340B rebate pilot tees up healthcare industry firestorm

Modern Healthcare – Monday, August 11, 2025
By Bridget Early

Healthcare providers could be in for significant cash flow and operational changes under the nation’s second-largest drug payment program next year.

The Health Resources and Services Administration announced a voluntary pilot program last month to test allowing drugmakers to dispense rebates to safety-net providers that participate in the 340B Drug Pricing Program rather than discounting prices. Under 340B, qualifying providers pay 25%-50% less for prescription medications.

The pilot program, while narrow, could lead to a transformation of 340B. And it has providers fearing costly operational changes, revised budgeting processes and cash flow uncertainty. The pharmaceutical industry, employers and others, however, see the initiative as a way to fix a program that has grown beyond what they view as its original intent to save money for the providers and patients with the greatest need.

The pilot will allow rebates for the 10 pharmaceuticals subject to the Medicare Drug Price Negotiation Program, including medicines that treat diabetes, rheumatoid arthritis and heart failure. Comments are due Sept. 8 and drugmakers must apply by Sept. 15. Participants will be announced Oct. 1 for a pilot beginning Jan. 1.

Although the 340B rebates pilot is voluntary for drugmakers, it isn’t for providers, which at a minimum will prompt administrative challenges, said Sarah Bowman, a principal at the accounting and healthcare consulting company Pershing, Yoakley & Associates.

340B participants will need to manage multiple rebate models in addition to tracking discounts on medicines not covered by the pilot program, Bowman said. That could entail training expenses or even hiring for providers already stretched thin, she said.

“It puts quite a bit of pressure — administrative pressure, financial pressure, operational pressure — on covered entities,” Bowman said. “I don’t know of any covered entity that’s got a whole lot of [full-time employees] that are looking for something to do.”

Financially, the biggest headache will be adapting a new way of buying some pharmaceuticals, Bowman said. They will have to pay full price up front, then wait for drug companies to approve rebates and reimburse them.

HRSA requires that hospitals request discounts within 45 days of purchase and requires pharmaceutical manufacturers to pay discounts within 10 days. Providers are still worried this new way of doing business will disrupt their cash flow.

Organizations representing 340B providers are pleading with HRSA for more time and asked the agency to leave comments open until Sept. 15, push back the drugmaker application deadline to Oct. 20 and delay approvals until Nov. 3.

“With the fundamental changes a rebate model will impose on all 340B stakeholders, it is impossible for the agency to meaningfully consider, in just seven days, all the feedback it will surely receive,” the American Hospital Association, America’s Essential Hospitals, the Association of American Medical Colleges, the Catholic Health Association of the U.S., the Children’s Hospital Association, 340B Health and the American Society of Health System-Pharmacists wrote HRSA Administrator Thomas Engels on Friday.

There are safeguards built into the 340B rebate pilot program, even if they aren’t as strong as providers might like, said Jeffrey Davis, a healthcare attorney at the law and lobbying firm Bass, Berry & Sims.

For example, drugmakers must document clear rationales for denying rebates and must confer with HRSA before determining a provider shouldn’t get one because they already got discounts from Medicaid or another program, Davis said.

“It appears as though this is an effort by [the Health and Human Services Department] to strike a balance,” Davis said. “From a provider perspective, we think there are better ways to do this that can strike that balance without increasing provider costs, but that appears to be the goal.”

The Pharmaceutical Research and Manufacturers of America describes the rebate pilot as an effort to prevent providers from accessing multiple discount programs and increasing Medicaid costs.

Medicaid cannot collect rebates on medications that are bought with 340B discounts. According to a PhRMA-funded report the Berkeley Research Group published last month, Medicaid managed care carriers lost out on $6.5 billion in drug rebates last year as a result of nonprofit hospitals purchasing through 340B.

“This is a hidden tax on patients, taxpayers and employers,” PhRMA said in a news release. “While federal and state governments are facing higher costs due to forgone Medicaid rebates as a result of the 340B program, tax-exempt hospitals and clinics are buying medicines for as little as a penny, marking up the price by thousands of dollars, and pocketing the profit.”

Switching to rebates would align 340B with the rest of the healthcare system, said Antonio Ciaccia, CEO of 46brooklyn Research, a consulting firm that tracks drug prices.

That would make it easier for pharmaceutical companies to identify duplicate discounts, Ciaccia said. That would reduce 340B claims and squeeze the margins that providers, contract pharmacies and pharmacy benefit managers earn from the program. Costs for employers, government payers and manufacturers would lessen by extension, he said.

“This pilot program requires hospitals to report data and is a step in the right direction to ensure the program benefits the most vulnerable communities who need it most,” Jenny Goins, chief of staff for the National Alliance of Healthcare Purchaser Coalitions, which represents national, regional, state and local employer organizations such as the Purchaser Business Group on Health, wrote in an email.

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