A federal judge in D.C. recently ruled in favor of the U.S. Health Resources and Services Administration ("HRSA"), an administrative agency under the U.S. Department of Health and Human Services ("HHS"), by finding that drug manufacturers must obtain pre-approval from HRSA before implementing rebate models under the 340B Program. Specifically, U.S. District Judge Friedrich ("Friedrich") found that HHS and HRSA did not exceed their authority when they required Eli Lilly & Co., Bristol Myers Squibb Co., Sanofi-Aventis U.S. LLC, Novartis Pharmaceuticals Corp. ("Novartis") and Kalderos Inc., a health care tech company (together, the "Companies") to seek pre-approval of the rebate plans they offered.1
Cases Impacted by the Decision
The five separate lawsuits on which Friedrich ruled involve claims from the Companies that HHS illegally blocked their efforts to implement rebate models instead of offering up-front drug price discounts to 340B covered entities. Friedrich held that the 340B statute "contemplates that the Secretary may 'have as a condition' or 'stipulate' how any rebate or discount is accounted for in the price ultimately paid by [340B] covered entities. That plain text provides authorization for [HRSA] to regulate the implementation of price reductions." Friedrich further found that HHS and HRSA did not act arbitrarily and capriciously by requiring the Companies to get their rebate plans pre-approved before implementing them.
Origin of the 340B Rebate Disputes
Last year, Johnson & Johnson Health Care Systems Inc. ("J&J") proposed that hospitals should pay full price for two popular J&J medications, and then file a claim for a rebate in order to receive the discounts to which the hospitals are entitled under the federal 340B program. Following objections from HRSA officials and hospitals, J&J reportedly ceased "implementation of its 340B rebate proposal" and last November, J&J sued HHS and HRSA.2 Manufacturers have taken the stance that a rebate model is permitted by the 340B statute and that the rebate model provides better control and protection against duplicate discounts. 3 Advocates opposing the rebate model argue that the 340B statute does not permit a retroactive discount and that the rebate model would create significant financial and operational hurdles for safety net hospitals and other entities participating in the 340B Program. 4
What's Next?
While the ruling is considered a temporary win for 340B covered entities, Friedrich did not conclude that rebate models are prohibited under the 340B statute. At the time of the ruling, HRSA had only formally rejected Sanofi-Aventis's rebate model, while the others remain pending a final decision from HRSA. As to Sanofi, Friedrich ruled that HRSA had not provided adequate justification for its denial of the rebate model and ordered HRSA to reconsider Sanofi's proposal. On June 1, 2025, HHS and HRSA submitted their proposed 340B Rebate Guidance to the Office of Management and Budget for regulatory review, It is unclear when the review will be finalized and made available to the public. Once the guidance is released, 340B covered entities should determine how it may affect their operations and consider consulting with their 340B attorneys on navigating any new requirements or implications.
Footnotes
1. Eli Lilly & Co. et. Al. v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03220); Bristol Myers Squibb Co. v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03337); Sanofi-Aventis U.S. LLC v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03496); Novartis Pharmaceuticals Corp. v. Robert F. Kennedy Jr. et al., (Case No. No. 25-cv-00117); and Kalderos Inc. v. Robert F. Kennedy Jr. et al., (Case No. 21-cv-02608).
2. See American Hospital Association, J&J sues government over 340B proposal; AHA says J&J's legal arguments 'completely meritless' (Nov. 13, 2024).
3. Craig Clough, Feds Get Early Win In Drugmakers' Suit Over 340B Rebates (May 19, 2025).
4. Amicus Curiae Brief of American Hospital Association, National Association of Children's Hospitals, Inc., d/b/a Children's Hospital Association, Association of American Medical Colleges, and America's Essential Hospitals in Support of Defendants, Eli Lilly & Co. v. Kennedy, Nos. 24-cv-3220, 24-cv-3337, 25-cv-0117 (DLF) (D.D.C. filed Mar. 4, 2025), ECF No. 31-1.
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