An appellate court panel ruled Tuesday that drug manufacturers may not impose 340B rebates without approval from the U.S. Department of Health and Human Services (HHS).
The ruling (PDF) from the U.S. Court of Appeals for the District of Columbia Circuit upheld a previous decision that Section 340B of the Public Health Service Act does not allow pharmaceutical companies to impose proposed rebate models without HHS Secretary approval. The suit was brought by Novartis, Eli Lilly and Bristol Myers Squibb against HHS Secretary Robert F. Kennedy Jr. and HHS.
The decision did not touch on the legality of HHS’ proposed rebate pilot program, which has been embraced by drugmakers and opposed by hospitals.
“Based on the statutory text and structure, we conclude that Section 340B requires the Secretary to provide for a rebate mechanism before manufacturers may implement one,” the ruling said. “And because it is undisputed that the Secretary has never authorized a mechanism encompassing the manufacturers’ rebate models, the Secretary properly required the manufacturers to await his approval while he further studied their proposals.”
The American Hospital Association (AHA), Association of American Medical Colleges and America’s Essential Hospitals filed an August joint amicus brief (PDF) in support of HHS in the case.
The 340B program was implemented by Congress more than three decades ago to help subsidize safety-net care providers by manufacturer discounts on most drugs, though critics, including the pharmaceutical industry, have argued it has grown beyond Congress' intent and is in need of safeguards. In 2024, some manufacturers wanted to shift to after-the-fact rebate models in order to better police its discounts, with Johnson & Johnson being the first to do so.
The HHS’ Health Resources and Services Administration (HRSA) warned the manufacturer that adopting the rebate approach without the approval from then-HHS Secretary Xavier Becerra was a violation and threatened to pull its Pharmaceutical Pricing Agreement and impose penalties.
J&J ultimately opted out of the model, but manufacturers began filing lawsuits against the federal government. Drugmakers, including Eli Lilly and Bristol Myers Squibb, have been defeated in these previous legal challenges.