Hospitals, HHS Drop Legal Battle Over Drug Rebate Pilot Program

The US Department of Health and Human Services and hospitals groups are scrapping a legal fight over a drug rebate pilot after federal officials said they would take another look at the program.

“Further motions practice would not be fruitful, and instead, it would serve the best interests of judicial economy and the Parties to vacate the challenged actions with a remand to the Health Resources and Services Administration,” the Department of Justice and counsel for the American Hospital Association said Thursday in joint motion for vacatur and remand filed to the US District Court for the District of Maine.

The parties agreed in the motion that if HHS decides to reintroduce a new rebate model pilot, the government will issue a new notice, including soliciting new drugmaker applications for the program.

The move is a win for hospitals as it sends the US government back to the drawing board to rework its 340B Rebate Model Pilot Program.

The pilot, administered by the HHS’ Health Resources & Services Administration, would significantly change how the 340B Drug Pricing Program operates.

Drugmakers under the federal 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 would have to buy certain medicines at full market price and then submit data to drugmakers to receive a rebate.

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

The federal district court in December 2025 ruled the government didn’t have the evidence in the administrative record to prove that it considered the costs and burden of the program. The court also rejected the department’s request to stay the order while the US appealed to the First Circuit.

HHS in January dropped the appeal and said it would reconsider the drug rebate plan.

“The AHA hopes that through a new regulatory process and careful consideration of comments from 340B hospitals, HHS will recognize that imposing hundreds of millions of dollars in costs on hospitals serving rural and underserved communities is not a sound policy,” Rick Pollack, president and CEO of the American Hospital Association, said in a statement.

The case is American Hospital Association v. Robert F. Kennedy Jr., D. Me., No. 2:25-cv-00600, joint motion 2/5/26.