340B rebate models arrive in the form of a new pilot program

Federal healthcare officials took a step last week toward permitting rebate models in the 340B Drug Pricing Program, launching a pilot to allow for the testing of such models.

The idea was proposed over the past year by drug manufacturers looking to rein in what they say are excesses of the 340B program. Rather than giving hospitals and other covered entities the 340B discount up front, the companies think providers should pay the full price before submitting claims data to receive a rebate.

Hospitals and other providers oppose the concept, saying it would create an administrative burden and constrain their cash flow.

In a case defended first by the Biden administration and then the Trump administration, manufacturers went to court to gain authorization to unilaterally implement rebate models without approval by the Health Resources and Services Administration (HRSA). In an opinion issued in May, a Washington, D.C., federal judge mostly ruled for the government.

As part of the court proceedings, the Trump administration indicated it would not rule out the possibility of allowing a rebate model and soon would issue guidance on the subject. That guidance became the new pilot model.

HRSA’s Office of Pharmacy Affairs “is introducing this pilot program to test the rebate model on a select group of drugs in a methodical and thoughtful approach to ensure a fair and transparent 340B rebate model process for all stakeholders involved” and to “better understand the merits and shortcomings of the rebate model from stakeholders’ perspectives,” the Aug. 1 guidance states.

What the model entails

The scope of the pilot program initially will be limited to the 10 drugs that have been subject to price negotiations in Medicare for 2026. That’s significantly narrower than the proposals of several manufacturers that had sought to use rebate models for all of the drugs they sell in 340B.

The guidance includes guardrails to ease the burden on hospitals and other 340B covered entities, such as ensuring they have 45 days from date of dispense to submit and report the data required to receive a rebate and that rebates are paid within 10 days of data submission. HRSA also states that manufacturers must not pass down any of the IT or other costs incurred from implementing the model.

A 10-day limit is helpful to providers, said Jeffrey Davis, a healthcare attorney who specializes in 340B issues at the firm of Bass, Berry and Sims. But the timetable does not address “a fundamental issue with the rebates, which is [that] you might buy a drug at WAC [the wholesale acquisition cost] and it might sit on your shelf for months before you dispense it and submit the rebate request. And so, you’re still going to have to float those WAC costs for that period of time.”

The provider advocacy group 340B Health published an analysis last month based on a survey of nearly 350 hospitals that participate in 340B. According to those findings, if the rebate model expands to cover all 340B covered drugs, the average disproportionate share hospital would have to front $72.2 million in drug costs per year to manufacturers while waiting for rebates.

A limited context

For providers, a potential source of relief about the guidance is the apparent restrictions on the ability of manufacturers to use rebate models to address perceived issues with drug diversion and duplicate discounts.

Based on the guidance, manufacturers cannot deny covered entities a rebate because the discount is duplicated in 340B and the Medicaid Drug Rebate Program. Nor can they use submitted data to disallow a rebate because of concerns over the practice of diversion, meaning the application of 340B prices to ineligible patients (e.g., patients receiving care from a physician who is not employed by the covered entity).

Any such violations instead can be addressed by manufacturers through an audit process and, if needed, administrative dispute resolution, according to HRSA.

But the guidance does not rule out that manufacturers would have cause to deny a rebate under some circumstances

“It’s not clear to me what all of those circumstances are, so I think that’s still an open question or area of concern,” Davis said.

Existing statutory language suggests a denial would be permissible to avoid duplicate discounts between 340B and the Medicare Drug Price Negotiation Program.

“That would be my hope from a provider perspective, that manufacturers are only permitted to deny rebates in the case of one of those statutory requirements,” Davis said.

What comes next

Davis said manufacturers likely will continue pursuing appeals of the court ruling that HRSA can veto rebate models. It remains to be seen whether either manufacturers or providers mount legal challenges to the specifics of the newly proposed rebate model.

The rollout of the new model will happen relatively quickly, with manufacturers of the 10 drugs submitting applications by Sept. 15, HRSA reviewing and ostensibly approving the proposals by Oct. 15, and the program taking effect Jan. 1, 2026.

Another key date is Sept. 2, the deadline to submit formal comments on the proposed model. Hospital advocates sound ready to weigh in.

“We are concerned that this guidance authorizes a significant departure from how the 340B program has successfully operated for decades and sets a dangerous precedent for harmful expansions in the future,” Aimee Kuhlman, vice president for advocacy and grassroots with the American Hospital Association, said in a written statement. “This pilot program is a response to a nonexistent program integrity problem that drug manufacturers have manufactured in the public discourse.”

“Going forward,” she added, “it will be essential that HRSA makes certain that drug companies bear all the costs of implementing these rebate models and that those companies provide discounts expeditiously.”

America’s Essential Hospitals, which represents safety-net hospitals, issued a statement by Bruce Siegel, MD, MPH, president and CEO, who noted the model is “voluntary for manufacturers but not for hospitals. Drug manufacturers will be the only beneficiaries of this program, while hospitals will have to contend with a whole new set of administrative burdens.”

A long-term concern

While the initial guidance was issued by HRSA, the agency may not decide where 340B rebate models go from here. As part of a sweeping downsizing and reorganization of HHS, the Trump administration has proposed to move oversight of the 340B program from HRSA to CMS.

“CMS is an agency that administers the Medicare and Medicaid program,” Davis said. “They have a duty to ensure that those programs are sustainable from a financial perspective. And certain policies that may be in the best interest of Medicare and Medicaid may not be in the best interest of 340B and vice versa.”

Recently proposed rulemaking illustrated that issue, with CMS putting forth a plan to conduct a survey of hospitals’ drug acquisition costs. Results of that survey could give CMS leeway to substantially reduce the Medicare payment rate for 340B drugs.

In another proposed rule, CMS described processes for using claims data to exclude 340B drug units from Medicare Part D inflation rebate calculations beginning next year, in keeping with Inflation Reduction Act (IRA) statutory provisions.

The specific proposal does not appear especially burdensome for providers, at least for 2026, but it nonetheless “raises a lot of questions about what CMS will do if they are now in charge of both the IRA and the Medicare program and [also] the 340B program,” Davis said.