A federal appeals court has ruled that pharmaceutical manufacturers cannot unilaterally replace upfront discounts under the 340B Drug Pricing Program with after-the-fact rebates, affirming the federal government’s authority to approve how those price reductions are provided.
The U.S. Court of Appeals for the District of Columbia Circuit upheld lower court judgments against Novartis, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson and technology company Kalderos. The consolidated cases challenged decisions by the Department of Health and Human Services requiring manufacturers to obtain approval before implementing their proposed rebate models.
Under the proposals, eligible hospitals and clinics would initially purchase covered drugs at full price. After dispensing the drugs, they or their contract pharmacies would submit claims-level information to manufacturers and seek refunds equal to the difference between the full price and the 340B ceiling price.
Manufacturers argued that the models would help identify duplicate discounts and other potential program violations. Hospitals and other covered entities warned that paying full prices upfront would create cash-flow and administrative burdens while allowing manufacturers to review, delay or potentially reject rebate requests.
Congress established 340B in 1992 to help qualifying hospitals, clinics and other safety-net providers stretch limited resources. Drugmakers participating in Medicaid and Medicare Part B generally must offer covered outpatient drugs to those providers at or below a statutorily calculated ceiling price.
The appeals court found that the law permits both upfront discounts and subsequent rebates. However, its reference to rebates or discounts “as provided by the Secretary” places responsibility for establishing or approving the mechanism with the HHS secretary.
“Put simply, the statute places the Secretary, not the manufacturers, in the driver’s seat,” Judge Bradley Garcia wrote for the three-judge panel.
Because HHS had not authorized a mechanism covering the manufacturers’ proposals, its Health Resources and Services Administration acted lawfully by requiring the companies to await approval, the court concluded.
The decision does not prohibit 340B rebates entirely or determine whether a rebate program established by HHS would be legal. HHS announced a rebate pilot in 2025, but hospitals challenged the program and obtained an injunction. The agency withdrew the pilot in February.
HHS subsequently resumed examining potential rebate models and said in June that it intended to introduce a revised pilot through a Federal Register notice. The appeals court expressly declined to address the legality of that potential program.
The American Hospital Association highlighted the ruling and the court’s conclusion that HHS controls the program’s pricing mechanisms. AHA, the Children’s Hospital Association, the Association of American Medical Colleges and America’s Essential Hospitals filed an amicus brief supporting the government. The Pharmaceutical Research and Manufacturers of America and Biotechnology Innovation Organization supported the manufacturers through a separate brief.
The ruling arrives as Congress also considers broader changes to 340B. A recent Senate discussion draft would increase hospital reporting and strengthen program oversight.