HHS Scores Partial Win in Fight of Drugmakers’ Rebate Model (1)

A federal judge partly sided with HHS over its decision to not approve proposals from Bristol Myers Squibb Co., Novartis AG, Eli Lilly & Co., and Sanofi SA that would dramatically change how they discount medicines to providers that treat lower-income and uninsured patients.

Judge Dabney L. Friedrich of the US District Court for the District of Columbia ruled the US Health Resources and Services Administration didn’t act illegally when it denied bids from the drugmakers to discount medicines through a rebate model rather than up front to covered entities under the federal 340B Drug Pricing Program.

“To date, HRSA has not finally rejected Lilly, BMS, or Novartis’s proposals—rather, it has informed those manufacturers that it cannot ‘approve or disapprove’ their rebate models ‘to date,’” Dabney said in an order Thursday that grants and denies in part the government’s cross motions for summary judgment.

“With respect to the agency’s proffered approval timeline, the parties face countervailing pressures,” Dabney wrote. “The agency asserts that it needs longer to complete its review of the varied proposals manufacturers began submitting in July of 2024, which represent a large-scale shift in the way the 340B program has operated for three decades.”

The order, however, sides with Sanofi’s claim that HRSA made a final decision on its proposal and failed to provide a reasoned explanation for disregarding concerns about duplications and diversions under the plan.

Sanofi’s “credit model” differs slightly from other proposals because the company would offer a rebate in the form of a credit that becomes effective before the provider’s bill is due.

Dabney vacated the portions of HRSA’s violation letter to Sanofi and remanded to the agency for further consideration.

The court also ruled that Kalderos Inc., a health tech company working with Lilly to provide a platform for its cash rebate model, has standing to challenge HRSA’s decisions.

Dabney denied requests from intervenors 340B Health, UMass Memorial Medical Center, and Genesis Health to declare that rebates are categorically prohibited under the 340B statute.

Drugmakers under 340B are required to discount drugs for covered entities, which are qualifying hospitals, clinics, and providers that treat a disproportionate number of low-income and uninsured patients. The covered entities currently purchase drugs at a steep discount, but under the drugmakers’ proposal, providers would buy medicines at commercial price and then submit data to receive a rebate.

Manufacturers in 2024 challenged HRSA for rejecting those proposals, asserting claims under the Administrative Procedure Act and the due process clause of the Fifth Amendment. They argued rebates would bring more transparency to the 340B program, which has faced scrutiny over its integrity, how discounts are used, or where they’re provided.

“While we are disappointed in the court’s decision overall, we appreciate that the opinion recognized that the 340B program is rife with abuse,” a Sanofi spokesperson said in a statement. “We also applaud the court for ordering that HRSA address some of these flaws raised by Sanofi when reconsidering our 340B Credit Model.”

A spokesperson for Novartis said the company plans to seek further review, as the “use of a cash-rebate model is expressly allowed in the 340B statute and would help uphold critical statutory protections against duplicate discounts while maintaining timely access to 340B pricing.”

Compliance Concerns

Dabney didn’t decide on whether HRSA has considered all relevant factors with respect to proposals from Lilly, Novartis, Bristol Myers, and Kalderos because the agency is still reviewing plans.

HRSA informed the court on May 2 that it plans to supply more guidance in response to the rebate proposals soon.

While Dabney ruled she will side with the government for now, she raised concerns about the program’s duplication issues and the intersection of the 340B program and the US government’s drug price negotiation plan.

Manufacturers argue their rebate models would prevent duplicate discounts in the program, a concern they have in order to comply with obligations under the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. That plan includes a 340B nonduplication provision.

“Although HRSA represents that it plans to ‘coordinate ... [with CMS] to provide and share information to support compliance with each agency’s respective program requirements,’ the absence of a definitive oversight plan to date is concerning,” Dabney wrote.

A spokesperson for Lilly said in a statement that the “company is pleased that the court found that the 340B statute ‘explicitly contemplates’ rebate models and that HRSA must evaluate manufacturers’ models and address their ‘valid concerns’ about widespread program abuses.”

Bristol Myers said the company plans to appeal the decision, but it’s pleased that the court asked HRSA to continue its review of duplication and diversion in the program.

The cases are Sanofi-Aventus US LLC v. HHS, D.D.C., No. 24-3496; Bristol Myers Squibb Company v. Johnson, D.D.C., No. 1:24-cv-03337; Eli Lilly & Co., v. Kennedy, D.D.C., No. 1:24-cv-03220; Novartis Pharmaceuticals Corp. v. Kennedy, D.D.C., No. 1:25-cv-00117; Kalderos Inc. v. United States of America, D.D.C., No. 1:21-cv-02608.