Hospital Groups Warn 340B Rebate Model Could Divert Resources From Patient Care

Hospital associations and community-based healthcare providers have filed a lawsuit seeking to block a revised federal pilot program that would replace upfront drug discounts for safety-net hospitals with rebates paid after purchases. The groups argue that the proposed 340B Rebate Model Pilot Program could impose substantial administrative expenses on healthcare providers and divert resources used to care for patients.

The American Hospital Association (AHA), the Maine Hospital Association and three community-based providers filed the lawsuit against the Department of Health and Human Services (HHS) and the Health Resources and Services Administration (HRSA) in the U.S. District Court for the District of Maine on Friday. They are seeking temporary and permanent injunctions before the program’s planned January 1 launch.

Providers Dispute the Estimated Costs

The hospital groups argue that federal officials did not adequately consider their feedback on the expenses associated with implementing the revised rebate system. They also contend that the agencies failed to properly address alternative approaches proposed by providers.

According to the AHA, the administrative burden could cost hospitals more than $1 billion annually. This exceeds HRSA’s estimate of $537.2 million per year across all covered entities. The revised pilot also includes more eligible drugs and participating manufacturers than the earlier version, with HRSA announcing last week that 21 drugs from 10 manufacturers would be covered.

Steve Walsh, president and CEO of the AHA, said the hospital groups had presented evidence of the program’s expected costs and proposed alternatives intended to address transparency and program integrity concerns.

“When the government makes a change of this magnitude, it must fully consider what it will mean for the patients and communities that rely on 340B hospitals every day,” Walsh said in a statement announcing the litigation.

He said the proposed model could divert resources supporting care for millions of patients and argued that the costs, consequences and alternatives presented by providers had not received adequate consideration.

Previous Version Was Blocked by Courts

The lawsuit follows an earlier attempt to introduce the rebate model, which was scheduled to begin in January 2026. The same district court and the corresponding appellate court blocked that version after finding that the administration had moved too quickly and had not adequately solicited or incorporated public feedback.

HRSA subsequently withdrew the original proposal and restarted the process with an extended public comment period. However, hospital groups maintain that their concerns about administrative expenses remain unresolved.

Final guidance issued in late July outlined measures intended to address some of those concerns. Under the guidance, drug manufacturers would build and maintain the information technology systems used to submit purchase claims required for rebates. Manufacturers denying rebates would also have to provide a rationale and specific documentation explaining the decisions.

Fierce Healthcare reported that it had contacted HRSA for comment on the latest lawsuit.

Broader Dispute Over the 340B Program

The legal challenge comes amid wider efforts by policymakers and pharmaceutical companies to introduce restrictions on the 340B drug discount program. Purchases through the program exceeded $100 billion in 2025, according to the supplied report. Critics argue that the program has contributed to higher healthcare spending by increasing the margins of large hospitals and health systems.

Drug manufacturers have also pursued rebate models intended to prevent 340B discounts from being combined with other Medicaid rebates, a practice known as duplicate discounting. Hospital groups contend that such cases are exceedingly rare, while courts have ruled that HHS has the authority to impose a rebate model.

HHS has argued that the 340B program has expanded beyond its original purpose of supporting struggling safety-net facilities. The department has also proposed changing government 340B drug reimbursement rates from 6% above average sales price to 33.4% below that benchmark. Hospital groups have indicated that they intend to challenge that proposed policy change in court.

Hospital Groups Raise Concerns Over the 340B Rebate Model

Hospital groups across the United States are warning that a proposed federal change to the 340B Drug Pricing Program could increase administrative expenses, create financial pressure, and divert resources away from essential patient services. In October 2026, the American Hospital Association (AHA), the Maine Hospital Association, and several safety-net hospitals filed a lawsuit challenging the revised rebate program.