First, a Quick Primer: How the 340B Discount Has Always Worked
The 340B Drug Pricing Program, established in 1992, requires drug manufacturers to sell outpatient drugs to eligible safety-net providers — covered entities — at significantly reduced prices called ceiling prices. The discount is applied upfront, at the point of purchase. A covered entity orders a drug, pays the 340B price, and moves on. No claims to file. No reimbursement to chase. The savings are immediate and certain.
That simplicity has been the bedrock of the program for more than three decades. Covered entities — disproportionate share hospitals, FQHCs, Ryan White clinics, critical access hospitals — have built their financial models, their community services, and their contract pharmacy programs around it.
In 2025, HRSA tried to change the model. What followed was one of the most significant legal fights in 340B's history.
What HRSA Proposed: A Rebate Model Pilot
In August 2025, HRSA published a Federal Register notice announcing a 340B Rebate Model Pilot Program. Instead of receiving 340B discounts at the point of sale, covered entities would pay the full wholesale acquisition cost (WAC) for certain drugs upfront — and then submit claims data to receive a rebate equal to the difference between WAC and the 340B ceiling price.
THE CORE SHIFT
Under the old model: buy at the discounted 340B price, done. Under the proposed rebate model: pay full price at the counter, submit a claims file, then wait for a manufacturer check. The savings are the same on paper — but the cash flow timing and administrative burden are radically different.
The pilot was scoped narrowly — at least at first. It applied only to drugs selected for Medicare price negotiation under the Inflation Reduction Act's Drug Price Negotiation Program, covering nine of the ten drugs on the 2026 list. Participation was voluntary for manufacturers, but mandatory for all covered entities once a manufacturer's plan was approved — a detail that generated significant alarm among provider groups.
By October 2025, HRSA had approved rebate model applications from eight drug manufacturers covering the following drugs:
| Eliquis Bristol Myers Squibb |
Enbrel Amgen |
Farxiga AstraZeneca |
| Imbruvica Pharmacyclics |
Januvia Merck |
Fiasp Novo Nordisk |
| Jardiance Boehringer Ingelheim |
Stelara Johnson & Johnson |
Xarelto Johnson & Johnson |
The program was set to go live January 1, 2026.
Why Manufacturers Wanted It
For manufacturers, the rebate model addressed a real problem: the intersection of the 340B program with the IRA's Maximum Fair Price (MFP). Under the IRA, manufacturers must charge covered entities the lower of the 340B ceiling price or the MFP. Manufacturers argued that without claims-level data, they had no way to verify eligibility or prevent duplicate discounts — situations where they'd effectively pay a 340B discount and a Medicaid rebate on the same dispense. A rebate structure, with mandatory claims data submission, gave them that visibility.
The claims-level data requirement also appealed to manufacturers from a program integrity standpoint: it would let them verify a documented prescriber-patient relationship existed before paying the rebate, reducing the risk of 340B discounts flowing to ineligible patients.
Why Covered Entities Fought Back — Hard
The response from the provider community was swift and forceful. The financial math was daunting. A survey by advocacy group 340B Health found that disproportionate share hospitals would need to float an average of $8.6 million per year in upfront drug costs while waiting for rebates. For safety-net providers operating on thin or negative margins, that kind of cash flow disruption isn't academic — it directly constrains the services they can offer to the patients they exist to serve.
What was at stake financially
The AHA estimated the administrative and cash-flow burden across its member hospitals at $400 million — double HRSA's own initial estimate of $200 million. For rural hospitals, FQHCs, and other safety-net providers already running lean, that's not a rounding error. That's a threat to operations.
Provider groups also raised serious operational concerns: existing pharmacy systems weren't built for a rebate workflow. Covered entities would need to overhaul how they track claims, submit data, and reconcile rebate payments — all on a timeline that gave them essentially zero runway to prepare.
The Lawsuit: AHA v. Kennedy
On December 1, 2025, the American Hospital Association, the Maine Hospital Association, and four safety-net hospitals filed suit in the U.S. District Court for the District of Maine, seeking to block the pilot before it took effect.
Their argument was grounded in the Administrative Procedure Act (APA): HRSA had failed to adequately justify a fundamental change to a program that had operated on an upfront discount model for 30 years. The administrative record — the documented evidence and reasoning behind the agency's decision — was, in the court's eventual characterization, anemic.
"HRSA cannot fly the plane before they build it." — Chief Judge Lance Walker, U.S. District Court for the District of Maine
On December 29, 2025 — just three days before the pilot was scheduled to launch — Judge Walker granted a nationwide preliminary injunction, halting implementation.
The federal government appealed. On January 7, 2026, the First Circuit denied the government's request for a stay. One week later, the Department of Justice signaled it planned to dismiss the appeal rather than continue to defend a record it acknowledged was unlikely to hold up.
On February 10, 2026, the district court formally vacated the pilot program — not just pausing it, but wiping out the HRSA notices and manufacturer approvals altogether — and remanded the matter back to HRSA to start over if it chooses.
Where Things Stand Right Now
CURRENT STATUS: UPFRONT DISCOUNTS REMAIN INTACT
As of today, covered entities continue to receive upfront 340B discounts on all drugs, including the nine drugs that were targeted by the pilot. No rebate workflow is in effect. No claims data is required. The program operates as it has for 30 years.
The court ruling doesn't close the door on a rebate model permanently. In fact, Judge Walker was explicit that his ruling should not be interpreted as declaring a rebate model inherently impermissible under the 340B statute. What HRSA got wrong was the process — the insufficient justification, the failure to meaningfully account for 30 years of reliance on upfront discounts, and the lack of adequate runway for covered entities to adapt.
HRSA's own commitment in the remand agreement makes clear it understands this: if it pursues a new rebate program, it has agreed to issue a fresh notice, solicit new applications, allow for public comment, and provide a minimum 90-day implementation window after any new approvals are announced. That built-in runway is designed to prevent the same last-minute scramble — and the same kind of litigation — that derailed the pilot.
HRSA's Next Move: An Open Question to the Industry
Rather than immediately re-launching the pilot, HRSA issued a Request for Information (RFI) in February 2026, seeking input from stakeholders on whether and how a rebate model could be designed to work — with the right guardrails, the right timelines, and the right protections for covered entities.
The RFI comment deadline has been extended to April 20, 2026. HRSA is asking stakeholders to address questions including:
- What operational challenges would a rebate model create?
- How should rebate timelines be structured to protect covered entity cash flow?
- What data privacy and security protections should be required?
- How should duplicate discount prevention be handled under a rebate structure?
- What has changed in covered entities' operations since January 1, 2026, in anticipation of the pilot?
The AHA has also reported that HRSA has signaled it may seek to expand any future rebate model to all drugs selected for Medicare price negotiation through 2027 — not just the original nine. That's a significantly broader footprint than the pilot, and it underscores why the RFI response period matters. The comments submitted now will shape what any future program looks like.
Other 340B Developments Worth Watching
The rebate fight hasn't been the only thing happening in 340B. A few other developments from early 2026 deserve attention:
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Child site registration ruling (March 3, 2026). A federal district court overturned HRSA's requirement that off-site hospital facilities appear on a Medicare cost report and be registered in OPAIS before purchasing drugs at 340B prices. The ruling returns covered entities to pandemic-era flexibility and eliminates administrative delays in extending 340B access to new care sites.
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CMS drug acquisition cost survey. As part of the 2026 OPPS final rule, CMS is moving forward with a hospital drug acquisition cost survey, collecting NDC-level data for outpatient drugs — both 340B and non-340B — acquired between July 2024 and June 2025. This survey has long been seen as a precursor to potential reimbursement adjustments and is worth monitoring closely.
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GAO program growth report (October 2025). The Government Accountability Office reported that the number of covered entity sites more than doubled between 2013 and 2023. The GAO acknowledged HRSA's improved audit activity but flagged that many prior recommendations on eligibility verification, duplicate discount oversight, and audit remediation remain unimplemented — a signal that scrutiny of the program's administration is not going away.
What This Means for Your Program — Right Now
Nothing changes operationally today. The rebate pilot is vacated. Upfront discounts remain in effect for all drugs. No workflow changes are required.
Watch the RFI closely. Comments are due April 20, 2026. If HRSA moves forward with a redesigned program, the next version will be shaped by what stakeholders say now. Your TPA and legal team should be engaged in this process.
Expect another attempt. The concept isn't dead — HRSA's RFI makes clear it's actively reconsidering the approach. The next version will likely have better process and more stakeholder input, but the underlying policy goal (preventing IRA/340B duplicate discounts) hasn't changed.
Make sure your data infrastructure is ready. Whether or not a rebate model comes back, the trend toward claims-level data transparency in 340B is real. Covered entities with stronger data infrastructure — claim visibility, program logic controls, real-time audit trails — will be better positioned for whatever comes next.
The 340B rebate pilot was, in the court's view, a plan that tried to fly before it was built. HRSA has been sent back to the drawing board with clear guidance on what "building it" requires: a documented rationale, meaningful stakeholder input, and enough runway for covered entities to actually prepare. Whether the next attempt clears that bar — and what it looks like when it does — remains to be seen.
We'll be watching closely. So should you.