From Discounts to Rebates: The Next Chapter in 340B

340B Rebate Pilot Program

The Department of Health and Human Services (“HHS”) announced this summer a 340B Rebate Model Pilot Program as a voluntary program for qualifying drug manufacturers to implement the 340B ceiling price on select drugs to all 340B-covered entities through a rebate model rather than an upfront discount.

The deadline for interested drug manufacturers to submit a plan for participation was September 15, 2025. HHS will notify approved manufacturers by October 15, 2025, with the pilot program set to begin on January 1, 2026.

The pilot program represents a transition from upfront discounts to post-sale rebates. Initially, it will apply only to drugs on the CMS Medicare Drug Price Negotiation Selected Drug List, beginning in 2026. HHS may expand the list after evaluating the pilot.

Why Manufacturers Want a Rebate Model

A rebate model allows drug manufacturers to require claim-level data before paying a covered entity the 340B discount price for a particular drug. Drug manufacturers argue that a rebate model will reduce duplicate discounts (an overlap of a 340B discount and Medicaid discount for the same drug) and diversion (distribution of a 340B drug to a non-eligible patient). The program notice of the rebate model framed the pilot as addressing compliance concerns within the 340B program by allowing drug manufacturers to collect specified data before paying a rebate.

A rebate model is not the only way drug manufacturers have attempted to change the operational structure of the 340B Drug Program. Since 2020, over twenty (20) drug manufacturers have limited the number of contract pharmacies a covered entity may use for certain 340B eligible drugs, citing diversion and duplicate discounts as the reason for the limit on contract pharmacies.  Federal and state courts have ruled the 340B statute does not expressly require unlimited contract pharmacy use. In response, several states have enacted legislation blocking the drug manufacturers’ attempts to limit the number of contract pharmacy arrangements.

A rebate model mirrors current commercial and pharmacy benefit manager (“PBM”) practices. Drug manufacturers argue a rebate allows them to “true up” to the 340B ceiling price after distribution, rather than extending the 340B discount price at shipment.

HHS Guidance for Pilot Program

Why is HHS launching a rebate model? HHS has repeatedly stated that the drug manufacturers’ attempts to implement a 340B rebate model, without the approval of HHS, violates the 340B statute. In the notice, HHS explained that the pilot program provides a lawful pathway and standard criteria to test a rebate model.

HHS has stressed that the pilot program is voluntary and limited to the CMS Medicare Drug Price Negotiation (“MFP”) 2026 drug list. HHS indicates it wants to understand the merits and shortcomings of the rebate model from all stakeholders during the one year pilot program before considering any broader use.

Pilot Program Criteria

Drug manufacturers approved for the pilot program must adhere to the following criteria:

• Manufacturers must pay all IT and administrative costs, which cannot be passed on to covered entities.
• Covered entities must receive at least 60 days’ notice and clear instructions for registration. They must also be able to continue purchasing through existing distribution channels, and manufacturers must provide technical support.
• The IT platform used by the manufacturer must comply with HIPAA and only collect data necessary for rebate processing.

Covered entities will have 45 days after dispensing to submit rebate claims, and real-time claim status updates must be available. Additionally, manufacturers must report rebate activity to the Office of Pharmacy Affairs (“OPA”), including claim processing times and denials.

The pilot program structures the rebates as follows:

• Rebates must be paid per package or per unit, with payment or denial issued within 10 days of claim submission.
• Rebates cannot be denied due to diversion or duplicate discount concerns, as these must be resolved through audits or dispute resolution.
• Rebates are limited to qualifying sales under the MDPNP.

How Covered Entities Can Prepare

The rebate pilot program is a seismic shift in the 340B program. Preparation is key for all covered entities, both hospitals and grantees. Covered entities should consider updating contracts with manufacturers and PBMs to include rebate flow-through clauses, audit rights, and clear dispute resolution mechanisms. In anticipation of possible audits, covered entities should update their compliance manuals to reflect new rebate timing and establish tracking systems to prevent duplicate discounts. Pharmacies, both contract and entity owned, should provide the covered entity with dispensing-level data and rebate credit reports.

From a financial perspective, covered entities can protect revenue and cash flow by:

• negotiating interim payment mechanisms
• establishing reserves or escrow accounts
• adjusting pharmacy dispensing fees
• building A/R tracking and payer-billing alignment around the post-rebate “cost” (ceiling price)

In anticipation of the pilot program extending beyond 2026, covered entities can also strengthen their 340B program by:

• Evaluating contract pharmacy networks for technical capability. TPAs must be able to feed required fields cleanly on the manufacturer IT platform.
• Preparing for a possible HRSA Alternative Dispute Resolution (“ADR”) petition for any rebate disputes.
• Monitoring any additional manufacturer restrictions on eligible drugs.

Please contact Janice Suchyta for any questions concerning the 340B Rebate Model Pilot Program and/or the 340B program in general.

This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.