Health Law Daily Wrap Up, PRESCRIPTION DRUGS—D.D.C.: Eleven 340B program clinics decertified based on improper covered entity certification under Sagebrush umbrella agreements, (Aug 18, 2026)

By Jeffrey H. Brochin, J.D.

By acting as an intermediary and inserting numerous independent clinics as “locations” within its own grant, Sagebrush Health Services circumvented the clear statutory requirement that eligible covered entities must receive qualifying STD funding “through” a state or local government.

A federal District Court in the District of Columbia has granted the motion for summary judgement filed by Amgen, Inc. in its lawsuit against the Department of Health and Human Services (HHS) over improper certification of purported 340B Drug Program covered entities. The improper certifications—utilizing Sagebrush Health Services (Sagebrush) agreements rather than state or local funding—resulted in $30 million dollars in ineligible discounts between 2022 and 2025. The scheme entered into between Sagebrush and the eleven clinics magnified discounted drug pricing for clinics that were in fact statutorily ineligible (Amgen, Inc. v. Becerra, No. 1:24-cv-03571-JEB (D.D.C. Aug. 14, 2026); Genetech, Inc. v. Fink, No. 1:25-cv-00290 (JEB) (D.D.C. Aug. 14, 2026)).

The 340B Program. Section 340B of the Public Health Service Act (colloquially known as the 340B Program) permits certain healthcare providersT—called “covered entities”—the ability to purchase drugs at significantly discounted prices from pharmaceutical companies. The discounts can be steep and result in a strikingly generous price for program participants. However, there are two main requirements for program participation: first, a provider must be “covered” in that it meets one of fifteen enumerated statutory conditions. At issue in this suit are entities that sought coverage by virtue of treating sexually transmitted diseases (STDs), and per the statute, the entities were required to receive funds under a federal STD program through a State or unit of local government, and be certified pursuant to the agency’s process; second, a covered entity is only allowed to purchase discounted drugs to treat its own patients. To enroll in the 340B Program, clinics must get certified as eligible by the Health Resources and Services Administration (HRSA) and they must then get recertified on a not more frequent than annual basis.

Alleged abuse of 340B Program. One prolific participant in the 340B program is Sagebrush Health Services, a nonprofit healthcare organization that has received funding awards from various state governments’ federal STD grants. However, Sagebrush did not merely receive qualifying STD funding and provide individuals with services arising from that funding, and order discounted drugs on their behalf; rather, it also contracted with entirely separate healthcare clinics that specialize in areas like rheumatology, dermatology, or oncology.

Each clinic signed an agreement with Sagebrush for the latter’s ‘expertise in the management and treatment of individuals with sexually transmitted diseases’ and its qualifying state-grant funding. Under those agreements, Sagebrush committed to seeking modification of a qualifying state award to include “reference” to the clinic “locations.” The clinics then received an administrative-services fee from Sagebrush, reported to Sagebrush a monthly itemized list of 340B drugs they used, and sent Sagebrush the net collections of all claims for the 340B drugs included in that report. Four drug manufacturers (including Amgen) filed suit alleging that the relationship between Sagebrush and its contracting clinics amounted to abuse of the 340B program.

Eleven clinics under Sagebrush’s umbrella. Eleven clinics contracted with Sagebrush, eight of which held active certifications as recently as last year, and operated in Nevada. The other three operated in Connecticut, but their program certifications have since been terminated. The drug manufacturers nonetheless sought to set those prior certifications aside in a bid to prevent the clinics from ‘retaining 340B profits to which they were not entitled.’

In a separate lawsuit, the court granted summary judgement to the government over the issue of HRSA’s decertification of certain of Sagebrush’s clinics in recent years, however, the question was left open as to whether certain clinics had been impermissibly certified under the 340B statute, and the court now addressed that issue.

Meaning of the term ‘through’. The gist of the manufacturers’ argument was that the eleven clinics received aid “through” Sagebrush rather than through a state or local government as statutorily required. HRSA’s records, including communications between the agency and state government agencies, treated each of the clinics as an apparent subdivision of Sagebrush Health Services. For example, in 2023, Nevada awarded $600 of its federal grant funds for STD treatment and prevention to Sagebrush Health Services, and ‘Sagebrush’ was the named “subrecipient” of Nevada’s federal STD grant, with a Sagebrush official signing the grant papers. The grant award listed a number of clinicsT—including some of the challenged elevenT—as covered “locations” within the ‘scope of work of Sagebrush’s grant’, and identified those clinics as separate sites, each under the umbrella of “Sagebrush Health Services.” Furthermore, the Sagebrush agreements referred to Sagebrush as the non-profit organization receiving grants from the Nevada and Connecticut public-health departments, and the clinics as separate “practice locations” of yet another third-party ‘Affiliate’ contracting with Sagebrush.

However, by permitting Sagebrush to act as an intermediary and insert numerous independent clinics as “locations” within its own grant, their conduct circumvented the flexible but clear statutory requirement that eligible covered entities must receive qualifying STD funding through a state or local government. As a result of this scheme, Sagebrush permitted those clinics to access 340B pricing for otherwise-ineligible patients, because covered entities can receive reduced-price drugs to treat only their patientsT—individuals whose records the covered entity “maintains” and for whom the entity has provided a health care service consistent with the scope of its grant funding.

In sum, the court agreed with Amgen and the other manufacturers that the government impermissibly certified the clinics as 340B covered entities in violation of statutory requirements, and they accordingly granted summary judgement to Amgen and the manufacturers.

The case is Nos. 24-3571-JEB & 25-290 (JEB).

Judge: Boasberg, J.

Attorneys: Susan Cook (Hogan Lovells Cadwalader US LLP) for Amgen Inc. Kimberly Stratton, U.S. Attorney's Office, for Xavier Becerra.

Companies: Amgen Inc.

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