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The Department of Health and Human Services is taking another stab at a 340B rebate model that would require safety-net hospitals to pay full price for certain prescription drugs before getting a discount, reintroducing the HHS 340B rebate model pilot after losing legal challenges that blocked a similar program earlier this year.
What the HHS 340B Rebate Model Pilot Actually Proposes
The Health Resources and Services Administration, which runs the 340B Drug Pricing Program, issued the public notice for the rebate model on Friday. The notice details the revised 340B Rebate Model Pilot Program, which aims to launch by Jan. 1, 2027. However, the revised program is largely unchanged from HRSA’s previous attempt to establish a rebate model, which was scrapped at the start of the year before the agency could implement it.
Why the Original Version Was Blocked
Hospitals, including the American Hospital Association, successfully sued over the pilot program last year, arguing that the Trump administration failed to follow proper notice-and-comment rulemaking processes. Major drug manufacturers, including Novartis and Johnson & Johnson, also recently lost their appeal to implement their own rebate models.
The Public Comment Process Behind This HHS 340B Rebate Model Pilot
HRSA received over 2,400 public comments in response to a Request for Information about reviving the pilot program. In the comments, hospital groups said the rebate approach would cost safety-net providers hundreds of millions of dollars, threatening their abilities to deliver affordable, quality care.
Why HHS Says a Rebate Model Is Needed
Safety-net hospitals in the 340B Drug Pricing Program typically pay a cheaper price for covered drugs through an upfront discount from drug manufacturers. But these companies have raised concerns that the program’s accelerated growth, particularly through contract pharmacies, has led hospitals to claim duplicate discounts. A 2021 report found that 3-5% of 340B discounts and Medicaid rebates were duplicates, costing as much as $1.6 billion in 2019. HRSA said the program has grown from $53.7 billion in 2022 to more than $100 billion, creating “new operational and oversight challenges.”
How This HHS 340B Rebate Model Pilot Would Work
The new pilot program will provide more transparency into the 340B program by allowing manufacturers to validate eligible claims before providing a discount to qualifying providers, HRSA explained. They must then provide rebates within 10 calendar days after a covered entity submits the required data.
Its Connection to the Medicare Drug Price Negotiation Program
The agency also said the rebates will prevent duplicate discounts, especially those overlapping with the new Medicare Drug Price Negotiation Program, which allows the U.S. government to directly negotiate maximum prices for high-cost drugs covered by Medicare. In fact, the pilot is limited to drugs included on the MDPNP selected drug lists for initial price applicability years 2026 and 2027, according to the public notice.
New Safeguards Within the Revised HHS 340B Rebate Model Pilot
Drug manufacturers will also face limits on how much data collection they require of covered entities participating in the pilot program, according to the notice. Now, data collection requirements will be restricted largely to standardized pharmacy and medical claims data.
Manufacturer Accountability Measures
Additionally, HRSA said in the notice that it intends to monitor rebate denial patterns and could terminate a manufacturer from the program if it inappropriately denies a significant portion of rebate requests, a provision aimed at preventing manufacturers from using rebate denials as a de facto way to undermine the discount program.
Hospital Groups’ Continued Opposition to the HHS 340B Rebate Model Pilot
Hospital groups remain deeply opposed to the pilot program. “The agency’s analysis dramatically understates the true costs of this program, ignoring the hundreds of millions of dollars in compliance expenses, cash-flow disruptions, and operational burdens that will inevitably divert scarce resources away from patient care,” Rick Pollack, the president and CEO of the AHA, said in a statement Friday. Pollack said the AHA is considering ways to prevent the rebate model from going into effect.
340B Health’s Response to the Revised Pilot
Maureen Testoni, president and CEO of 340B Health, a nonprofit representing hospitals in the 340B program, said in a statement that the revised pilot program is “effectively a rerun of the flawed approach HRSA tried to take earlier this year,” which was blocked by federal courts for violating administrative law and “it may be again.” “However, the fundamental problem is that rebates are bad policy that will harm safety-net hospitals and the patients who depend on them,” she continued.
HHS’s Response to Financial Concerns Within the HHS 340B Rebate Model Pilot
HRSA said in the public notice that it considered the financial concerns raised by hospital groups but “believes that the Pilot is unlikely to result in unstable cash flow for covered entities,” based on available research on a rebate model. This direct rebuttal to hospital groups’ cash-flow concerns suggests HRSA anticipates continued legal or advocacy pushback and is attempting to preemptively address the primary financial objection raised during the comment period.
What This HHS 340B Rebate Model Pilot Means Going Forward
With Pollack signaling that the AHA is exploring ways to prevent the rebate model from taking effect, and Testoni predicting the pilot could again be blocked by federal courts, this revived HHS 340B rebate model pilot appears headed toward renewed legal conflict before its planned Jan. 1, 2027 launch. Given that the previous version was struck down specifically for failing to follow proper notice-and-comment rulemaking, HRSA’s decision to solicit and respond to more than 2,400 public comments this time may represent an attempt to insulate the revised pilot from a similar procedural challenge, even as substantive opposition from hospital groups remains unchanged.
What to Watch Going Forward
As the Jan. 1, 2027 target launch date approaches, industry observers will likely watch whether the AHA and 340B Health pursue new legal action against this revised pilot, and whether HRSA’s improved rulemaking process proves sufficient to withstand a court challenge this time. Given the pilot’s narrower scope, limited to drugs on the Medicare Drug Price Negotiation Program’s selected lists, the ultimate financial impact on safety-net hospitals may prove smaller than hospital groups’ broader cost projections suggest, though this remains a central point of dispute between HHS and the hospital industry heading into the program’s planned rollout.
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