HHS Hits Reset on 340B Rebate Model After Court Setbacks

The US Department of Health and Human Services (HHS) has formally scrapped its 340B Rebate Model Pilot Program following a series of court rulings that blocked its implementation—signaling a significant pause in one of the most closely watched federal policy developments affecting safety-net providers and drug manufacturers.

In a February 5 joint motion filed with the US District Court for the District of Maine, HHS agreed to vacate and remand the challenged administrative actions underpinning the 340B Rebate Model Pilot Program, acknowledging that further litigation would not be “fruitful”.¹ The move comes after the 1st US Circuit Court of Appeals denied the government’s motion for a stay and left in place a preliminary injunction that had already halted the program before its January 1 effective date.²

For hospitals, manufacturers, payers, and policymakers, the decision represents both a regulatory reset and a continuation of the broader policy discussion surrounding the 340B Drug Pricing Program.

What Was the 340B Rebate Model Program?

Announced in August 2025, the 340B Rebate Model Pilot Program marked a departure from traditional 340B drug pricing mechanics.³ Instead of providing upfront discounts to eligible safety-net providers, participating manufacturers would have issued rebates after the point of sale.

The program was structured around 9 approved manufacturer applications covering 10 drugs. However, hospital groups—including the American Hospital Association (AHA), the Maine Hospital Association, and several safety-net health systems—challenged the program in federal court, arguing it violated the Administrative Procedure Act (APA).⁴

The Legal Turning Point

On December 29, the US District Court of Maine granted a preliminary injunction blocking implementation of the program, finding that plaintiffs were likely to succeed on the merits.⁵ The court identified key deficiencies, including:

• A failure to provide a reasonable explanation for the policy change and to address significant reliance interests.
• A failure to consider relevant costs associated with the program.

The 1st Circuit subsequently denied HHS’s request for a stay, describing the lower court’s opinion as “a careful and thorough decision” and similarly pointing to defects in the agency’s explanation and cost considerations.¹

Following those rulings, HHS reviewed what would constitute the full administrative record and determined it would not alter the likely outcome at summary judgment. As stated in the joint motion, the parties agreed that vacatur and remand would better serve judicial economy than continued litigation.¹

The vacatar covers:

• The original 340B Rebate Model Pilot Program Application Notice (August 1, 2025).
• The corrected notice (August 7, 2025).
• Approval of 9 drug manufacturer applications for 10 covered drugs.

What Happens Next?

HHS has not ruled out pursuing a revised rebate model.

Under the terms outlined in the joint motion, if HHS elects to move forward with a new 340B rebate program, it will:

• Issue a new notice.
• Solicit new applications.
• Seek public comment either prior to or concurrent with the new notice.
• Set any effective date no earlier than 90 days following public announcement of manufacturer application approvals.

This 90-day buffer is intended to reduce the likelihood of expedited litigation surrounding implementation.

Provider and Industry Reaction

In a February 5 statement, AHA President and CEO Rick Pollack said the association appreciates HHS’ decision to reconsider the rebate program and expressed gratitude to the district court and the 1st Circuit for what he described as recognizing legal flaws in the original policy. He stated that the AHA remains interested in working with the administration on policies aimed at improving drug affordability and protecting access to care. Pollack also emphasized that, in the association’s view, a rebate model that weakens safety-net hospitals’ ability to provide comprehensive services could adversely affect vulnerable communities.⁶

Operational and Regulatory Considerations

The 340B program plays a significant role in drug purchasing and reimbursement dynamics across the health care system. Changes to its structure—particularly a shift from upfront discounts to rebate-based reimbursement—carry implications for:

• Hospital cash flow and operating stability.
• Pharmacy contracting arrangements.
• Manufacturer compliance obligations.
• Coordination with Medicaid drug rebate requirements.
• Drug pricing transparency and data reporting.

Beyond the immediate operational impacts, the court decisions underscore the standards federal agencies must meet under the Administrative Procedure Act, including providing a reasoned explanation for policy changes and evaluating associated costs and reliance interests. These principles shape federal healthcare policymaking across administrations and program areas.

The episode also suggests that any future structural reforms to 340B may require a more detailed administrative record and expanded stakeholder engagement to withstand judicial scrutiny.

A Policy Pause, Not the End of the Debate

HHS’s decision to vacate the program does not resolve broader questions about the future direction of the 340B Drug Pricing Program. Discussions continue among policymakers and stakeholders regarding program oversight, manufacturer participation, transparency, and alignment with broader drug pricing reforms.

By agreeing to restart the administrative process—with notice-and-comment procedures and a defined implementation window—HHS has paused the current model while preserving the option to revisit rebate-based approaches in the future.

For now, the 340B framework remains in place as previously structured. However, the legal and regulatory debate surrounding drug pricing policy and safety-net sustainability is likely to continue.

Reference

1. The American Hospital Association, et al. v Robert F. Kennedy, Jr. Secretary of the US Department of Health and Human Services, et al. The United States District Court for the District of Maine. Case No 2:25-cv-600-LEW. Filed February 5, 2026. https://sponsors.aha.org/rs/710-ZLL-651/images/09113645870.pdf?version=0
2. The American Hospital Association, et al. v Robert F. Kennedy, Jr. Secretary of the US Department of Health and Human Services, et al. United States Court of Appeals for the First Circuit. Case No 25-2236. Filed on January 7, 2026. https://sponsors.aha.org/rs/710-ZLL-651/images/340B-20260107_Doc.pdf
3. 340B Program Notice: Application Process for the 340B Rebate Model Pilot Program. The US Department of Health and Human Services. Program notice. Published on August 1, 2025. Accessed February 11, 2026. https://www.federalregister.gov/documents/2025/08/01/2025-14619/340b-program-notice-application-process-for-the-340b-rebate-model-pilot-program
4. The American Hospital Association, et al. v Robert F. Kennedy, Jr. Secretary of the US Department of Health and Human Services, et al. The United States District Court for the District of Maine. Filed December 1, 2025. https://www.aha.org/system/files/media/file/2025/12/AHA-MHA-and-Four-Safety-net-Health-Systems-Lawsuit-to-Stop-340B-Changes.pdf
5. The American Hospital Association, et al. v Robert F. Kennedy, Jr. Secretary of the US Department of Health and Human Services, et al. The United States District Court for the District of Maine. Case No 2:25-cv-600-LEW. Filed December 29, 2025. https://litigationtracker.law.georgetown.edu/wp-content/uploads/2025/12/AMERICAN-HOSPITAL-ASSOCIATION_2025.12.29_ORDER-ON-MOTION-FOR-PRELIMINARY-INJUNCTION.pdf
6. HHS says it will scrap current 340B Rebate Model Program. American Hospital Association. News release. Published February 5, 2026. Accessed February 11, 2026. https://www.aha.org/news/headline/2026-02-05-hhs-says-it-will-scrap-current-340b-rebate-model-program