340B watch: HHS cancels immediate plans for a rebate model

Providers no longer need to prepare imminently for a rebate model in the 340B Drug Pricing Program, with HHS saying it is shelving those plans.

Initially set to begin Jan. 1, the model already was paused amid litigation brought by the American Hospital Association (AHA) and other parties. On Feb. 5, HHS said in a court filing that it intends to vacate 2025 regulations that established the model.

In the filing, HHS acknowledged “defects” in those regulations, specifically the failure to account for:

• The degree to which the rebate model would affect the finances and operations of hospitals that rely on the program
• The administrative burden required for hospitals to comply

Those concerns swayed a district court judge to issue a preliminary injunction on the model three days before providers would have been subject to the requirements. Next steps would have required HHS to provide a full administrative record of how it assessed the model’s impact on providers, but the department admitted in the new filing that fulfilling the order would not help its chances in the litigation.

The model, which was set to include 10 drugs and nine manufacturers in its first year, would have obligated hospitals to file claims data to receive a rebate equaling the difference between the wholesale acquisition cost and the 340B price. Traditionally, 340B discounts are available upfront upon initial dispense of the drug, a better scenario for hospital cash flow.

HHS did not rule out seeking to implement a rebate model down the line. But the department said it essentially would start from scratch in such a scenario, including by requiring another round of applications from manufacturers.

Company pushes forward with expanded 340B data requirements

Manufacturers sought the rebate model largely because it would give them greater access to data on providers’ utilization of 340B drugs, bolstering efforts to avoid duplicate discounts between 340B and Medicaid and to better use the 340B auditing process.

The manufacturer Eli Lilly took a unilateral step to expand data collection starting Feb. 1 with a requirement for providers to submit both pharmacy and medical claims data from in-house pharmacies. The move expands a policy adopted in recent years by Lilly and other manufacturers for contract pharmacies.

Data would be submitted to a third-party platform with required timelines of 45 days from the product dispense, or 60 days for certain infusion products. Lilly says failure to comply could result in loss of access to 340B discounts.

Most likely due to concerns about how the policy would conflict with state laws or ongoing litigation, Lilly says the new requirement does not apply in Colorado, Maine, Nebraska, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, Vermont and West Virginia, while federally qualified health centers and similar facilities in New Mexico are exempt.

In late January, the AHA wrote to the Health Resources and Services Administration, the federal agency that oversees 340B, to say the policy should not take effect because it would “vastly increase the costs and burdens on 340B hospitals.”

The prospective impact makes the policy unlawful because the cost of compliance likely would be enough to effectively increase the contract price beyond the statutory ceiling for 340B drugs, the AHA said. Specific concerns include the administrative burden of setting up the infrastructure to submit the required claims data, especially with the obligation to include medical claims.

Survey could affect Medicare 340B payments

Another looming concern for 340B providers is the possibility of a reduction in Medicare Part B payments for 340B drugs.

CMS has launched a survey in which providers are supposed to disclose their acquisition costs for outpatient drugs and biological products. The plan is to use the survey results to set the parameters of Medicare drug payment in 2027. The 340B payment rate currently is average sales price (ASP) plus 6%, the same as for all Part B drugs.

CMS in 2018 lowered the 340B rate to ASP minus 22.5%, a move that was challenged in litigation that wound up at the Supreme Court. In a 2022 unanimous ruling, the high court said the reduction was unlawful because CMS first needed to capture survey results showing how acquisition costs differ between 340B drugs and other outpatient drugs.

In 2020, CMS conducted such a survey of drug acquisition costs and was prepared to apply the results to further cut the payment rate to ASP minus 28.7%. The agency backed off those plans amid questions about the reliability and sufficiency of the survey data and about the outcome of the litigation, which was ongoing.

In January, hospital advocacy groups wrote to a CMS contractor to dispute published statements from the vendor that implied completing the latest survey is mandatory for hospitals. The groups highlighted that CMS had stated in 2025 regulations that the Social Security Act “does not mandate specific consequences … on hospitals for failing to respond to that survey.”

More 340B litigation in the pipeline

Another 340B angle that hospital stakeholders continue to watch is litigation over contract pharmacies. Since 2023, U.S. appeals courts for the Third Circuit and the District of Columbia Circuit have supported the claim of drug manufacturers that they can impose conditions on the availability of 340B discounts at contract pharmacies.

An appeal over a similar case remains pending at the Seventh Circuit, where a ruling in favor of providers would create a circuit-court split and increase the chances that the Supreme Court will hear the case.

Providers have had better outcomes regarding state 340B protections, with federal appeals courts upholding Arkansas and Mississippi laws that shield the rights of 340B entities to use contract pharmacies. Courts have declined to issue injunctions that would block enforcement of similar state laws in Maine, Rhode Island and Tennessee. Litigation pertaining to other state 340B laws is ongoing.

Congress continues to mull legislation that could help settle the contract pharmacy issue. In 2025, bicameral legislation was introduced to ensure manufacturers do not impose restrictions on the use of contract pharmacies. The bill has not advanced in either chamber.