The recent litigation concerning the government’s 340B Rebate Model Pilot Program (the Rebate Program), as further described below, took an unexpected turn as the federal government recently signaled that it intended to revise its approach to the Rebate Program. This change in strategy was previewed by the government in a letter filed with the Court on January 12, 2026—the deadline for briefing regarding the preliminary injunction—stating that the government was considering “returning the approvals challenged [in the lawsuit] to [the Health Resources and Services Administration] for reconsideration,” and that the parties “plan to dismiss the appeal in short order.” The government formally moved to dismiss its appeal on January 16, 2026, and the First Circuit dismissed the appeal on January 20, 2026.
By way of background, just three days before the Rebate Program was set to go into effect, a U.S. District Court issued a preliminary injunction blocking its implementation, which we previously wrote about here. The government swiftly appealed the preliminary injunction to the First Circuit, requesting an administrative stay of the District Court’s decision while the First Circuit deliberated on the preliminary injunction. The First Circuit declined to issue an administrative stay, finding that the federal government had “not carried its burden to justify a stay”—noting specifically that the government did not make a strong showing that it is likely to success on the merits and did not demonstrate that it would suffer irreparable injury should the Court decline to grant the stay. The Court agreed with the District Court’s findings that “the administrative record . . . is devoid of evidence that the federal government considered the hospitals’ significant reliance interests — a critical factor in the analysis of an arbitrary-and-capricious claim.” Absent the stay, the First Circuit requested further briefing on the appeal of the preliminary injunction.
As of this writing, the case will continue to move forward at the District Court level, as the parties have not yet submitted any filings to indicate otherwise, and the District Court’s preliminary injunction prohibiting implementation of the Rebate Program will remain in effect until that litigation is resolved. As discussed in our original post, under the 340B statute, the government can decide to use rebates, but may not bypass APA requirements when modifying the 340B program to implement those rebates. In issuing the preliminary injunction, the District Court indicated that, among other things, the government failed to provide a reasonable explanation for the costs and benefits of the program and the deviation from decades of industry reliance on upfront discounts. Therefore, if the government elects not to pursue reconsideration of the injunction in the First Circuit, the Rebate Pilot Program, as currently contemplated by the government, may not proceed until litigation at the District Court level concludes.
As noted by the District Court, the government would need to satisfy APA requirements to implement a rebate program under the 340B statute, including developing a full administrative record addressing the costs and benefits to the parties. However, it is unclear to what extent the government would incorporate commenters’ suggestions for managing 340B Covered Entities’ implementation costs, which include, for example, delaying the program’s start date to better equip Covered Entities to handle the increased administrative burden, implementing a dispute resolution mechanism that better protects 340B Covered Entities in the event that manufacturers fail to provide timely rebates, and limiting the scope of a future pilot program (as designed, the Rebate Program would apply to all 340B Covered Entities).
We will continue to monitor this litigation and developments concerning the Rebate Program.