What the 340B ruling means for drug rebate models

Modern Healthcare – Monday, May 19, 2025
By Bridget Early

A federal court ruled pharmaceutical manufacturers can’t withhold upfront 340B drug discounts without federal approval, but left the door open to rebate models.

Judge Dabney Friedrich with the U.S. District Court for the District of Columbia ruled Thursday evening that several drug companies must get approval from the Health Resources and Services Administration before implementing a dramatically different 340B payment model that would provide rebates for certain medications after sales, rather than reducing prices when drugs are sold.

However, the court refused to rule out rebates altogether and directed HRSA to take another look at drug maker Sanofi’s proposed rebate model, raising questions about how the agency may run the program in the future.

The federal 340B drug pricing program is designed to save hospitals, physician groups and outpatient facilities that treat large numbers of low-income and uninsured patients an estimated 25% to 50% on outpatient drugs. Throughout the 340B program’s 30-year history, drug companies have applied discounts at the time providers purchase drugs and must agree to participate in the program to qualify for Medicare and Medicaid reimbursement.

Drug manufacturers submitted proposals last year to switch from discount models to rebate models — providers would to pay full price for some medications, then submit claims data for manufacturers to review and issue discounts.

The manufacturers argued rebate models would cut down on duplicate discounts, waste and fraud.

HRSA denied Sanofi’s proposal, and has not approved or denied Eli Lilly’s, Bristol Myers Squibb’s or Novartis’ applications. The agency warned drug manufacturers that implementing a rebate model without agency approval could result in the termination of their payment agreements.

Lilly, Bristol Myers Squibb, Sanofi, Novartis and the tech company Kalderos, which has contracted with Lilly to provide a rebate software platform, each filed lawsuits over HRSA’s handling of the rebate models.

A separate lawsuit from Johnson & Johnson, which faced sanctions from the agency over its rebate model before scrapping its implementation, is still pending.

Friedrich, a Trump appointee, ruled that HRSA did not exceed its authority by requiring manufacturers to obtain approval for their rebate models, and that HRSA did not act arbitrarily or capriciously in imposing that requirement.

However, Friedrich denied a request from 340B Health and safety-net hospitals to categorically ban the rebate models.

The lobbying group 340B Health and two safety-net hospitals, Worcester, Massachusetts-based UMass Memorial Medical Center and Zanesville, Ohio-based Genesis Healthcare System, joined HHS as co-defendants in the lawsuits. They had raised cost concerns if the court ruled in favor of manufacturers.

Friedrich also sent Sanofi’s rebate model back to HRSA for another look, as she said the agency denied it “without providing adequate justification.”

The Health and Human Services Department told the court earlier this month that large-scale use of rebates would change the program, and the agency needs to carefully look at its options before giving stakeholders guidance.

The American Hospital Association and America’s Essential Hospitals praised the ruling and urged HHS not to change course.

“We thank the D.C. District Court for stopping drug manufacturers from unilaterally implementing profound 340B Drug Pricing Program changes that would force providers caring for underserved patients to float loans to manufacturers,” said Dr. Bruce Siegel, president and CEO of America’s Essential Hospitals, in a news release.

AHA General Counsel and Secretary Chad Golder said in a statement that if HHS changes course, hospitals won’t be able to handle the administrative costs of rebate models or “advance millions of dollars to these drug companies for any period of time, as the rebate models would force hospitals to do.”

Drug manufacturers are weighing their options.

Bristol Myers Squibb plans to appeal the ruling, according to a spokesperson, while a spokesperson for Novartis says the company “plans to seek further review.”

Eli Lilly “is pleased that the court found that the 340B statute ‘explicitly contemplates’ rebate models,” a spokesperson said, and the company is looking forward to working with HHS on 340B.

A spokesperson for Sanofi notes that, while disappointed with the overall outcome, the company appreciates the court’s decision requiring HRSA to address Sanofi’s model. The group is “assessing next steps,” Sanofi’s spokesperson said.

Kalderos did not respond to request for comment.

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