340B Rebate Model Pilot Program

What’s all this I’m hearing about the 340B program, and what does that actually reference?  If you’re asking these questions, you’re probably not alone.  For those who aren’t familiar with the program, we’ll provide, below, a brief description.  For those who are up on the subject, we’ll report some recent news that may have important implications—especially for hospitals.

Summation of the Program

The 340B program is a federal initiative that requires drug manufacturers to sell outpatient medications at discounted prices to hospitals and clinics serving low-income and uninsured patients.  Why the designation 340B?  Well, the program was created in 1992 under the Veterans Health Care Act and is codified in Section 340B of the Public Health Service Act.

The primary goal of the 340B program is to help safety-net providers stretch limited federal resources, allowing them to provide more comprehensive services and reduce medication costs for vulnerable populations.  Participating entities can reinvest savings into patient care.

Not every hospital or care center can participate.  Eligible facilities, known as “covered entities,” include disproportionate share hospitals (DSHs), children’s hospitals, cancer hospitals exempt from Medicare prospective payment, sole community hospitals, rural referral centers and critical access hospitals.  Non-hospital entities eligible for the program include federally qualified health centers, tribal and urban Indian health centers, Ryan White clinics, and State AIDS Drug Assistance programs.

Hospitals must meet specific criteria, such as (a) serving a high proportion of low-income patients and being public or nonprofit organizations, or (b) having contracts with state or local governments to provide care to underserved populations.

Pharmaceutical manufacturers that participate in Medicaid must also agree to provide 340B pricing.  The discounted price, called the “ceiling price,” is calculated as the Average Manufacturer Price minus the Unit Rebate Amount, which is the same rebate used in the Medicaid Drug Rebate Program.  This typically results in discounts of 25% to 50% below standard prices, sometimes more for certain drugs.  The Health Resources and Services Administration (HRSA) oversees the program and publishes ceiling prices to ensure compliance .

Latest Update on the Program

On July 31, 2026, HRSA posted a Notice Regarding 340B Rebate Model Pilot Program in the Federal Register to announce the availability of a revised 340B Rebate Model Pilot Program (hereinafter, “Pilot”).  Consistent with HRSA’s 340B statutory authority, the Pilot provides a rebate mechanism through which qualifying manufacturers may effectuate the 340B ceiling price for certain drugs sold to covered entities.  The Pilot is limited to a select group of drugs and is open to qualifying manufacturers that submit plans meeting specific criteria.  The revised Pilot would allow qualifying drug manufacturers to use rebates rather than upfront discounts to effectuate the 340B ceiling price for certain drugs purchased by 340B covered entities.

However, not all are happy with these plans.  Addressing the recent Notice, American Hospital Association (AHA) President and CEO Rick Pollack released the following statement:

The AHA is deeply concerned that HHS has chosen to move forward with a 340B Rebate Model Program despite the overwhelming evidence that it will impose massive new administrative and financial burdens on hospitals that serve America’s most vulnerable patients.  The agency’s analysis dramatically understates the true costs of this program, ignoring the hundreds of millions of dollars in compliance expenses, cash-flow disruptions and operational burdens that will inevitably divert scarce resources away from patient care.  At a time when many hospitals are already under severe financial strain, this policy will force hospitals in rural and other underserved communities to spend more on bureaucracy and less on the services and care that patients depend on every day.  As we continue to review today’s notice, the AHA is considering all available options to prevent this flawed program from going into effect.

HRSA has indicated that the Pilot is designed to test a rebate-based approach for a set of drugs while gathering information on program integrity, operational impacts and the interaction between the 340B program and Medicare’s Drug Price Negotiation Program.  The Pilot is limited to drugs included on the Centers for Medicare & Medicaid Services (CMS) Medicare Drug Price Negotiation Selected Drug Lists for initial price applicability years 2026 and 2027.

Under the notice, manufacturers that wish to participate must submit plans to HRSA by Aug. 24. HRSA will make approval decisions by Sept. 24, and approved rebate models will take effect Jan. 1, 2027.  Participating manufacturers must commit to the Pilot for at least one year.

Interestingly, the HRSA Notice comes after a federal district court ruled in favor of the AHA and hospitals, vacating the agency’s original 2025 rebate pilot program and related manufacturer approvals.  We will have to wait to determine the effect and fallout from this latest 340B-related move by those ever-evolving regulators in Washington.