A federal judge has issued a preliminary injunction halting the Department of Health and Human Services’ (HHS) 340B Rebate Model Pilot Program, which was scheduled to take effect on January 1, 2026. The December 29, 2025 ruling temporarily prevents implementation of the rebate program that would have fundamentally changed how safety-net hospitals and clinics purchase discounted drugs under the 340B Drug Pricing Program.

On January 7, 2026, the United States Court of Appeals for the First Circuit declined the federal government’s request to stay the district court’s preliminary injunction. The Court of Appeals agreed with the district court that the agency record was limited and that the government had not adequately explained its decision. The Court of Appeals decision means the district court’s preliminary injunction is still in effect and implementation of the rebate program is on hold for the time being.

Background

The 340B Program traditionally allows covered entities to purchase covered outpatient drugs at significant upfront discounts. The proposed pilot program would reform the program from an upfront discount to a post-sale rebate for an initial group of ten drugs. Under the proposed pilot, covered entities would pay the wholesale acquisition cost (WAC) for select drugs and later apply for rebates equal to the difference between WAC and the 340B ceiling price. The pilot is currently limited to those ten medications identified under the Medicare Drug Price Negotiation Program (MDPNP). Pharmaceutical manufacturers have argued that restructuring the 340B Program from an upfront discount to a post-sale rebate is necessary to prevent duplicative price concessions, particularly for drugs negotiated under the MDPNP.

The Court’s Decision

The injunction was granted after several hospitals, led by the American Hospital Association and the Maine Hospital Association, argued that HHS acted arbitrarily and capriciously by not adequately considering the impact of a rebate model or reasonably explaining its decision. The hospital associations offered evidence to show that a rebate model would impose severe financial burdens on health care systems, many of which operate on thin margins. The court found that the administrative record for the action was minimal and failed to consider and explain the impact of the rebate model on 340B hospitals. The court also stated that the plaintiffs demonstrated they would face irreparable harm because of the rebate program, citing an estimated $400 million in compliance costs that they claim would result in the reduction of safety net services and in pharmaceutical manufacturer partnerships. However, the court did not outright reject rebate programs and reiterated that a rebate program would not be impermissible if a proper process was followed to implement it.

Implications for Stakeholders

• Operational challenges are currently on hold: Covered entities have been preparing for significant administrative changes, including real-time rebate tracking and expanded data submission requirements for the rebate program. Whether these changes will need to be implemented or revised remains to be seen.
• Manufacturer pushback is anticipated: Drugmakers have advocated for rebate models to enhance transparency and program integrity, while courts have consistently required HHS approval before implementation. Manufacturers are expected to continue efforts to persuade HHS to implement a rebate program for 340B drug discounts, both for drugs at issue under the MDPNP and at large.

Next Steps

The injunction pauses the rebate model pilot program while litigation proceeds. In the meantime, stakeholders should:

• Monitor court filings and ongoing litigation.
• Maintain current compliant 340B practices.
• Continue to prepare contingency plans for potential future adoption of a rebate program for 340B drugs.

For questions about how this ruling affects your organization or compliance strategy, please contact Renee Zerbonia, Robert Hess, Kristina Abdalla, or a member of your Husch Blackwell legal team.