Genesis Healthcare, Inc. v. Becerra

• Decision Date: 01 July 2022
• Docket Number: 20-1701
• Citation: 39 F.4th 253
• Parties: GENESIS HEALTHCARE, INC., Plaintiff - Appellant, v. Xavier BECERRA, as Secretary of the United States Department of Health and Human Services; George Sigounas, as Administrator of the Health Resources and Services Administration; Krista Pedley, as Captain in the United States Public Health Service and Director of the Office of Pharmacy Affairs in the Health Resources and Services Administration, Defendants - Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

39 F.4th 253

GENESIS HEALTHCARE, INC., Plaintiff - Appellant,

v.Xavier BECERRA, as Secretary of the United States Department of Health and Human Services; George Sigounas, as Administrator of the Health Resources and Services Administration; Krista Pedley, as Captain in the United States Public Health Service and Director of the Office of Pharmacy Affairs in the Health Resources and Services Administration, Defendants - Appellees.

No. 20-1701

United States Court of Appeals, Fourth Circuit.

Argued: March 9, 2022

Decided: July 1, 2022

ARGUED: James Mixon Griffin, GRIFFIN DAVIS LLC, Columbia, South Carolina, for Appellant. Brian James Springer, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: Margaret N. Fox, GRIFFIN DAVIS LLC, Columbia, South Carolina; Daniel J. Westbrook, NELSON MULLINS RILEY & SCARBOROUGH LLP, Columbia, South Carolina, for Appellant. Jeffrey Bossert Clark, Acting Assistant Attorney General, Abby C. Wright, Thais-Lyn Trayer, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Peter M. McCoy, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Columbia, South Carolina, for Appellees.

Before GREGORY, Chief Judge, and NIEMEYER and AGEE, Circuit Judges.

Reversed and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Chief Judge Gregory and Judge Agee joined.

NIEMEYER, Circuit Judge:

This appeal by Genesis Healthcare, Inc. challenges the district court's order dismissing its action against the government as moot.

Genesis Healthcare is a healthcare provider participating in the federal "340B Program," which is designed to provide drugs to qualified persons at discounted prices. Under the Program, the Secretary of the Department of Health and Human Services ("HHS") enters into agreements with drug manufacturers to sell drugs at discounted prices to entities such as Genesis Healthcare, which can, in turn, sell the drugs to their patients at discounted prices. After Genesis Healthcare purchases the covered drugs from the manufacturers, it dispenses them to patients through its wholly owned pharmacies or contract pharmacies.

After the Health Resources and Services Administration ("HRSA"), an agency within HHS, conducted an audit of Genesis Healthcare in June 2017 for Program compliance, HRSA removed Genesis Healthcare from the 340B Program. The audit report found, among other things, that Genesis Healthcare dispensed 340B drugs to individuals who were ineligible because they were not "patients" of Genesis Healthcare. Genesis Healthcare protested HRSA's findings, objecting to its definition of "patient" as too narrow and not in conformance with the term in the governing statute. After HRSA rejected Genesis Healthcare's challenges, Genesis Healthcare commenced this action, seeking a declaratory judgment that it did not violate the requirements of the Program and injunctive relief requiring HRSA to reinstate it into the Program and to retract any notifications that HRSA had provided to manufacturers stating that Genesis Healthcare was ineligible under the Program.

In response to the lawsuit, HRSA vacated its order removing Genesis Healthcare from the 340B Program, but it continued to insist that Genesis Healthcare comply with its requirement of serving only eligible "patients," as it had defined that term. Genesis Healthcare then filed an amended complaint to take into account HRSA's action. It alleged that even though it was returned to the 340B Program, HRSA continued to seek to enforce a definition of "patient" that Genesis Healthcare alleged contradicted "the plain language of the statute," to its detriment. For relief, Genesis Healthcare sought a declaratory judgment that "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)." It also sought injunctive relief requiring HRSA "to retract any notification it may have provided to manufacturers that Genesis is ineligible under the 340B program" and to "set aside HRSA's determinations."

In response to the amended complaint, HRSA (1) notified Genesis Healthcare by letter that it "ha[d] voided" all audit findings and that Genesis Healthcare "ha[d] no further obligations or responsibilities in regard to the audit" and (2) filed a motion to dismiss Genesis Healthcare's action as moot based on the letter.

The district court granted HRSA's motion, finding that the action was moot. The court concluded that while Genesis Healthcare may be challenging the "audit process," it was "not challenging the final result of the agency's process — the decision to void the audit and restore Plaintiff's eligibility to participate in the 340B Program." As a consequence, it held that there was no final agency action for review under the Administrative Procedure Act ("APA"), 5 U.S.C. § 704. It also held that as to Genesis Healthcare's request for declaratory relief, there was "no case or controversy as required by Article III" because "the parties ceased to have a ‘definite and concrete’ controversy when the agency decided to void its audit findings."

Yet, while Genesis Healthcare's initial request for reinstatement was satisfied by HRSA's subsequent action voiding its audit findings, HRSA continues to have the ongoing duty to audit Genesis Healthcare, and the company continues to be obligated to comply with the 340B Program's requirements and is susceptible to removal from the Program if it rejects HRSA's continuing use of the definition of "patient." Thus, because Genesis Healthcare continues to be governed by a definition of "patient" that, it maintains, is illegal and harmful to it, we conclude that there remains a live controversy between the parties. Accordingly, we reverse the district court's judgment and remand for further proceedings.

I

Genesis Healthcare participates in the 340B Program from various locations in South Carolina, selling to patients discounted drugs that it purchases from manufacturers participating in the Program. Participating entities, such as Genesis Healthcare, must, among other things, maintain auditable records and, with those records, be able to demonstrate that they only sell or otherwise transfer the discounted drugs to persons who qualify as "patients." And HRSA conducts audits from time to time, as authorized by the governing statute, to ensure compliance with the Program's requirements.

In June 2017, HRSA conducted an audit of Genesis Healthcare over a two-day period. In its audit report and accompanying cover letter, dated February 14, 2018, it made a preliminary determination that Genesis Healthcare was no longer eligible to participate in the 340B Program and that it was liable to drug manufacturers for the drug discounts that it had received. The report found that Genesis Healthcare "failed to maintain auditable records" and that it "dispensed 340B drugs to ineligible individuals," i.e., any "person who is not a patient of the entity." In reaching that conclusion, the report stated that HRSA was enforcing "[p]atient eligibility requirements ... defined in guidelines ( 61 Fed. Reg. 55156 (Oct. 24, 1996) )." Genesis Healthcare objected to the report, but HRSA, after assessing Genesis Healthcare's objections, adhered to its findings and issued a final audit report and cover letter dated June 26, 2018. The June 26 letter stated, "The documentation GHI [Genesis Healthcare] provided is insufficient to show that all patient definition criteria were met ( 61 Fed. Reg. 55156 (Oct. 24, 1996) ). GHI has not shown that it met the applicable elements of the current HRSA patient definition. " (Emphasis added). The attached report stated further that "[c]overed entities are prohibited ... from reselling or otherwise transferring 340B drugs to a person who is not a patient of the entity. Patient eligibility requirements are defined in guidelines ( 61 Fed. Reg. 55156 (Oct. 24, 1996) )."

Promptly thereafter, on June 28, 2018, Genesis Healthcare commenced this action against HHS and HRSA and requested (1) an emergency stay that would halt implementation of HRSA's allegedly wrongful decision to remove Genesis Healthcare from the Program; (2) declaratory relief setting aside HRSA's determinations; and (3) injunctive relief requiring HRSA to retract any notification of ineligibility that it had provided to manufacturers.

In response to the suit, HRSA sent a letter issuing a revised final audit report dated September 24, 2018, in which it vacated its sanction of removing Genesis Healthcare from the 340B Program and promptly reinstated the company. But this revised report contained the same findings that HRSA had made in its report of June 26, 2018. Again, the revised report included statements that "the documentation GHI provided [was] insufficient to show that all patient definition criteria were met ( 61 Fed. Reg. 55156 (Oct. 24, 1996) )" and that certain "instances [did] not meet the patient definition guidelines ( 61 Fed. Reg. 55156 (Oct. 24, 1996) ), ... [and these] findings [were] not based upon withdrawn patient definition guidance and do not represent a new HRSA interpretation." The revised final report also continued requiring Genesis Healthcare to reimburse manufacturers for the drug discounts and to submit a corrective action plan ("CAP") within 60 days. Finally, the letter stated that failure to comply with the CAP requirements could lead to "termination from the 340B Program."

After Genesis Healthcare submitted a CAP, HRSA approved the plan by letter dated March 20, 2019. But in its letter, it again instructed Genesis Healthcare that "with respect to future implementation of the 340B Program," the company had to comply with its definition of "patient," dedicating an entire paragraph to restating the specific requirements. Without reiterating those requirements here, the letter stated that "HRSA would like to clarify that in order for an individual to qualify as a 340B...