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

March 9 update

Hospitals prevailed in litigation over a 340B mandate that has imposed additional administrative requirements in the program.

A federal court ruled that the Health Resources and Services Administration (HRSA) lacked statutory authority to establish that off-campus hospital outpatient departments (HOPDs) are eligible for 340B prices only if they first appear on their parent health system’s Medicare cost report and also register with HRSA’s Office of Pharmacy Affairs Information System.

The 340B statute does not include any such steps among its list of requirements for hospitals, according to the decision at the U.S. District Court for Washington, D.C. Instead, off-campus HOPDs are eligible based on the eligibility of their parent hospital, wrote Judge Amit Mehta (an Obama appointee).

Hospitals noted in court filings that the policy created delays of eight to 23 months before child sites (i.e., off-campus facilities) could access 340B pricing. One of the plaintiff hospitals, Glens Falls (N.Y.) Hospital, reported paying $5.9 million in excess of the 340B price over a nine-month period.

The ruling technically vacates the Biden administration’s 2023 guidance that reinstated pre-pandemic registration requirements. It was not immediately known whether the Trump administration would appeal after defending the guidance during the litigation.

March 5 update

Following in the footsteps of the move by Eli Lilly to require claims data submission by in-house pharmacies (see below), Novo Nordisk has announced a similar policy, effective April 1. The deadline to submit claims to secure the 340B price is 45 days following the date of dispense. Submission takes place through the 340B ESP platform.

Drivers of the policy change, according to a notice to providers, include a desire to enhance transparency and program integrity; detect duplicate discounts among 340B, Medicaid and Medicare-negotiated drug prices; and ensure the availability of data needed to initiate 340B audits as necessary.

Among the provisions stated in the new policy is the declaration that hospitals must continue to submit data for all wholly owned contract pharmacies. Failure to do so can result in suspension from the 340B program for all contract pharmacies and possibly in-house pharmacies.

The American Hospital Association (AHA) wrote to the Health Resources and Services Administration (HRSA), which oversees 340B, to urge the agency to take action against the drugmaker’s plan. The AHA also referenced prior correspondence about Lilly’s proposal, which got underway Feb. 1:

“Regrettably, HRSA never responded to the AHA’s Jan. 26 letter (or the many letters that hospitals around the country have submitted explaining the massive costs that Lilly’s policy will inflict on them). In fact, it has not taken any action — one way or another — in response to Lilly’s unprecedented policy. Respectfully, now that Novo has chosen to impose the same onerous costs on America’s hospitals, HRSA cannot remain silent.”

Feb. 26 update

The Health Resources and Services Administration has extended the deadline to submit insight to guide implementation of the prospective 340B rebate model. The new deadline is April 20, a month-long extension from the original deadline of March 19.

Feb. 13 update

HHS’s Health Resources and Services Administration (HRSA) issued a request for information (RFI) on whether it “should implement a rebate model under the 340B Program and how best to operationalize any such rebate framework for stakeholders.”

The RFI asks what the impact of a rebate model would be on 340B providers, manufacturers, pharmacies and other stakeholders. Areas of focus in the RFI include administrative and operational costs, staffing impacts, and IT system and infrastructure requirements.

HRSA also asks about repercussions for cash flow under a rebate model, citing a scenario in which rebates are required to be made within 10 days (as was the case in the previously proposed model). The prospective model also could include limits on when manufacturers can deny rebate claims.

Following publication of the RFI, the provider advocacy group 340B Health stated, “We appreciate that HRSA is seeking additional information before attempting to reintroduce a rebate plan. That said, the agency is asking covered entities to submit extensive operational, financial and data-related information, with just a month provided to respond.”

Original story

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.

Feb. 9 update: HHS has already taken a preliminary step toward reintroducing a rebate model, filing a notice with the Office of Management and Budget that the department will look to publish an advance notice of proposed rulemaking, which typically is a way to solicit stakeholder input before a formal proposed rule is issued.

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.