Federal Court Affirms HRSA Authority to Preapprove 340B Rebate Models but Urges HRSA to Reconsider Rejection of Rebate Model

In a May 15, 2025, opinion, Judge Dabney Friedrich of the US District Court for the District of Columbia denied drugmakers’ motions for summary judgment against the US Department of Health and Human Services and the Health Resources and Services Administration (HRSA) in a case challenging HRSA’s authority to require preapproval of manufacturers’ rebate models used to effectuate 340B program drug pricing. The ruling was not a total loss for drug manufacturers, however, because it did not rule out rebate models under the 340B program and explicitly remanded HRSA’s denial of Sanofi’s credit rebate model for further consideration. For discussion of the government’s cross-motion for summary judgment in this case, see our article in the March 2025 issue of Health Headlines.

As described in our March article, the 340B drug pricing program was established to allow certain safety-net healthcare providers, including hospitals and clinics serving low-income, uninsured, or other vulnerable patient populations, to purchase outpatient drugs at a reduced cost. To assure the integrity of the drug pricing program, the 340B statute includes guardrails that prohibit providers from claiming “duplicate discounts” (i.e., if a provider receives a 340B price concession, it cannot also receive a Medicaid Drug Rebate Program rebate for the same drug) and prohibit the “diversion of discounts” (i.e., the resale of drugs received at the 340B price to a person who is not an eligible patient).

Since the 340B program’s inception more than 30 years ago, its drug pricing has been effectuated almost exclusively through up-front discounts for drugs. Providers and their contract pharmacies predominantly implement these up-front discounts through “product replenishment models,” which, upon dispensing a sufficient volume of drugs to 340B patients, replaces those drugs purchased at a commercial price with 340B-priced drugs through a virtual inventory tracking software.

Manufacturers contend that the current 340B program, as effectuated through the product replenishment model and up-front discounts, is rife with abuse. Accordingly, starting in 2024, manufacturers began submitting proposals to HRSA to implement rebate models to effectuate 340B drug pricing. Under the “cash” rebate model proposed by Eli Lilly, Bristol Myers Squibb, and Novartis, 340B Covered Entities would purchase drugs at commercial prices and subsequently submit claims for cash rebates for the difference between 340B prices and commercial prices. The claims would also include data about the quantity and covered drugs and how they were dispensed. Sanofi proposed a “credit” rebate model, under which it would offer rebates in the form of credit applied to the provider’s subsequent bill. Manufacturers posit that their respective rebate models will assure greater transparency because they will be able to openly track the drugs sold at 340B discounts and use that data provided in connection with rebates to dispute duplication and diversion of discounts. Providers, on the other hand, argue the proposed rebate models impose a significant financial burden because providers would be required to make up-front payments at full commercial prices.

In response to the manufacturers’ proposals, HRSA denied Sanofi’s proposed credit rebate model, but it has yet to issue an official determination on the cash rebate models proposed by Eli Lilly, Bristol Myers Squibb, and Novartis. In response to each proposal, however, HRSA informed the manufacturers that implementing any rebate model requires agency approval.

The manufacturers now claim HRSA has exceeded its authority in requiring preapproval of their rebate models and challenge HRSA’s failure to approve their models, including HRSA’s explicit rejection of Sanofi’s credit rebate model.

In rejecting the manufacturers’ motions for summary judgment, the judge upheld HRSA’s purported authority to require preapproval of rebate models based on the plain language of the 340B statute. Given that HRSA has not yet made an official determination on the manufacturers’ cash rebate models, the judge could not find that HRSA acted arbitrarily or capriciously in its failure to approve such models. With respect to HRSA’s rejection of Sanofi’s credit rebate model, however, the judge found HRSA did not provide adequate justification for its decision and remands HRSA’s decision for further consideration.

The judge’s decision to uphold HRSA’s preapproval authority creates a roadblock for manufacturers to implement rebate models to affect the 340B price. However, the ruling was not a total loss for manufacturers because the judge did not declare that rebate models are prohibited under the 340B program; also, the judge ordered HRSA to reconsider its rejection of Sanofi’s credit rebate model. In issuing the opinion, the judge clarified her decision is not “placing a thumb on the scale” in terms of the 340B statutory objectives weighing in favor of either party.

Goodwin is continuing to monitor developments related to this litigation and the 340B program generally, and we expect further guidance to be forthcoming. Specifically, on May 2, 2025, HRSA filed a notice informing the court in this case that it expects to be in a position to provide guidance for stakeholders within 30 days.

A copy of the opinion can be found here.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.