The Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) ended Chevron deference and reaffirmed a basic constitutional principle: courts—not agencies—must decide what statutes mean. The Court rejected the idea that agencies possess “special competence” in resolving statutory ambiguities. Few federal programs illustrate the wisdom of Loper-Bright’s course correction more than the 340B Drug Pricing Program. See 42 U.S.C. § 256b.

For 30 years, the Health Resources and Services Administration has enforced its own expansive definition of the term “patient” under the 340B Program. HRSA’s interpretive choice—untethered from the statute—has enabled diversion of discounted drugs, rampant arbitrage, and billions in profits for hospitals and pharmacies far removed from the program’s original purpose.

A recent lawsuit by drug manufacturer AbbVie against HRSA shows just how far the program has drifted and provides a case study in why Loper-Bright was necessary.

A Program Built To Help The Poor, 340B Is Now Dominated By Powerful Hospitals And Pharmacies

Congress created the 340B Program in 1992 to help safety-net providers stretch scarce resources and serve the prescription-drug needs of low-income patients. In exchange for having drugs covered by Medicaid and Medicare, the program requires that drug manufacturers sell outpatient drugs at steep discounts to “covered entities,” including community health centers and certain hospitals.

The program’s purpose was straightforward: to help vulnerable patients. It was not designed to enrich hospitals or pharmacies. At its inception, roughly 1,000 covered entities participated.

Yet the program soon expanded far beyond what Congress envisioned. In 1996, HRSA issued “guidance” allowing covered entities to contract with an outside pharmacy to administer 340B drugs. Then, years later, HRSA permitted covered entities to contract with an unlimited number of pharmacies. In 2010, the Affordable Care Act also significantly expanded the types of hospitals eligible to participate as “covered entities” in 340B.

The results were dramatic. By 2025, participants in the program had grown to 60,000—a 600-fold increase. The GAO found that the number of covered entities more than doubled between 2013 and 2023. 340B drug purchases reached $66.3 billion in 2023 and roughly $80 billion in 2024. And over 33,000 pharmacy locations—half the U.S. pharmacy industry—participated as contract pharmacies in the program.

Strong financial rewards and weak oversight fueled this rapid growth. The 340B statute does not require hospitals to pass discounts on to patients. As a result, opportunistic hospitals buy drugs at steep discounts, bill insurers or patients at full price, and pocket the difference. A recent Congressional investigation shows that Cleveland Clinic netted $933.7 million in 340B revenue and savings, and Bon Secours’ Richmond Community Hospital netted $276.5 million. Both hospitals have admitted to generating revenue from program discounts without passing savings to patients. Large urban hospitals have even posed as “rural referral centers” to qualify for 340B discounts.

As the Wall Street Journal recently put it, 340B has become “a cash cow for hospitals.”

The “Anti-Diversion” Guardrail—and How HRSA Eroded It

Congress anticipated the risk of program abuse. It included a key safeguard in the 340B statute known as the “anti-diversion” provision: covered entities may not provide 340B drugs to anyone who is not “a patient of the covered entity.” 42 U.S.C. §256b(a)(5)(B). But the statute never defined “patient.”

In 1996, HRSA, through agency “guidance,” filled the gap with its own definition. Under that guidance, a person is a “patient” of a covered entity if the entity simply maintains medical records of the person and provides any health service through a contracted professional to the person. 61 Fed. Reg. 55,156-58 (Oct. 24, 1996).

That means a Texas hospital can claim 340B discounts for prescriptions written by a telehealth provider in Maine for a patient living in Maine—so long as the provider is contracted with the hospital and sends the medical records back to Texas. The hospital then gets to profit by buying drugs at a 340B discount for the Maine resident and reselling them at a marked-up price. The hospital gets this benefit even though it never treats, sees, or meaningfully interacts with the patient. This is not a technical glitch—it is the predictable result of an agency stretching statutory terms beyond recognition.

HRSA has compounded this problem by authorizing the “replenishment model,” now the dominant method of acquiring 340B inventory. Pharmacies dispense drugs at full price, retroactively identify which prescriptions qualify for 340B, replenish their stock with discounted drugs, and then sell those drugs at non‑discounted prices. Hospitals pocket the spread and pay pharmacies a fee for facilitating the arrangement.

Combined with HRSA’s definition of “patient,” the replenishment model makes it nearly impossible to ensure that discounted drugs go only to eligible patients. Inventories are commingled, and the link between the hospital and the patient is often attenuated—or nonexistent. Hospitals have exploited the confusion to generate profits. For every “patient,” no matter how thin the connection, there is opportunity to make money.

As one federal court put it, a program “meant to help the American poor” has become a “windfall to hospital conglomerates and participating pharmacies.”

AbbVie’s Lawsuit

In April, AbbVie sued HRSA seeking a judicial reset of the term “patient” to bring teeth back to the anti-diversion provision. The complaint details anomalies in 340B utilization—anomalies that make sense only under HRSA’s expansive definition.

AbbVie discovered that Barrio, a San Antonio health center, issued more 340B prescriptions to out-of-state patients than Texans. One nurse practitioner at Barrio was the country’s top prescriber of AbbVie’s drug “Skyrizi.” Barrio also considered patients eligible for 340B if they had seen a contracted provider in the past 24 months, even for brief telehealth visits or prescriptions unrelated to their medical encounter.

At Mount Sinai in New York, AbbVie found triple‑claiming: three hospitals in the same system each claimed 340B discounts for the same prescription. AbbVie also observed a 35% surge in 340B purchases with no corresponding increase in patient volume.

To address these anomalies, AbbVie sought to audit both Barrio and Mount Sinai under the 340B statute and proposed a definition of “patient” grounded in the statute’s text and purpose. AbbVie defines an eligible “patient” as someone who is prescribed a drug as a direct result of a clinical encounter with a professional at the covered entity; the professional substantively renders and oversees the care; and the patient is administered the drug within 12 months of treatment.

HRSA, however, has rejected AbbVie’s audit workpapers unless AbbVie uses HRSA’s 1996 broad definition of “patient.” HRSA also announced that it would not enforce any audit findings based on AbbVie’s proposed definition.

Through its lawsuit, AbbVie seeks declarations that HRSA’s definition is unlawful, that AbbVie’s definition reflects the correct statutory meaning, and that HRSA must authorize audits using AbbVie’s definition.

Loper-Bright’s Virtues on Display

The Supreme Court in Loper-Bright emphasized that “[a]gencies have no special competence in resolving statutory ambiguities.” HRSA’s definition of “patient” shows why. The agency’s definition has gutted 340B’s anti-diversion provision and has contributed to the program drifting far away from its original mission. GAO has repeatedly found that HRSA’s oversight is inadequate, and that HRSA’s audit process does not ensure violations are corrected. These oversight failures are symptoms of HRSA’s interpretive framework that invites abuse. As Justice Thomas noted in his Loper-Bright concurrence, “the risk of arbitrary power is at its apex” when the entity that enforces the law also interprets it.

AbbVie’s lawsuit is not an attack on 340B. It is an effort to restore statutory fidelity and protect the low-income patients who are the program’s intended beneficiaries. In practice, Loper-Bright ensures that agencies cannot rewrite statutes through regulatory “guidance.” 340B is a prime example of why that safeguard matters. Because HRSA’s definition stands on sub‑regulatory guidance—not notice‑and‑comment rulemaking—it has especially weak footing after Loper‑Bright.

A judicial reset of the word “patient” won’t fix every problem in 340B—but it will restore a statutory guardrail that Congress built, and that HRSA’s interpretation has all but erased.