHS, ___ F. Supp. 3d ___, 2015 WL 5996374 (D.D.C. Oct. 14, 2015).[2]See 79 Fed. Reg. 42,801 (July 23, 2014).[3] 42 U.S.C. § 256b.[4] 21 U.S.C. § 360bb.[5]Id.[6] 21 U.S.C. § 360cc.

This ruling could significantly increase the cost of drugs for rural and cancer hospitals and could raise concerns regarding enforceability of HRSA’s recently proposed omnibus guidance. At issue was the validity of the HRSA July 21, 2014 interpretive rule that permitted certain 340B covered entities to purchase orphan drugs at discounted 340B prices, and whether HRSA’s interpretive rule was contrary to the plain language of the orphan drug exclusion in the 340B statute (42 U.S.C. § 256b(e)).Does this Mean for Covered Entities?

[13]See, e.g., the HRSA website at Eligibility & Registration: Eligible Drugs, available athttp://www.hrsa.gov/opa/eligibilityandregistration/index.html.[14] 80 Fed. Reg. at 52307.[15] 42 U.S.C. 256b(a)(4)(L)(i).[16]See, e.g., Medicare Payment Advisory Commission, Report to the Congress: Overview of the 340B Drug Pricing Program at 14–15 (May 2015), available athttp://www.medpac.gov/documents/reports/may-2015-report-to-the-congress-overview-of-the-340b-drug-pricing-program.pdf?sfvrsn=0.[17] 80 Fed. Reg. at 52301.

The Affordable Care Act (ACA) expanded the definition of Covered Entity to include four additional types of hospitals: critical access hospitals, sole community hospitals, rural referral centers and freestanding cancer hospitals (collectively, ACA-eligible hospitals). The ACA also added a provision (codified at 42 U.S.C. § 256b(e)), applicable only to the ACA-eligible hospitals, specifically excluding from the definition of “covered outpatient drugs,” certain drugs designated by the Food and Drug Administration for a rare disease or condition (also known as orphan drugs). Following the ACA, HHS issued a rule after a formal notice-and-comment rulemaking process, interpreting the orphan drug exclusion (the Rule).

[1]. 42 U.S.C. § 1396r-8(a)(5); 42 U.S.C. § 256b. [2].

to Genesis, which stated that in order for an individual to qualify as a 340B patient, the covered entity must have “initiated the healthcare services resulting from the prescription.” Notably, the interpretation set forth in the letter has also been reflected in HRSA audits and omnibus guidance issued and then subsequently withdrawn by HRSA. The interpretation is significant because it has historically caused covered entities to only dispense 340B drugs that resulted from a service provided by a covered entity at a registered location or under a “referral” arrangement as contemplated by the 1996 guidance.Holding of the Genesis DecisionThis case originated when Genesis filed suit challenging its termination from the 340B program based upon HRSA’s findings in a 2019 audit. While HRSA subsequently vacated those audit findings and reinstated Genesis’s participation in the 340B program, still at issue in the case was HRSA’s interpretation of “patient” in the context of the 340B statute at 42 U.S.C. § 256b. HRSA’s interpretation of “patient of the entity” in the 340B statute is that the covered entity must have “initiated the healthcare services resulting in the prescription.” Genesis took the position that HRSA’s interpretation is contrary to the plain wording of the statute and that it could furnish 340B drugs to its patients even if the prescription did not originate from Genesis or one of its contracted providers.Specifically, the Genesis court issued four declaratory rulings:The court found that an individual only needs to be a patient of the covered entity for purposes of 340B eligibility.The plain wording of the 340B statute does not require the covered entity to have initiated the health care service resulting in the prescription.The court reiterated that agency interpretations in contradiction of the plain wording of a statute are not entitled to deference and are not enforceable.The court did find that HRSA has the authority to implement its interpretations of the statutory te

tute 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:“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).”“The plain wording of the 340B statute does not require the ‘covered entity’ to have initiated the healthcare service resulting in the prescription.”“Agency interpretations in contradiction of the plain wording of a statute are not entitled to deference and are not enforceable.”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).

[2] See White House, PROCLAMATIONS, Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak (Mar. 13, 2020). [3] See Health Resources and Servs. Admin., 340B DRUG PRICING PROGRAM, COVID-19 Resources, https://www.hrsa.gov/opa/COVID-19-resources [hereinafter, “HRSA 340B COVID-19 Guidance”]. [4] 42 U.S.C. § 256b(a)(5)(B). [5] 61 Fed. Reg. 55156, 55157–58 (Oct. 24, 1996).

The Final Rule becomes effective on March 6, 2017, but HRSA stated that it does not intend to enforce the regulation until April 1, 2017, when the following quarter begins.Section 340B of the Public Health Services Act (“the Act”; codified at 42 U.S.C. § 256b) requires pharmaceutical manufacturers who participate in the Medicaid Drug Rebate Program (“MDRP”) to enter into a Pharmaceutical Pricing Agreement (“PPA”) with HHS, under which the manufacturer agrees to sell Covered Outpatient Drugs to statutorily designated Covered Entities at a price not exceeding a statutory “ceiling price.” 340B Ceiling Price and the Penny Pricing PolicySection 7102 of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), (“ACA”) required HHS to develop a system to enable HHS to verify the accuracy of ceiling prices calculated and reported by manufacturers pursuant to the Act.