Hospitals sue to block 340B rebate model

Hospitals are going to court to prevent the federal government from making significant changes to the federal 340B drug discount program.

The Department of Health & Human Services is launching a new rebate model for several drugs in the program. The 340B program allows hospitals and health systems serving vulnerable populations to buy outpatient drugs at reduced prices.

For years, the government has simply allowed participants in the 340B program to purchase the drugs at lower prices. Now, the health department is testing a new model where qualifying health systems pay the full price and then get a rebate after the purchase. The launch of the pilot program with the rebate model is slated to take place Jan. 1.

Hospitals say the new model will bring added costs and headaches. And now they are arguing that the new rebate program is both unfair and unlawful.

The American Hospital Association, the Maine Hospital Association, and four hospitals have filed a lawsuit in the United States District Court for the District of Maine. They are seeking a temporary restraining order to block the Health Resources & Services Administration from moving ahead with the program.

Hospitals are arguing that the government’s decision to move ahead with the program is “a textbook disregard of administrative law,” the lawsuit states.

While the government has touted the new program as a “pilot program,” the hospitals argue it’s anything but a pilot program.

“Rather than starting in a more circumscribed fashion, as is customary for any true pilot program, it applies to every 340B hospital and covered entity in America — approximately 14,600 entities by HRSA’s own estimate,” the suit states. “Participation is compulsory for those covered entities; they are required to participate or lose their statutorily-owed discounts. By contrast, drug companies have the option of applying to participate.”

Hospitals argue in the suit that the government hasn’t provided enough time to launch the program, confirming on Oct. 15 that the program would launch on Jan. 1, 2026. In the suit, hospitals contend that the government hasn’t adequately acknowledged the costs to health systems or the benefits.

Rick Pollack, president and CEO of the American Hospital Association, said the rebate model reflects a significant shift in the operation of the 340B program, and he says even the government has acknowledged that fact.

“Giving hospitals only a few months to comply with these burdensome new requirements or risk losing millions of dollars in discounts they are entitled to under the law will harm patients and communities across the country,” Pollack said in a statement. “We are asking the court to act quickly to protect access to vital care services.”

Steven Michaud, president of the Maine Hospital Association, said the state’s hospitals are struggling financially and the new rebate program will make matters worse.

“Maine hospitals simply cannot afford the immense costs of this hastily imposed rebate program,” Michaud said in a statement.

The four hospitals joining the associations in the suit are: St. Mary’s Regional Medical Center in Maine; the Unity Medical Center in North Dakota; the Dallas County Medical Center in Arkansas; and the Nathan Littauer Hospital and Nursing Home in New York.

Hospitals say the 340B program enables health systems to provide critical services to low-income residents in urban and rural areas. The American Hospital Association said hospitals in the 340B program provided nearly $100 billion in community benefits, including free or discounted drugs and care for those without insurance.

The 340B program has been the source of heated political battles over the years. Critics say the program has grown far beyond its original intended purposes of providing help to safety net hospitals. Lawmakers have also bemoaned the growing expense of the program.

PhRMA, the trade organization representing pharmaceutical companies, has pushed for the creation of the rebate model and said it should quickly be expanded to all covered drugs in the program.

Hospitals contend the government did not follow the law in the new rebate program by addressing problems raised in the public comment period, and they said HRSA hasn’t provided guidance in how it will work.

“HRSA has failed to grapple with the key problems of a rebate model that the agency itself flagged for years—again, as recently as this year,” the lawsuit states.