backThe Health Resources and Services Administration’s (“HRSA”) August 3, 2026 “Notice Regarding 340B Rebate Model Pilot Program” sets the stage to address significant integrity concerns that have bedeviled the federal 340B drug pricing program for well over a decade. The Rebate Pilot does not settle all of those concerns, of course. But it reflects a willingness by HRSA to acknowledge the abuses that have accompanied the program’s exponential growth, and to implement a modest mechanism to bring greater transparency and accountability to 340B.
Readers will recall that HRSA attempted to implement a limited 340B rebate mechanism in late 2025. That attempt was struck down before it took effect on grounds that HRSA had failed to adequately consider and respond to covered entities’ objections.190 Fed. Reg. 36163 (Aug. 1, 2025); see Am. Hosp. Ass’n v. Kennedy, No. 2:25-cv-00600 (D. Me. filed Dec. 1, 2025). HRSA learned a lesson from that experience. Its August 3 Notice is a thoughtful and carefully justified document that lays a solid foundation for this shift in 340B policy.
The 2026 Rebate Pilot—summarized below—will become operational on January 1, 2027, and will be limited to drugs subject to “maximum fair prices” in 2026 and 2027. The beneficial effects of its findings and justifications, however, are likely to extend well beyond the limits of the Pilot. Once manufacturers demonstrate that the 340B rebate mechanism can be properly effectuated, more covered outpatient drugs are likely to become eligible for participation.
The language of the Notice characterizing the state of 340B in 2026 will find its way into briefs and opinions across the nation’s 340B litigation, and perhaps into legislative reforms on Capitol Hill.
And the Notice reflects an important change in policy: HRSA will no longer accept blind assurances of compliance. Covered entities are sophisticated program participants that are required to satisfy their statutory obligations transparently and in good faith if they want to receive the substantial benefits of participating in the 340B program.
Key Requirements and Deadlines
Manufacturers that choose to participate in the Pilot must submit rebate program effectuation plans consistent with the terms in the Notice no later than August 24, 2026.291 Fed. Reg. 48884 (Aug. 3, 2026). HRSA expects to issue approvals by September 24, 2026, for an effective date of January 1, 2027.3Id. at 48902. Manufacturers may not implement plans without first receiving HHS approval and must provide 90 calendar days’ notice to covered entities before implementing approved plans.4Id.
The Pilot applies exclusively to drugs selected under the Medicare Drug Price Negotiation Program (“MDPNP”) for initial price applicability years (“IPAYs”) 2026 and 2027, regardless of payer or indication, and is limited to each drug’s price applicability period.5Id. at 48901–02. Manufacturers may require the submission of only those data elements listed in the Notice: date of service, date prescribed, Rx number, fill number, NDC-11, quantity dispensed, prescriber ID, service provider ID, 340B ID, Rx BIN, Rx PCN, and health plan ID qualifier (if available).6Id. at 48903.
The rebate payable by the manufacturer to the covered entity to effectuate the 340B price equals WAC less the 340B ceiling price, both as of the day of dispense.7Id. at 48902. Covered entities must submit requests for rebates within 45 calendar days after the date of dispense.8Id. Once a complete submission is received, manufacturers must pay or deny the rebate request within 10 calendar days.9 Id. Rebates may not be denied based on entity eligibility, diversion, or duplicate-discount grounds; manufacturers must instead raise such concerns directly with HRSA/Office of Pharmacy Affairs (“OPA”) or utilize audit and administrative dispute resolution mechanisms.10Id. at 48902–03. Despite this limitation, the rebate mechanism will be an important tool in combatting diversion and duplicate discounting because it will (i) inhibit submission of improper claims, and (ii) give manufacturers data upon which abuse concerns can be raised with HRSA and covered entity audit plans can be based.
To facilitate the transition from upfront discounts, covered entities will receive a 15-calendar-day grace period to submit rebate requests for up to two unreplenished accumulated packages prior to the Pilot’s effective date.11Id. at 48903.
Manufacturers will be required to submit quarterly 340B rebate files to HRSA and bear all costs for the IT platform used for data submission.12Id. at 48902.
HRSA Considers and Rejects Covered Entities’ Concerns
Earlier this year, HRSA published a Request for Information seeking stakeholder feedback on the potential use of rebates to effectuate the ceiling price under the 340B Program.13Id. Through that process, HRSA received many public comments from covered entities objecting to the rebate model, including raising concerns related to:
- Administrative and implementation costs1491 Fed. Reg. 7287 (Feb. 17, 2026).
- Cash flow constraints and liquidity risks1591 Fed. Reg. 48891–92.
- Secondary financial effects (e.g., loss of wholesaler discounts, increased borrowing costs)16Id. at 48894.
- Rebate denial uncertainty and dispute resolution risks17Id. at 48892.
- Expanded data collection and claims-level reporting complexity18Id. at 48895.
- Reliance interests in the longstanding upfront discount model19Id. at 48896.
- Impact on patient care and access20Id. at 48888.
- Requests to narrow or phase in the Pilot21Id. at 48898.
- Preference for alternatives to a rebate model (e.g., claims modifiers, clearinghouses, more audits)22Id. at 48899.
- Manufacturer-specific variability and lack of standardization23Id.
- Small and rural provider capacity limitations24Id. at 48891.
In the final Notice, HRSA rejected these concerns, opening the path for institution of a limited rebate mechanism. HRSA found in particular that covered entities’ projections of administrative burden were based on faulty premises and did not align with the design of the Pilot, which requires manufacturers to use standardized pharmacy and medical claims data elements.25Id. Costs associated with the rebate model, HRSA determined, will be modest and may be offset by existing capabilities and resources that can be leveraged within the current operational infrastructure.26Id. at 48893.
HRSA found that the Pilot will not create financial instability for covered entities, noting that HRSA has incorporated design elements that will mitigate potential cash-flow impacts on covered entities.27Id. at 48893–94. The agency stressed that covered entities will be able to timely access 340B pricing without incurring short-term liquidity problems, including because the Pilot requires prompt rebate payments, unit-level rebate processing, and starting inventory considerations to facilitate transition from upfront discounts to rebates.28Id. at 48894.
HRSA concluded that covered entities do not have substantial reliance interests that would be upended by the Rebate Pilot, finding any reliance interests outweighed by program integrity objectives.29Id. at 48895 HRSA expressly rejected the notion that the upfront discount model is the only permissible approach:
HRSA does not agree that exclusive reliance on an upfront discount model is reasonable or that such reliance foreclose[s] consideration of alternative statutory mechanisms. The 340B statute expressly recognizes the authority to provide the 340B ceiling price via “rebate or discount,” which provides the Secretary, through HRSA, discretion in how best to operationalize the statutory pricing requirement.30Id. at 48889.
HRSA further rejected covered entities’ preferred alternatives, including enhanced claims modifiers, clearinghouses, and more audits, as fundamentally inadequate because they are backward-looking and would not “adequately serve the program integrity and evaluation objectives that the Pilot is designed to advance.”31Id. at 48888.
HRSA rejected arguments from covered entities that the data being sought to effectuate the Rebate Pilot involves individually identifiable health information. HRSA explained: “The data submitted under the Pilot ... is not PHI as defined under the HIPAA Privacy Rule ... and accordingly is not subject to the restrictions on use and disclosure.”32Id. at 48901. HRSA’s analysis of the HIPAA issues will be useful to manufacturers responding to concerns about claims level data submission requirements.
Additional Noteworthy Statements by HRSA in the Notice
HRSA summarized numerically the recent rate of growth of the Program:
[T]he 340B Program has evolved into a large and economically significant component of the pharmaceutical marketplace. That growth has been substantial. In 2022, total 340B program sales reached $53.7 billion when measured at the discounted 340B price by 2023, covered entities purchased $66.3 billion in covered outpatient drugs under the program, representing approximately 23.4% growth in just 1 year. Comparatively, in 2023, prescription drug spending in the U.S. grew 10.1%. By 2024, covered entities purchased $81.4 billion in covered outpatient drugs under the program, representing approximately 50% growth in just 2 years. Over a longer horizon, there was a 174% increase in the number of covered entities between 2013 and 2023. As the market has shifted, covered entities now include large hospital systems and extensive networks of affiliated hospital outpatient sites, often operating through numerous arrangements with contract pharmacies.33Id. at 48897.
HRSA acknowledged the Program integrity concerns and operational complexities that have accompanied the rapid growth of 340B. As the 340B program has ballooned in size and become more complex, there is a greater need to protect against abuses and to enforce statutory requirements, including the obligation for covered entities to maintain adequate records and to protect against diversion and duplicate discounting. For example:
As the 340B Program has grown, so too has its operational complexity. Transactions now frequently occur through multi-step distribution channels involving contract pharmacies and retrospective eligibility determinations. Because 340B transactions often flow through multi- step distribution channels, including contract pharmacies that serve multiple covered entities, real-time eligibility verification at the point of sale is not always feasible, leaving eligibility determinations to be made after the fact based on claims data that may be incomplete or inconsistently documented. This retrospective approach creates a gap between when a drug is dispensed and when eligibility is confirmed, making it difficult to ensure that discounted purchases are accurately matched to qualifying patients (i.e., raising the risk of diversion) and raising the risk that the same transaction could be counted toward both a 340B discount and a Medicaid rebate, a duplicate discount that the statute expressly prohibits.34Id. at 48886.
The significant growth in size and complexity of the 340B Program has introduced oversight challenges that were less pronounced when the Program was smaller and less complicated. While covered entities have relied on the upfront discount model for three decades, HRSA in its stewardship role must balance these interests against the rapidly changing 340B landscape that requires HRSA to weigh competing policy concerns, including program accessibility, administrative feasibility, statutory compliance, and the prevention of duplicate discounts and diversion.35 Id.
[T]he 340B Program has witnessed unprecedented growth recently that has caused certain 340B Program stakeholders to reasonably question whether covered entities are complying with the 340B statute’s requirements.36Id. at 48888.
HRSA dismissed covered entities’ complaints about costs associated with the rebate approach, reminding them that modest investments in compliance are a small burden when compared to the benefits of program participation:
With respect to other anticipated costs, including vendor fees and training, HRSA notes that participation in the 340B Program has always entailed some level of compliance and operational cost. Covered entities derive significant financial benefit from participation in the Program. ... Covered entities are expected to maintain compliance as program requirements evolve.37Id. at 48889.
In language that could be useful to manufacturers that ask covered entities to provide basic claims level data as part of their reasonable offers under the 340B program, HRSA concluded that the limited data reporting required under the Pilot is justified by program integrity concerns:
HRSA further believes that the burden associated with limited claims-level reporting is justified by the importance of ensuring program integrity, duplicate discount prevention, and coordination across federal pricing programs, including the MDPNP and Medicaid rebate programs.38 Id. at 48896.
Taken together, HRSA’s conclusions endorse many of the positions the manufacturing community has advanced for more than a decade regarding 340B program integrity and the structural inadequacy of the upfront discount model.
Please let us know if you would like to further discuss the Rebate Pilot, its terms, its effectuation, or its ramifications. As always, we would be very happy to assist.