backFederal Court Blocks HRSA’s 340B Rebate Model Pilot Program Pending Appeal
UPDATE: On January 12, 2026, the federal government announced it would drop its appeal of Judge Walker’s order blocking implementation of the Pilot Program and return it back to HRSA for reconsideration. In a court filing submitted to the United States Court of Appeals for the First Circuit, the Department of Justice (DOJ) stated, “[t]he parties are engaged in discussions about returning the approvals challenged in this litigation to the agency for reconsideration. The agency intends to resolve such proceedings promptly. Therefore, the parties do not believe that expediting this appeal is warranted at this time and plan to dismiss the appeal in short order.”
DOJ’s letter to the United States Court of Appeals for the First Circuit can be found here.
A federal district court in Maine has preliminarily enjoined the Health Resources and Services Administration’s (HRSA) 340B Rebate Model Pilot Program (the Pilot Program), finding that HRSA likely violated the Administrative Procedure Act (APA) by failing to reasonably explain a sharp departure from three decades of upfront 340B discounts, resulting in “arbitrary and capricious” agency action. The federal government requested to allow the 340B Rebate Pilot Program to commence pending its appeal of the district court’s preliminary injunction. However, the First Circuit denied this request, thereby preventing the Pilot Program from starting during the appeal.
Since 1992, 340B has mandated upfront discounts for covered entities. In July 2025, HRSA announced the Pilot Program. The Pilot Program was intended to address 340B Medicaid duplicate discounts, drug diversion and duplication with Inflation Reduction Act Maximum Fair Price rebates, with a January 1, 2026 start date. The Pilot Program would require covered entities to pay wholesale prices and later seek rebates.
The American Hospital Association (AHA), the Maine Hospital Association, and four non-profit health systems (the Plaintiffs) filed a lawsuit in the U.S. District Court for the District of Maine challenging the Pilot Program and seeking declaratory and injunctive relief. Judge Lance Walker, Chief U.S. District Judge in Maine, granted a preliminary injunction for Plaintiffs on December 29, 2025.
Judge Walker concluded that the Plaintiffs met the requirements for a preliminary injunction, emphasizing that they were likely to prevail on their claims that the Pilot Program is “arbitrary and capricious” under the APA because HRSA’s implementation of the Pilot Program relied on a “threadbare” administrative record and did not reasonably address or explain how the rebate model would affect covered entities dependent on upfront discounts. Judge Walker found HRSA “fail[ed] to abide the basic requirements” necessary for agency action in implementing the rebate program. Specifically, Judge Walker noted that the federal government did not adequately consider costs, covered entities’ reliance interests on the upfront discount model, public comment, less costly alternatives, and issues with the electronic database used to collect and store rebate claims. While recognizing HRSA’s authority to tackle issues like duplication and to establish a rebate framework, Judge Walker found the agency’s reasoning and its contemporaneous evaluation of key considerations lacking, making the program likely to be seen as “arbitrary and capricious” under the APA. Judge Walker also determined that AHA members faced irreparable harm, citing $400 million in compliance costs. Moreover, Judge Walker concluded that the injunction only preserved the existing system and, therefore, granting the injunction was equitable. Additionally, Judge Walker denied the federal government's request for a stay pending appeal.
The federal government then moved for an emergency stay pending appeal from the United States Court of Appeals for the First Circuit. On January 8, 2026, the First Circuit panel issued a decision denying the government’s motion for an emergency stay. In reaching its conclusion, the First Circuit panel determined that the government had not demonstrated a strong likelihood of success on the merits of its case—a critical factor when evaluating whether to grant a stay. The panel examined the administrative record and found no evidence indicating that HRSA took into account the reliance interests of covered entities or thoroughly assessed the possibility of increased costs and administrative burdens that might result from the Pilot Program, affirming Judge Walker’s order.
Because the preliminary injunction remains in force, covered entities will continue to receive upfront 340B discounts. The Pilot Program’s January 1, 2026 effective date has passed without implementation, and the First Circuit intends to resolve the federal government’s appeal on an expedited schedule. But, HRSA may not implement the Pilot Program during the pendency of the injunction.
Judge Walker’s order granting the preliminary injunction can be found here. Judge Walker’s order denying the federal government’s motion for stay pending appeal can be found here. The First Circuit’s order denying the federal government’s request for an emergency stay pending appeal can be found here.
King & Spalding previously covered the release of the Pilot Program, which can be found here. King & Spalding also previously examined AHA’s lawsuit, which can be found here.
Reporter, Priya Sinha, Atlanta, GA, +1 404 572 3548, psinha@kslaw.com.
OIG Issues Unfavorable Advisory Opinion Regarding Home Care Agency Proposed Sign-On Employment Bonuses to Family Members of Prospective Patients
On January 5, 2026, OIG posted Advisory Opinion No. 25-12 regarding a home care agency’s proposal to “market sign-on bonuses to prospective employees of its home care agency with the intention of employing those individuals for the provision of services to other individuals, who most often would be family members of the prospective employees (the ‘Proposed Arrangement’).” The OIG concluded that the Proposed Arrangement would result in a prohibited offer of remuneration under both the Federal Anti-Kickback Statute (AKS), and the civil money penalties law relating to beneficiary inducements (the “Beneficiary Inducements CMP”) and not fall within the statutory exception and regulatory safe harbor for employees. Because OIG also concluded that the risk of fraud and abuse was not low, OIG issued an unfavorable advisory opinion.
Background
The requestors (the Agency) of the advisory opinion operate a home care agency in a state where Medicaid covers in-home support services (Services) through waiver programs and a Medicaid initiative. Eligible individuals (Clients) may select attendants (Attendants) of their choice, who do not have to be certified or licensed, to provide personal care, homemaker services, and health maintenance activities. In addition to employing Attendants, the Agency is responsible for providing adequate staffing for patient care, training, supervising health maintenance activities, and submitting claims for Medicaid reimbursement. Importantly, the Agency certified that its Attendants would primarily be family members of Clients and would act as decision-makers in selecting the Agency to provide Services.
Proposed Arrangement
The Agency proposed to market employment opportunities to prospective Attendants, advertising a sign-on bonus (Sign-On Bonus), which would only be described as the amount of the bonus, in recruitment materials distributed via print, digital media, and social platforms, which it represented was necessary to compete with other home care agencies.
Notably, the Agency certified to OIG that the purpose of the Sign-On Bonus was to entice prospective Attendants to choose the agency over competitors for the provision of services to their family members. Once employed, the Attendants would be bona fide employees.
OIG Analysis and Conclusion
The OIG found that the Proposed Arrangement implicates both the AKS and the Beneficiary Inducements CMP because the Sign-On Bonus would be offered to individuals expected to act as decision-makers for Clients in selecting the agency for Medicaid-reimbursable services.
The OIG considered whether the Proposed Arrangement satisfies the statutory exception or regulatory safe harbor for employees but found otherwise, because the employment is inextricably linked to the referral of the Attendant’s relative, the Client, to the Agency for Services. Thus, OIG concluded that the advertisement of the Sign-On Bonus operates as a solicitation for a guaranteed referral prior to employment, rather than a more typical sign-on bonus where an employer might hope for, but not be guaranteed, future referrals. The OIG determined that the Proposed Arrangement could result in Attendants deciding on a home care agency due to the sign-on bonuses rather than the quality of the Agency and its competitors. Resultingly, OIG concluded that the Proposed Arrangement, if undertaken, would constitute grounds for the imposition of sanctions under the AKS and the Beneficiary Inducements CMP.
Reporter, Christopher C. Jew, Los Angeles, CA, + 1 213 443 4336, cjew@kslaw.com.
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