HHS Reconsidering Drug Rebate Pilot Opposed by Hospitals (1)

The US Department of Health and Human Services is negotiating with hospital groups about reconsidering a new drug rebate pilot that was scheduled to take effect Jan. 1, according to filings in a lawsuit challenging the program.

The health department and hospitals are engaged in discussions about returning the 340B Rebate Model Pilot Program back to the government for reconsideration, according to a letter from the Department of Justice sent Monday to the US Court of Appeals for the First Circuit.

“The agency intends to resolve such proceedings promptly,” Maxwell Baldi, a Justice Department attorney representing the HHS, said in the letter. “Therefore, the parties do not believe that expediting this appeal is warranted at this time and plan to dismiss the appeal in short order.”

The pilot, administered by the HHS’ Health Resources & Services Administration, would significantly change how the 340B program operates after the Trump administration approved in October 2025 rebate models from pharmaceutical companies such as Bristol Myers Squibb Co., Johnson & Johnson, and Novo Nordisk A/S.

Hospital groups sued the government in December 2025, alleging violations of the Administrative Procedure Act because the health department ignored comments about shifting the 340B Drug Pricing Program to a rebate model.

The letter comes after the First Circuit on Jan. 7 upheld a freeze of the pilot.

A lower court last month ruled the government didn’t have the evidence in the administrative record to prove that it considered the costs and burden of the rebate program. That court also rejected the department’s request to stay the order while it appealed to the First Circuit.

The preliminary injunction issued against the pilot remains in effect.

Drugmakers under the federal 340B program currently provide up-front drug discounts to covered safety-net hospitals, clinics, and health centers that treat a disproportionate number of low-income and uninsured patients. But under the pilot, covered providers will buy certain medicines at full market price and then submit data to drugmakers to receive a rebate.

Drugmakers have increasingly criticized the 340B program for its massive growth and questioned how providers implement savings from the steep drug discounts they get.

Hospitals, however, have been skeptical of the pilot, questioning its implementation and its impact on safety-net facilities.

“This is critically important news for safety-net providers serving low-income, uninsured, and underinsured patients in underserved and rural communities,” said Shannon Burger, president of Ryan White Clinics for 340B Access and CEO of Cempa Community Care. “The rebate model was a deeply flawed approach that would have disrupted patient care and undermined public health solely for the benefit of drug manufacturers.”

American Hospital Association v. Kennedy, 1st Cir., No. 25-02236, letter filed 1/12/25.