Mere days before the Health Resources and Services Administration’s (HRSA) 340B Rebate Model Pilot Program’s (“Pilot”) scheduled January 1, 2026 effective date, a federal district court granted a preliminary injunction that temporarily halts the scheduled implementation of the Pilot approved rebate models. The decision, citing significant deficiencies in HRSA’s administrative processes when developing and implementing the Pilot, is both a significant win for 340B participating covered entities and a frustrating development for affected drug manufacturers.
Background
In August 2025, in a shift from its prior position concerning rebate models, HRSA’s Office of Pharmacy Affairs (OPA) announced its intent to carry out the Pilot in order to determine the efficacy and impact of manufacturer-proposed rebate models on 340B-eligible providers (Covered Entities). This August notice included some basic parameters related to the rebate models, including a requirement that manufacturers pay all rebates within ten (10) days of receipt of a rebate request, and prohibited manufacturers from using the Pilot as a mechanism by which to second-guess Covered Entity 340B eligibility determinations.
340B stakeholders had a limited opportunity to provide comments in response to the August 2025 notice, and did so in significant numbers. While some comments were supportive of the Pilot, many Covered Entities submitted comments expressing serious concerns with the rebate model. The Covered Entities’ primary concerns related to the financial challenges associated with absorbing the increased upfront costs for drug purchases, unilateral manufacturer control over the final approval of 340B eligibility, and the technological and data privacy concerns surrounding the submission of rebate claims data. However, on October 30, 2025, OPA approved eight rebate models and adopted its August 2025 rebate model parameters without modification. Notably, OPA did not provide meaningful detail as to how it accounted for 340B stakeholder comment in adopting the final version of the rebate Pilot.
HRSA OPA also confirmed that the recognized programs would take effect on January 1, 2026, giving Covered Entities a short runway toward implementing the specifics of the models.1 For additional background information regarding the anticipated impact of the Pilot program and its implementation to date, please review our earlier publications on this subject which are available here.
In response, on December 1, 2025, the American Hospital Association (AHA) and the Maine Hospital Association (MHA) filed their Motion for Temporary Restraining Order with the Court, primarily citing deficiencies in HRSA OPA’s administrative processes in approving the Pilot.
Court Ruling
On December 29, 2025, U.S. District Judge Lance Walker found in favor of the AHA and MHA by enjoining the Department of Health and Human Services (HHS) from instituting the Pilot (Order). The Order cited significant deficiencies in HRSA’s administrative processes when developing and implementing the Pilot, pointing to the threadbare nature of the administrative record and lack of evidence that HHS sufficiently considered relevant and potential impacts to stakeholders as required by the Administrative Procedures Act (APA). As Judge Walker succinctly stated in the Order, “[HRSA] cannot fly the plane before they build it.”2 Importantly, the Court highlighted that its ruling should not be interpreted to suggest that a rebate model in the 340B Program context is impermissible.3 Rather, in this specific case, HRSA failed to reasonably document and explain its rationale for shifting to rebate models as required under the APA thus justified the grant of a preliminary injunction.
On the same day the Order was issued, HHS appealed the decision to grant the preliminary injunction to the Court of Appeals for the First Circuit (First Circuit), while also filing a motion with the District Court seeking an administrative stay of the injunction pending that appeal.4 In the memorandum supporting its motion requesting a stay, HHS argued that it had acted reasonably and thoroughly in approving the Pilot and requested that the Court give a swift ruling on its motion so as not to disrupt industry preparation and implementation. The Court was not persuaded, quickly issuing an order denying HHS’ request. In support of the denial, the Court stated that the agency is “unlikely to secure the relief that they seek in the First Circuit; that they do not face an irreparable injury of their own due to the preliminary injunction; that substantial injuries would flow to others from the grant of a stay; and that the public’s interest is not on the line if the requested stay is denied.”5 Judge Walker affirmed his prior assessment that, in his view, no apparent or actual urgency existed for the January 1, 2026, start date, and indicated that the HHS could benefit from the additional time to shore up the Pilot.6
Next Steps
On December 31, 2025, the First Circuit denied HHS’s request to immediately stay the Court Order, but noted its intention to rule on the preliminary injunction appeal as soon as practicable.7 The First Circuit subsequently affirmed its denial for an emergency administrative stay by court order on January 7, 2026, noting that the HHS failed to satisfy the burden of showing that it was likely to succeed on appeal.8 However, in doing so, the First Circuit also indicated its intent to review the full merits of the appeal and resolve it “without undue delay.”9
Thus, pending the First Circuit’s ruling on appeal, HRSA has formally paused implementation of the Pilot, requiring manufacturers in the meantime to continue offering up-front 340B discounts to Covered Entities on those drugs that were intended to be included in the rebate Pilot.10
Given the significant implications that this may have for both manufacturers and Covered Entities, this article will be revised and updated promptly as soon as the First Circuit issues a decision on HHS’s appeal.
END NOTES
1 340B Rebate Model Pilot Program, available here.
2 AHA v. Kennedy, 2025 U.S. Dist. LEXIS 266232, 1, 28 (D. Me. 2025).
3 Id.
4 Def.’s Mot. For Stay Pending Appeal or, in the Alternative, an Administrative Stay of Prelim. Inj., available here.
5 AHA v. Kennedy, 2025 U.S. Dist. LEXIS 267061, 1, 3 (D. Me. 2025), available here.
6 Id.
7 1st Circuit Declines HHS’ Bid to Immediately Pause Order Blocking 340B Rebate Pilot, But Signals Plans for Quick Ruling, 340B Report, available here.
8 Federal Appeals Court Rejects HHS’ Bid to Revive 340B Rebate Pilot, 340B Report, available here.
10 340B Rebate Model Pilot Program, supra note 1.
