A federal judge on Monday temporarily blocked the U.S. administration’s planned 340B Rebate Model Pilot Program, finding that regulators likely failed to meet basic administrative law requirements before rolling out a major change to how discounted drugs are provided to safety-net hospitals.
In a ruling issued late December, the court granted a preliminary injunction preventing the Health Resources and Services Administration (HRSA) from implementing the pilot program, which was scheduled to begin January 1, 2026.
The decision sides with hospital groups that argued the agency moved too quickly and failed to adequately explain the consequences of shifting from upfront drug discounts to a rebate-based system.
The lawsuit was brought by the American Hospital Association and the Maine Hospital Association in early December, along with several member hospitals.
The plaintiffs said the program violated the Administrative Procedure Act by lacking a sufficient administrative record and ignoring the financial strain the rebate model could place on hospitals that rely on immediate discounts to serve low-income and rural patients.
The 340B program, created in 1992, requires drug manufacturers to sell outpatient drugs at discounted prices to eligible “covered entities,” including safety-net hospitals. For decades, those discounts have been applied upfront at the time of purchase, a structure the court noted HRSA itself previously defended as less disruptive than rebates.
HRSA announced the rebate pilot in July, aiming to prevent manufacturers from being subject to duplicate discounts under both the 340B program and the Inflation Reduction Act’s Medicare drug price negotiation framework. Under the pilot, participating manufacturers would charge hospitals the wholesale price initially, then issue rebates later to account for required discounts.
The court found that while HRSA has statutory authority to pursue a rebate model, the agency likely failed to adequately justify the shift or assess its impact on covered entities. The judge cited a thin administrative record and concluded the plaintiffs showed a strong likelihood of success on the merits, as well as irreparable harm absent injunctive relief.
Several pharmaceutical manufacturers, including AbbVie Inc. (NYSE:ABBV), AstraZeneca Plc (NASDAQ:AZN), and Novo Nordisk A/S (NYSE:NVO), sought to intervene in the case to defend the pilot program.
The court denied those motions in mid-December, ruling that the federal government could adequately represent the manufacturers’ interests. However, the companies were permitted to participate as amici curiae.
The injunction remains in place pending further court proceedings, leaving the future of HRSA’s rebate approach uncertain.
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