HRSA's Revised 340B Rebate Model Pilot Program and Its Implications for 340B Hospitals

The Health Resources and Services Administration (HRSA) on August 3, 2026, published a Federal Register Notice announcing a revised 340B Rebate Model Pilot Program. Under the pilot, rather than receive an upfront discount for a subset of drugs, hospitals will purchase a subset of drugs at the wholesale acquisition cost (WAC) and, after dispensing the drugs to 340B patients, submit claims to the manufacturers, which will issue a rebate equal to the difference between WAC and the 340B ceiling price.

HRSA describes the pilot as a voluntary pathway for qualifying manufacturers to provide the 340B ceiling price through rebates rather than upfront discounts. The affected drugs covered are those selected under the Medicare Drug Price Negotiation Program (MDPNP) for initial price applicability years 2026 and 2027. The Notice is effective immediately upon publication, with manufacturer plan submissions due by August 24, 2026, and pilot implementation on January 1, 2027.

This is not the first attempt at a 340B rebate pilot. In July 2025, HRSA announced a voluntary 340B Rebate Model Pilot Program for prescription drugs subject to Medicare drug price negotiation in Initial Price Applicability Year (IPAY) 2026. After the pilot was challenged in federal court, HRSA ultimately withdrew it before implementation. In February 2026, the agency issued a Request for Information seeking stakeholder feedback on the potential use of rebates to effectuate 340B ceiling prices, receiving more than 2,400 public comments.

The revised pilot retains the core structure of the 2025 proposal while expanding its scope to include both IPAY 2026 and IPAY 2027 selected drugs and modifying several operational requirements. Among the more notable changes, HRSA extended the advance notice period for covered entities from 60 to 90 days, included additional implementation safeguards and reporting requirements, and clarified key operational expectations for participating manufacturers and covered entities. HRSA also rejected requests to limit participation to certain categories of covered entities, concluding that duplicate-discount risk is associated with particular drugs rather than particular provider types.

HRSA frames the revised pilot against the backdrop of rapid growth in the 340B Program, noting that purchases increased from $53.7 billion in 2022 to more than $100 billion in 2025. According to the agency, the expansion in covered entities and associated sites, together with increasing overlap among federal drug pricing programs, has increased operational complexity and heightened concerns regarding duplicate discounts, claims verification and program oversight.

The revised pilot appears to establish a federally recognized pathway for participating manufacturers to effectuate the 340B ceiling price through a retrospective rebate model for a limited set of MDPNP-selected drugs. Although the pilot applies to approximately 5.5 percent of total 340B purchases, its implications extend beyond the affected products.

For manufacturers, the pilot creates a voluntary mechanism to implement a rebate-based model, while introducing new operational, reporting and compliance responsibilities. Participation also presents a strategic business decision. Manufacturers must weigh the benefits of an HRSA-approved mechanism for addressing duplicate discount and MDPNP nonduplication concerns against the costs of implementing new technology platforms, reporting infrastructure and ongoing compliance obligations.

For hospitals and other covered entities, the pilot shifts a subset of transactions from an upfront discount to a post-dispensing rebate process, requiring new claims submission, reconciliation, cash flow management and administrative workflows. More broadly, the details that will matter most are timelines for rebate payment and dispute resolution and mechanisms for preventing duplicate 340B, Medicaid and Medicare negotiation discounts.

Background

Statutory Authority

In establishing that the 340B statute provides flexibility in how ceiling prices are delivered, HRSA cites the legislative history stating that price reductions could be "implemented, at the discretion of the Secretary, either by a point-of-purchase discount, a rebate, or other mechanism." The U.S. Congress further noted that a "mechanism that is appropriate to one type of 'covered entity' … may not be appropriate to another type."

Yet, for more than 30 years, the 340B Program operated almost exclusively through upfront discounts under a replenishment model. The sole exception has been the AIDS Drug Assistance Programs (ADAPs), which have been permitted to use a rebate mechanism since 1998.

The MDPNP

The Inflation Reduction Act of 2022 created the MDPNP, establishing "maximum fair prices" (MFPs) for selected drugs. The negotiated price and the 340B discount are not cumulative. If the MFP is lower than the 340B ceiling price, the manufacturer need not also provide a 340B discount. This interaction between MDPNP and 340B pricing has generated new and complex nonduplication challenges, with manufacturers arguing they lack timely claims-level data to identify which units are subject to 340B pricing versus MFP pricing.

Manufacturer Rebate Model Development

In 2024, several manufacturers approached HRSA with proposals to implement rebate models and informed the agency they intended to proceed regardless of approval. HRSA concluded that unilateral manufacturer-imposed rebate models violate Section 340B(a)(1) of the Public Health Service Act because the statute requires secretarial preapproval. The U.S. District Court for the District of Columbia Circuit agreed, and the U.S. Court of Appeals for the D.C. Circuit affirmed this statutory interpretation as correct.

The First Pilot

HRSA published a notice inviting manufacturers to participate in a pilot in August 2025, approving eight manufacturer applications on October 30, 2025, with a ninth approved later for an effective date of April 1, 2026. The American Hospital Association and other covered entity stakeholders sued in the U.S. District Court for the District of Maine, secured a preliminary injunction on December 29, 2025, and the U.S. Court of Appeals for the First Circuit denied a stay. The U.S. Department of Health and Human Services (HHS) voluntarily dismissed its appeal and withdrew the 2025 pilot, which was formally vacated on February 10, 2026.

The Program Integrity Rationale

HRSA's central justification for the pilot is program integrity. The agency specifically cites the growing risk of duplicate discounts, including where the same drug unit receives both a 340B discount and a Medicaid rebate, and the challenges introduced by the MDPNP's nonduplication requirements.

HRSA also cites several statistics demonstrating sizable growth in the program, including:

• As of April 2026, the 340B Program includes 15,249 covered entities and 49,214 associated sites, with purchases reaching $100 billion in 2025.
• Between 2022 and 2024, 340B purchases grew from $53.7 billion to $81.4 billion – approximately 50 percent growth in just two years.
• There was a 174 percent increase in covered entities between 2013 and 2023.

HRSA points to multiple reports from the HHS Office of Inspector General and U.S. Government Accountability Office finding that the Medicaid Exclusion File is inadequate to capture duplicate discounts in the Medicaid managed care context and that contract pharmacy arrangements "create complications in preventing duplicate discounts."

Under the current upfront discount model, compliance is assessed only retrospectively. HRSA argues that a rebate model "shifts the compliance framework from a reactive enforcement posture to a prospective approach in which verification and claims-level validation occur before the discount is provided."

More broadly, HRSA presents the pilot as a means of evaluating whether a claims-based rebate framework could improve overall program integrity beyond the immediate interaction with the MDPNP. Throughout the notice, the agency emphasizes that the pilot is intended not only to address current nonduplication concerns, but also generate operational experience and data that may inform future 340B policy. As a result, stakeholders should view the pilot as more than a narrow solution for negotiated drugs – it also represents a test of broader claims-level transparency and oversight mechanisms that could influence future administration of the 340B Program.

340B Rebate Model Pilot Program Mechanics

Selected Drugs

The drugs in the 340B Rebate Model Pilot Program are limited to the National Drug Code (NDC)-11s of the selected drugs for initial price applicability years 2026 and 2027 included on the CMS Medicare Drug Price Negotiation Selected Drug List, regardless of payer or indication and during the price applicability period for the selected drug. Based on 2025 data, the included products represent about 5.5 percent of total 340B sales, with the remaining 94.5 percent continuing under the upfront discount model. The included drugs are listed in the two tables below, beginning with the drugs selected for calendar year (CY) 2026, then CY 2027.

Participation

Participation is voluntary for manufacturers, but once HRSA approves a manufacturer's plan, it becomes mandatory for all covered entities purchasing that manufacturer's selected drugs. Manufacturer plans must be submitted by August 24, 2026, with approvals by September 24, 2026, for a January 1, 2027, effective date. Approved manufacturers must provide 90 calendar days' notice to covered entities before implementation.

Perhaps the most consequential feature for hospitals is that the pilot is mandatory for all covered entities once a manufacturer's plan is approved. HRSA considered and rejected proposals to limit the pilot to voluntary participants, certain entity types or only operationally sophisticated entities, concluding that such limitations would introduce selection bias and reduce the reliability of findings.

As such, rural hospitals, critical access hospitals and other resource-constrained entities will be required to participate even if they lack the administrative infrastructure to do so efficiently. HRSA acknowledges this concern but concludes that the program integrity risks "attach to particular drugs" rather than entity types, making a drug-based scope the appropriate approach.

The Rebate Mechanism

Under the pilot:

1. Covered entities purchase drugs at WAC through existing distribution channels and wholesaler accounts.
2. After dispensing, covered entities submit standardized claims data to the manufacturer's information technology (IT) platform.
3. The rebate equals WAC minus the 340B ceiling price on the day of dispense, paid at the unit level.
4. Rebates must be paid, or denied with documentation to support, within 10 calendar days of completed data submission.
5. Covered entities have up to 45 calendar days from the date of dispense to submit claims.

In addition, HRSA specifies that manufacturers may not deny rebates based on eligibility or compliance concerns with diversion or Medicaid duplicate discounts. Instead, they must raise those concerns directly with HRSA or use the statutory audit and administrative dispute resolution mechanisms. Covered entities may also raise concerns about rebate denials through reporting tools sent to 340Bpricing@hrsa.gov.

Finally, during the implementation phase, covered entities shall have a 15-calendar day grace period in which they may submit rebate requests for up to two unreplenished accumulated packages prior to the pilot's effective date.

Reporting Requirements

To be considered for the pilot program, manufacturer plans must ensure:

1. Covered entities are allowed to submit and report data, at a minimum, up to 45 days from date of dispense, with allowances for extenuating circumstances and other exceptions, including adjustments when a 340B status change occurs on a claim.
2. The IT platform has the capacity to receive data from all applicable covered entities and to filter and use only the data required to effectuate the rebate (e.g., if drugs other than a selected drug are submitted, the platform will be able to identify and discard unneeded data).
3. The IT platform has the capability to provide real-time reconciliation reports for covered entities to be informed of the rebate status of submitted claims.
4. Quarterly 340B price files for each manufacturer's NDC-11 are made available to covered entities so that covered entities may use the price file in conjunction with pharmacy billing systems to appropriately account for actual acquisition costs (i.e., post-rebate price) for Medicaid billing and also to assist with sliding fee scales or cost sharing with patients.
5. Periodic reports are provided to HRSA, including data on purchases provided through rebates, information related to claim denials and other information that may evaluate the effectiveness of the rebate model.
6. HRSA will publish aggregate (nonconfidential/nonproprietary) data for public transparency.

Data Requirements

HRSA limited data collection to standardized pharmacy and medical claims fields, declining to require purchasing data, encounter data or patient-level clinical information. The agency also specifies that manufacturers may request only claims-level information already generated and maintained in the ordinary course of pharmacy and medical billing and already exchanged through existing payer, third-party administrator (TPA) or contract pharmacy relationships. The required data elements include date of service, NDC-11, quantity dispensed, prescriber ID, service provider ID, 340B ID, Prescription Bank ID Number, Prescription Processor Control Number and health plan ID.

To promote consistency across participating manufacturers, rebate plans must include standardized data definitions for each required field, subject to HRSA approval. In addition, covered entities must be permitted to correct and resubmit incomplete claims, and manufacturer plans must include instructions for reporting wasted or undispensed units.

HRSA also stipulates that covered entity data handled by technology platforms and received by manufacturers as part of the pilot may not be used for any purpose other than those explicitly identified in the pilot. This restriction extends to any collecting, aggregating, sharing or licensing of pilot data by manufacturers or technology platforms.

What This Means for 340B Hospitals

The Financial Impact

The most immediate impact for hospitals is cash flow. Under the current replenishment model, hospitals purchase drugs at the 340B ceiling price (or near it) at the point of sale. Under the pilot, hospitals will purchase at WAC, then wait for a rebate. For high-cost specialty drugs, which many MDPNP-selected drugs are, this means significantly higher upfront outlays.

Although the Federal Register Notice primarily focuses on hospitals' cash flow implications, participating manufacturers will likewise incur implementation costs associated with technology platforms, claims processing, reporting, customer support and ongoing compliance monitoring, all of which must be borne by the manufacturer under the terms of the pilot.

HRSA acknowledges this concern but points to several mitigating factors:

• The 10-day rebate payment timeline is designed to ensure that rebates arrive before wholesaler payment obligations come due.
• Unit-level rebate processing (rather than requiring accumulation of full packages) accelerates reimbursement timing.
• An industry study found that interest costs under a rebate model were no larger than 0.19 percent for entity-owned pharmacies and 0.03 percent for contract pharmacies, compared to existing replenishment models.

However, HRSA also acknowledged that these costs may be disproportionately larger for smaller entities that would need small business loans at higher interest rates.

Commenters reported a range of financial exposures, including 20- to 40-fold increases in upfront acquisition costs for affected drugs, approximately $10 million in additional annual working-capital requirements for one large health system and measurable reductions in liquidity.

Administrative Burden

HRSA estimates total annual administrative costs for the pilot at $523.34 million across 15,249 covered entities, averaging approximately $34,320 per entity. Covered entity commenters projected higher costs, including:

• 0.5 to one full-time employees (FTEs) for smaller entities and one to two-plus FTEs for larger organizations
• annual personnel costs of $30,000 to more than $200,000 per FTE
• one academic medical center estimated $90,000 in one-time administrative costs and $130,000 for IT integration

HRSA contends these estimates are overstated because the pilot relies on standardized claims data that covered entities already collect and because technology platforms with existing TPA integrations can minimize manual effort.

Safeguards for Covered Entities

HRSA incorporated several guardrails designed to protect covered entities from manufacturer overreach, including:

• Rebates may not be denied based on eligibility, diversion or duplicate discount concerns. Instead, manufacturers must use HRSA's existing statutory mechanisms for those issues.
• IT platform costs must be borne entirely by the manufacturer.
• HRSA will monitor denial patterns and may initiate removal proceedings against manufacturers that deny more than 5 percent of transactions without acceptable justification.
• Manufacturers that consistently exceed the 10-day payment threshold face similar enforcement action.
• Covered entities may pursue remedies through the 340B Administrative Dispute Resolution process.

Contract Pharmacy Implications

The notice does not carve out contract pharmacy arrangements. Given that contract pharmacies already introduce complexity around eligibility verification and duplicate discount prevention, the transition to a rebate model adds another layer. Contract pharmacies will dispense at WAC, and covered entities will need to submit claims and track rebates for those dispenses.

Commenters warned of potential withdrawal of retail pharmacies from processing 340B claims for pilot drugs, which could reduce patient access in rural areas.

HIPAA and Data Privacy

HRSA addressed data privacy concerns at length, concluding that the required data elements do not include direct patient identifiers and therefore may not constitute protected health information (PHI). Even if the data were considered PHI, HRSA notes that the HIPAA Privacy Rule generally permits disclosure for payment purposes. De-identification occurs through automated processes before data reaches manufacturers.

In addition, HRSA requires that approved manufacturer plans be posted publicly on HRSA's website to ensure consistency with what HRSA approved and provide transparency to covered entities and other stakeholders.

Evaluation and Transparency

HRSA will evaluate the pilot using quantitative and qualitative methods, including data on rebate requests, payments, timeliness, denials, dispute resolution and administrative burden. The agency will publish interim periodic summaries and a formal evaluation by April 30, 2028.

Alternatives HRSA Considered and Rejected

The notice addresses several alternatives proposed by covered entity commenters that HRSA ultimately rejected, including:

1. enhanced use of claims modifiers as the primary duplicate discount prevention mechanism
2. establishment of a centralized or third-party clearinghouse model to coordinate 340B transaction data without shifting to rebates
3. more intensive audits and oversight activities
4. narrower pilot structures, such as limiting participation to voluntary participants, restricting the pilot to certain entity types or fewer drugs, or excluding physician-administered drugs or contract pharmacy arrangements

HRSA concluded that none of these alternatives would adequately achieve the program integrity and evaluation objectives the pilot is designed to advance, noting in particular that claims modifiers and clearinghouses are inherently reactive and that a rebate model incentivizes covered entity compliance as a prerequisite to receiving 340B discounts.

Strategic Considerations for 340B Hospitals

Beyond its immediate operational implications, the pilot has broader strategic significance. Although the model initially applies only to approximately 5.5 percent of total 340B purchases, HRSA repeatedly characterizes the initiative as an opportunity to evaluate claims-level verification, standardized data exchange and rebate-based administration as potential long-term tools for strengthening program integrity. Hospitals therefore should monitor not only implementation of the pilot itself, but also how HRSA uses the resulting data and experience to inform future 340B policy. Whether or not the pilot expands beyond MDPNP-selected drugs will depend on its implementation and evaluation, but hospitals should view it as a potentially important shift in the agency's long-term approach to 340B program integrity and oversight.

1. Operational Readiness Is Urgent: With a January 1, 2027, starting date, hospitals should begin assessing their third-party administrator capabilities, IT system readiness and internal workflows now.
2. Cash Flow Modeling Is Essential: Hospitals should model the cash flow impact of purchasing MDPNP-selected drugs at WAC and receiving rebates within 10 days. The impact will vary significantly depending on drug mix, contract pharmacy volume and wholesaler credit terms. Note the Revised Model has a new provision clarifying that if the submission is returned for incomplete data, the 10-day clock for rebate payment will restart when all necessary data is submitted.
3. Monitor Manufacturer Approvals Closely: The 90-day notice period before implementation provides a buffer, but hospitals need to know which manufacturers are participating in order to plan accordingly.
4. Engage with HRSA's Monitoring Process: HRSA has indicated it will collect stakeholder feedback and may refine the pilot. Hospitals should document implementation challenges and report issues, particularly around denials and payment delays.
5. Consider the Interaction with the CY 2027 Hospital Outpatient Prospective Payment System (OPPS) Proposed Rule: Specifically, CMS proposes reducing payment for most 340B-acquired drugs from average sales price (ASP) plus 6 percent to ASP minus 33.4 percent. Hospitals should consider the Rebate Pilot Program's operational and financial impacts when formulating their comments on the OPPS proposed rule, which are due by August 31, 2026, as the two initiatives together could compound financial pressures on 340B hospitals, particularly if hospitals must now purchase pilot drugs at WAC upfront while simultaneously facing reduced Medicare outpatient reimbursement rates for those same drugs. The timing of the pilot's January 1, 2027, effective date alongside the CY 2027 OPPS rule creates an environment in which 340B hospitals need a coordinated strategy that addresses both regulatory developments.

Strategic Considerations for Manufacturer Participation

Unlike covered entities, manufacturers must first decide whether to participate in the pilot at all. That decision extends beyond regulatory compliance and requires balancing operational investment, program integrity objectives, stakeholder relationships and the potential value of participating in what may become an important test of future 340B administration. Importantly, the pilot is effectively optional only until a manufacturer elects to participate. Once HRSA approves a manufacturer's rebate plan, all covered entities purchasing that manufacturer's selected drugs become subject to the rebate model.

1. Participation Carries Significant Operational, Financial and Compliance Obligations: Manufacturers choosing to participate must submit HRSA-approved rebate plans, develop or contract for secure technology platforms, provide technical assistance to covered entities, produce quarterly 340B pricing files, support claims submission and reconciliation, meet strict rebate payment timelines and submit ongoing reports to HRSA. The Notice expressly requires participating manufacturers – not covered entities – to bear the costs of the technology infrastructure necessary to administer the pilot.
2. The Pilot Offers a Pathway to Address Duplicate Discount and MDPNP Nonduplication Concerns: HRSA repeatedly frames the rebate model as a mechanism to improve claims-level visibility and verify eligible transactions before discounts are provided. Manufacturers that have expressed concerns regarding duplicate discounts, MDPNP nonduplication and limited access to claims-level information may view participation as an opportunity to test an alternative compliance framework under HRSA oversight.
3. Implementation performance – and Implementation Costs – Will Be Subject to HRSA Scrutiny: Beyond the initial investment in technology platforms and operational infrastructure, participating manufacturers will be expected to meet 10-day rebate payment deadlines, maintain secure data systems, provide real-time reconciliation capabilities, document and report rebate denials and submit periodic reports to HRSA. The agency has indicated it will monitor payment timeliness and denial patterns and may remove manufacturers from the pilot if they fail to satisfy program requirements. Manufacturers should therefore evaluate not only the upfront implementation costs, but also the ongoing operational resources required to administer the pilot successfully.
4. The Pilot May Shape Future 340B Policy: Although participation is voluntary and limited to selected MDPNP drugs, HRSA has made clear that it intends to evaluate the pilot's operational effectiveness, administrative burden and program integrity outcomes. Manufacturers should therefore recognize that their implementation experience and performance may influence future federal policy regarding broader use of rebate-based mechanisms within the 340B Program.
5. Manufacturers Should Weigh Operational Benefits Against Litigation and Stakeholder Considerations: Though HRSA has revised the pilot following the withdrawal of the 2025 model and incorporated numerous stakeholder safeguards, covered entity organizations remain opposed to rebate-based implementation. Participating manufacturers should therefore anticipate continued legal, operational and stakeholder scrutiny as the pilot moves forward.

For more information or questions, please contact the authors.

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