Federal Court Halts 340B Rebate Model Pilot Program

As we explained here, the federal 340B program permits certain health care organizations, referred to as “covered entities,” to purchase covered outpatient drugs from pharmaceutical manufacturers at a substantial discount. With certain exceptions, the 340B program has historically operated as an upfront discount program.

In 2025, several pharmaceutical manufacturers announced their intent to utilize a rebate model rather than upfront discounts to honor the 340B ceiling price. Following these announcements and discussions with the manufacturers, HRSA sent letters asserting that the proposed rebate models were unlawful and threatening to terminate the manufacturers’ Pharmaceutical Pricing Agreements (PPAs), which would, in turn, jeopardize their Medicaid National Drug Rebate Agreements and could result in the loss of Medicaid coverage for their covered outpatient drugs. Several manufacturers filed lawsuits challenging these determinations, which have thus far been met with little success in the courts.

In a remarkable about-face, HHS announced in July 2025 that it would be launching a voluntary 340B Rebate Model Pilot Program for qualifying drugs, under which 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.

The American Hospital Association (joined by other entities) then filed suit on December 1, 2025, alleging that HRSA violated the Administrative Procedure Act (APA) by rolling out the Pilot Program. At the same time, the plaintiffs requested a temporary restraining order to block the Pilot Program from going into effect on January 1.

On December 29, 2025, only four days before the effective date, the US District Court for the District of Maine granted a preliminary injunction, temporarily enjoining HRSA from implementing the Pilot Program as planned.

Characterizing the administrative record as “anemic,” the court ultimately held that the plaintiffs had shown a strong likelihood of success on the merits of their claim that HRSA’s rollout of the program violated the APA’s arbitrary and capricious standard. In reaching this conclusion, the court found that there was no evidence in the record that HRSA considered 340B entities’ more-than-30-year reliance interests in an up-front discount model, and that HRSA had failed to consider administrative costs (noting that, by HRSA’s own admission, it was still examining administrative costs even as it approved manufacturers’ applications under the Pilot Program).

The court additionally found that the plaintiffs had shown irreparable harm through substantial, nonrecoverable compliance costs and operational disruptions, including cash-flow burdens from paying wholesale prices, increased staffing and systems needs, and cutbacks to services. Finally, the court determined that the equities and public interest favored maintaining the status quo while litigation proceeded.

HRSA immediately filed an appeal, which is now pending before the US Court of Appeals for the First Circuit. Pending further proceedings, HRSA cannot currently move forward with or in any way implement the 340B Rebate Model Pilot Program.

In another interesting wrinkle, the court rejected the requests of five pharmaceutical manufacturers and a trade association to intervene in the lawsuit, finding that they had failed “to demonstrate that the government will not adequately represent their interests in defending against the lawsuit.” Nonetheless, the court has permitted these entities to proceed as amici curiae.

ArentFox Schiff is closely monitoring this litigation at the district court and appellate level.

If you are interested in more information about this litigation or the 340B program, please contact the authors.