Reed Smith In-depth

Key takeaways

  • Court rules that 340B prescriptions need not arise out of a health care service furnished by a covered entity and that the 340B statute does not specify a time limit on “when” an individual must be a “patient” of a covered entity
  • 340B covered entities could seek to expand 340B purchases to new groups of “patients,” but ability to do so may be limited by manufacturer contract pharmacy policies
  • Covered entities should carefully consider 340B program and other regulatory compliance standards when considering any expansion
  • 340B program policy debates are likely to continue, and the litigation could provide pathways for regulatory or legislative resolution

Authors: Joseph W. Metro

Nurse holding patient's hand

Over the last several years, the Public Health Service (PHS) section 340B drug discount program1 has spawned a host of litigation, ranging from challenges to Medicare outpatient hospital payment cuts for 340B discounted drugs2 to requests for declaratory judgments concerning the permissibility of manufacturers’ policies limiting distribution of 340B-discounted drugs to covered entities’ contract pharmacies.3 On November 3, 2023 a federal district court added a new theme to the list in Genesis Health Care, Inc. v. Becerra,4 ruling that the Health Resources and Services Administration’s (HRSA’s) interpretative guidance concerning the term “patient” was unduly narrow. Specifically, the district court ruled that it was not necessary for a 340B prescription to arise out of a specific health care service furnished by the covered entity. Rather, it was only necessary that the individual receiving the prescription be or have been a patient of the covered entity at some (specified) point in time.


Congress enacted the section 340B drug discount program in 1992 as a response to unintended consequences of the Medicaid rebate program – i.e., the rebate program’s “best price” rebate provision had led some manufacturers to mitigate their rebate liability by eliminating discounts that they had previously offered to many “safety net” providers. Under section 340B, a manufacturer must offer a discounted price – generally at least 23.1 percent off of the average manufacturer price for brand drugs but potentially as deep as a penny per unit – to specified classes of “covered entity” safety net providers. At the same time, however, the statute prohibits covered entities from diverting 340B-discounted drugs in that they may “not resell or otherwise transfer the drug to a person who is not a patient of the entity.”5