HHS Announces 340B Rebate Model Pilot Program

This program represents an about-face for the Trump Administration and the HRSA who previously maintained that pharmaceutical manufacturers had to sell covered outpatient drugs to 340B covered entities upfront at the steeply discounted 340B ceiling price. It will now permit pharmaceutical manufacturers to remit the difference between a commercial acquisition price and the 340B ceiling price to 340B covered entities as a rebate, but only for drugs with a maximum fair price (MFP) for Medicare patients under the Inflation Reduction Act (IRA).

Under the federal 340B program, certain health care organizations — referred to as “covered entities” — are entitled to purchase covered outpatient drugs from pharmaceutical manufacturers at a substantial discount. Historically, the 340B program has operated as an upfront discount program, except for certain “covered entities” that are AIDS Drug Assistance Programs (ADAPs). According to HRSA guidance from 1998, ADAPs can collect the difference between reimbursement to a pharmacy for dispensing to a patient enrolled in the ADAP and the 340B ceiling price as a rebate at the ADAP’s election. See Notice Regarding Section 602 of the Veterans Health Care Act of 1992: Rebate Option.

Early this year, several pharmaceutical manufacturers began to announce that they intended to utilize a rebate model rather than upfront discounts to honor the 340B ceiling price. Most of the pharmaceutical manufacturers wanting to use the rebate model have covered outpatient drugs that have been selected from price negotiation/establishment of MFPs under the IRA. This is significant as pharmaceutical manufacturers are not required to honor the MFP for Medicare patients if the drug was originally sold at the 340B ceiling price — this is deemed a duplicate discount under the IRA. The Centers for Medicare & Medicaid Services (CMS) has been at a loss for how to assist pharmaceutical manufacturers in identifying such duplicate discounts, and recently proposed various database crosswalks in the newly released proposed 2026 Physician Fee Schedule. See our prior alert on the subject here.

Following the manufacturer announcements and meetings with HRSA officials, HRSA sent letters to many of the manufacturers who desired to use the rebate model. The letters stated that the rebate models were unlawful and threatened to terminate the manufacturers’ Pharmaceutical Pricing Agreements (PPAs) if they proceeded as planned. If the manufacturers’ PPAs were terminated, their Medicaid National Drug Rebate Agreements would also be terminated, resulting in the loss of Medicaid coverage for their covered outpatient drugs. This is because, to receive Medicaid coverage for covered outpatient drugs, manufacturers must also participate in the 340B program. Over the past year, at least six lawsuits have been filed in federal court by the manufacturers in receipt of these letters — including Johnson & Johnson, Eli Lilly & Co., Bristol Myers Squibb Co., and Novartis — challenging these determinations.

To date, these cases have been met with little success. In May, one district court ruled that HRSA had not acted unlawfully when it denied bids from four manufacturers to discount drugs through rebate models, noting that HRSA had not finally rejected the proposals, but had instead stated that it needed more time to review them. Nonetheless, with respect to a fifth manufacturer, the same district court ruled that HRSA had impermissibly failed to provide a reasoned explanation for disregarding concerns about duplications and diversions under the company’s proposed plan. Additionally, the court denied requests from intervening parties to declare that rebates are categorically prohibited under the 340B statute. The court’s rulings with respect to the first four manufacturers and intervenors have since been appealed.

Meanwhile, in June, another district court ruled in favor of HRSA against a sixth manufacturer. In that matter, the court found that (1) HRSA exercised its discretion delegated by statute when it did not provide for the manufacturer’s rebate model, (2) HRSA did not act arbitrarily or capriciously by treating the manufacturer’s rebate model and replenishment models differently, and (3) HRSA’s determination was reasonable and reasonably explained. This ruling has also since been appealed.

In the wake of these rulings, HHS has now announced that it is launching a voluntary 340B Rebate Model Pilot Program for qualifying drugs. Per HHS, this limited pilot program would test a rebate model on NDC-11s included on the CMS Medicare Drug Price Negotiation Selected Drug List for year 2026 — drugs with an established MFP. The 2026 list of drugs with MFPs is available here. The program is voluntary at a manufacturer’s election, and the manufacturer must submit its rebate plan to HRSA for approval before the rebate option can be implemented. Under the pilot program, covered entities would be required to purchase these drugs at a commercial price, then submit data to the manufacturer in order to receive a post-purchase rebate that reflects the difference between the purchase price and the 340B price.

HHS states that the 340B Rebate Model Pilot Program is intended to test the rebate model “in a methodical and thoughtful approach to ensure a fair and transparent 340B rebate model process for all stakeholders involved,” and, furthermore, that the pilot is being implemented “to better understand the merits and shortcomings of the rebate model from stakeholders’ perspectives, and to inform [Office of Pharmacy Affairs] consideration of any future 340B rebate models consistent with the 340B statute and the Administration’s goals.”

Importantly, HHS is seeking to collect comments on both the structure and application process for the pilot program.

Finally, note that manufacturer plans for participation in the 340B Rebate Model Pilot Program must be submitted to HHS no later than September 15. Per HHS, approvals will be made by October 15 for an effective date of January 1, 2026.

If you are interested in more information about the 340B Rebate Model Pilot Program or would like assistance preparing a comment for submission, please contact the authors.