Second Time’s the Charm: HRSA Revives the 340B Rebate Pilot

On August 3, 2026, the Health Resources and Services Administration (HRSA) published a Federal Register notice announcing a revised 340B Rebate Model Pilot Program, stating that, for a defined set of drugs, “rebates will be used instead of upfront discounts.” It is HRSA’s second attempt at a rebate pilot in just over a year, and it arrives shortly after the D.C. Circuit’s decision in Novartis v. Kennedy, which held that rebate models are permissible under Section 340B but may not be implemented without approval from the Department of Health and Human Services (HHS). HRSA’s revised Pilot is the agency’s latest effort to exercise the authority the court recognized.

What the Revised Pilot Does

The revised Pilot would require participating manufacturers to provide 340B pricing through rebates rather than upfront discounts for a limited set of drugs selected for the Medicare Drug Price Negotiation Program’s 2026 and 2027 price applicability years. Eligible manufacturers must submit rebate plans to HRSA by August 24, 2026, for an effective date of January 1, 2027. Under the Pilot, covered entities would purchase those drugs at the ordinary purchase price and subsequently submit data to support a rebate request, and manufacturers would have a limited window to pay or deny that request. HRSA has also constrained how those denials may work: a manufacturer generally may not deny a rebate based on suspected patient ineligibility, diversion, or duplicate discounts, issues that remain subject to HRSA’s own audit and dispute-resolution processes rather than a unilateral manufacturer denial.

How We Got Here

The 340B statute requires manufacturers to ensure that eligible covered entities (such as certain safety-net hospitals, health centers, and federally supported clinics) may purchase covered outpatient drugs at no more than a statutory ceiling price, taking into account any rebate or discount “as provided by the Secretary.” Although HRSA historically has administered the program as an upfront discount-based system, manufacturers have long provided 340B pricing through a product-replenishment model, under which eligibility for 340B pricing is generally determined after a drug is dispensed and qualifying volume is replenished at the 340B price.

Beginning in the summer of 2024, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson, Novartis, and Sanofi proposed moving some or all of their 340B business to rebate-based models. Under those proposals, covered entities would purchase drugs at full price and later seek reimbursement for the difference between that amount and the 340B ceiling price. Manufacturers argued that rebate models would provide greater visibility into claims-level data and help address duplicate-discount concerns. Those concerns became more acute following implementation of the Inflation Reduction Act’s Medicare Drug Price Negotiation Program, which created the possibility that the same drug transaction could receive both a 340B discount and a negotiated Maximum Fair Price. Because manufacturers bear responsibility for preventing that overlap, they argued that additional claims-level visibility was needed.

Litigation Derails the First Pilot

HRSA initially responded to the manufacturers’ proposals with a consistent position: the Secretary had not “provided” for a rebate model, and manufacturers therefore could not implement one on their own. Several manufacturers challenged that position in court, arguing that Section 340B permits rebate models and that HHS lacked authority to require preapproval before such models could be used.

While that litigation was moving forward, HRSA pursued a separate path. In July 2025, the agency launched a voluntary 340B Rebate Model Pilot Program for certain drugs subject to Medicare price negotiation. That effort proved short-lived. In a separate challenge brought by hospital groups in the District of Maine, a federal court vacated the Pilot on Administrative Procedure Act grounds, prompting HRSA to withdraw the notice in February 2026. Importantly, the Maine litigation did not resolve the underlying statutory questions raised by the manufacturers’ lawsuits. Those questions, whether Section 340B permits rebate models and who gets to decide when they may be used, remained unresolved in the D.C. Circuit.

The D.C. Circuit Weighs In

On July 21, 2026, the D.C. Circuit addressed the two questions at the center of the rebate debate: whether Section 340B permits rebate models and, if so, who gets to decide when they may be used. The court first considered whether Section 340B permits rebate models at all. Looking to the statutory text, legislative history, and HRSA’s longstanding recognition of a rebate option for State AIDS Drug Assistance Programs, the court concluded that it does. The statute directs that “the amount required to be paid” not exceed the ceiling price, “taking into account any rebate or discount, as provided by the Secretary.” Reading “rebate” according to its ordinary meaning, the court held that a manufacturer may satisfy the ceiling-price requirement either through an upfront discount or through a later rebate.

The more significant holding concerned who gets to decide when rebate models may be used. Although the court agreed that rebates are permissible, it rejected the manufacturers’ argument that they may implement rebate models unless and until HHS affirmatively disapproves them. Instead, the court concluded that the phrase “as provided by the Secretary” requires HHS to authorize a rebate mechanism before manufacturers may use it. As the court put it, the statute “places the Secretary, not the manufacturers, in the driver’s seat of this important program.”

The court also rejected the notion that HRSA had definitively denied the manufacturers’ proposals. Instead, it emphasized that the Secretary’s consideration of those proposals “remains ongoing” and expressly declined to “address whether the Secretary should ‘provide[]’ for the manufacturers’ proposed rebate models or with what limitations.” The court held only that manufacturers may not implement rebate models without the Secretary’s approval, leaving open whether, when, and on what terms that approval should come.

HRSA’s Rationale for Rebates

HRSA’s rationale for the revised Pilot is rooted largely in the Program’s growth. The agency points to the increasing size and complexity of the 340B Program, coupled with new nonduplication requirements under the Medicare Drug Price Negotiation Program, as justification for moving toward a claims-based rebate framework. The Congressional Research Service has reported that total 340B program sales reached approximately $44 billion in 2021, an increase of almost 15% over 2020, and that 340B hospital participation roughly tripled from before the Affordable Care Act’s 2010 expansion of covered entity categories, with registered 340B sites nearly doubling between 2014 and the CRS report’s issuance. HRSA’s own notice states that the Program has since grown further still, reaching more than $100 billion in purchases at discounted 340B pricing in 2025, with 15,249 covered entities and 49,214 associated sites as of April 2026. HRSA contends that this growth, combined with the nonduplication requirements introduced by the Medicare Drug Price Negotiation Program, has outpaced the upfront-discount model’s ability to prevent duplicate discounts, and that a claims-based rebate mechanism gives the agency and manufacturers better visibility into individual transactions before a discount is paid.

Reaction and What’s Next

Reaction to the revised Pilot has followed familiar lines. The American Hospital Association argues that the model will impose significant compliance, operational, and cash-flow burdens on covered entities. PhRMA had earlier called a rebate model “a commonsense, workable solution to longstanding program integrity failures that have worsened as the 340B program has grown,” urging HRSA to adopt one when it commented on the agency’s request for information in April 2026.

Congress, meanwhile, continues to consider competing approaches of its own. As discussed in our recent post on congressional 340B reform proposals, Senate HELP Committee Chairman Bill Cassidy’s discussion draft, released in June 2026, would permit manufacturers to provide 340B pricing through discounts, rebates, or a claims-repository model; it has not yet been formally introduced as a bill and remains open for stakeholder comment through August 28. Two other proposals have gone further and been formally referred to committee. The House’s bipartisan SECURE 340B Act, introduced July 6, 2026, would impose a multi-year pause on rebates and has been referred to committee, though it has not yet received a hearing. The Senate 340B Bipartisan Working Group’s SUSTAIN 340B Act, introduced August 5, 2026, has likewise been referred to committee and would take a still different approach, affirmatively declaring it the sense of Congress that the 340B program is meant to provide point-of-purchase discounts rather than rebates, and requiring HHS to wind down the Rebate Pilot (or any substantially similar program) within one year of enactment and transition to a data clearinghouse instead.

Whether the revised Pilot survives judicial review, how broadly it is implemented, and whether Congress ultimately supplants it with legislation remains to be seen. But after Novartis, one point is considerably clearer: manufacturers may not implement rebate models unless HHS first authorizes them. HRSA’s revised Pilot represents the agency’s latest effort to do so.