Photo: dszc/Getty Images
Hospital groups warn the 340B rebate pilot would force safety net providers to front tens of millions of dollars for drugs and drain resources from vulnerable patients.
The American Hospital Association, the Maine Hospital Association and four safety net health systems have filed a federal lawsuit seeking to block the Department of Health and Human Services’ planned 340B rebate pilot from going into effect on Jan. 1, 2026.
They argue the policy would impose significant financial and administrative strain on providers that rely on 340B savings to support low-income and rural patients.
WHY THIS MATTERS
The proposed rebate model would require 340B providers to purchase certain drugs upfront at full wholesale acquisition cost – the highest list price manufacturers set – forcing hospitals to front large sums of money in anticipation of later reimbursement.
The current model that’s been in effect for decades allows 340B hospitals to buy the drugs at discounted prices.
Lawmakers estimate that an average disproportionate share hospital would need to advance more than $72 million a year under the new approach, a major strain on facilities that already operate with far lower margins than non-340B hospitals. Many hospitals classified as disproportionate share hospitals are also 340B hospitals.
Hospital groups assert the shift would divert resources currently used to subsidize care for uninsured and vulnerable populations, including behavioral health, oncology services, opioid treatment programs and other community benefits supported by 340B savings.
Providers participating in the suit – including St. Mary’s Regional Medical Center in Maine, Unity Medical Center in North Dakota, Dallas County Medical Center in Arkansas, and Nathan Littauer Hospital and Nursing Home in New York – say the rebate model would undermine their ability to deliver essential services, particularly in rural regions where many facilities serve as sole community providers.
Those opposed to the rebate pilot also warn the structure could allow manufacturers to recover revenue lost through Medicare drug price negotiations, effectively using the rebate model as a backdoor to recoup profits.
The suit, filed in the U.S. District Court for the District of Maine, contends that the rebate model represents an abrupt departure from more than three decades of 340B operations and was advanced without the procedural steps required for major federal policy changes.
“When making such a major change, with such far-reaching consequences for patients and hospitals, it is important that the government follow the basic administrative rules of the road. Unfortunately, it did not do so here,” AHA President and CEO Rick Pollack said by statement.
The complaint also challenges the timeline for implementation. HHS plans to launch the rebate model on Jan. 1, 2026, following a July 2025 announcement that offered hospitals only a few months to adopt new systems and workflows or risk losing discounts they are legally entitled to receive.
The plaintiffs argue that the compressed schedule, limited transparency and lack of stakeholder engagement violate administrative law and disregard widespread warnings about the operational and financial burden of the pilot.
The groups are asking the court to suspend the pilot while the case proceeds, warning that the policy could destabilize the safety net systems the 340B program was created to support.
The lawsuit notes that 340B hospitals provided nearly $100 billion in community benefits in 2022, supported in part by the program’s existing discount structure.
“Having upfront drug discounts has been a critical lifeline to our community and our ability to serve patients who otherwise wouldn’t be able to access care,” Winfield S. Brown, president of St. Mary’s, said by statement.
THE LARGER TREND
Before the pilot was announced in July, several drugmakers arbitrarily changed 340B drug pricing to a rebate program.
In the ensuing lawsuit, a federal court rejected the drugmakers’ plan because HRSA had yet to release a decision on the rebate program.
In September, a bipartisan group of lawmakers urged the HHS to discard the 340B rebate pilot in a letter to HHS Secretary Robert F. Kennedy Jr., arguing that an "unchecked" model would undermine the goal of allowing safety net providers to stretch federal resources. The 340B program was established by Congress to give safety net providers discounted drugs and additional operating revenue.
340B hospitals purchase drugs at a reduced price from manufacturers and are reimbursed at a higher, non-discounted amount, using the difference to serve vulnerable populations.
Drugmakers contended there is abuse in the system.