AHA's Response to HRSA Request for Information Re: A Potential 340B Rebate Model Pilot Program

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April 20, 2026

The Honorable Thomas J. Engels Administrator
Health Resources and Services Administration
U.S. Department of Health and Human Services 5600 Fishers Lane
Rockville, MD 20852

Re: Request for Information: 340B Rebate Model Pilot Program (HRSA–2026–03042)

Dear Administrator Engels:

On behalf of our more than 2,000 member hospitals and health systems that participate in the 340B Drug Pricing Program, the American Hospital Association (AHA) appreciates the opportunity to respond to the Health Resources and Services Administration’s (HRSA) Request for Information regarding a potential 340B Rebate Model Pilot Program. 

This RFI asks, among other things, “whether HRSA should implement a rebate model under the 340B program.” Request for Information: 340B Rebate Model Pilot Program, 91 Fed. Reg. 7,287 (Feb. 17, 2026) (hereinafter “RFI”). As time has gone on, and as HRSA has said more about the rebate mechanism during litigation and in the RFI and its related Information Collection Request (ICR), it has become clear that the only possible answer is “no.” Because a rebate mechanism of any kind is flawed in both conception and design, the AHA urges HRSA to abandon the idea altogether.¹ 

Since the 340B program first became law, HHS has recognized a single mechanism to make the 340B price available to participating hospitals—upfront discounts. As the United States Court of Appeals for the First Circuit recently observed, an upfront discount mechanism fulfills Congress’ purpose in creating the 340B Program: “Since Section 340B’s enactment, the pricing agreements have required manufacturers to provide discounts to safety-net hospitals at the time of sale in order ‘to stretch scarce federal resources as far as possible.’” Am. Hosp. Ass’n v. Kennedy, 164 F.4th 28, 31 (1stCir. 2026).² The First Circuit also recognized that HHS historically determined a rebate mechanism is “both inferior to Section 340B’s current upfront-discount model and disruptive to safety-net hospitals.” Id. at 32; see also Compl. ¶¶ 43, 45, 48, 50, Am. Hospital Ass’n v. Kennedy, 2:25-cv-600 (D. Me. Dec. 1, 2025).   

Yet in this RFI, HRSA has announced that it is still considering whether to move forward with a new version of the 340B Rebate Program. In fact, HRSA has stated that it might expand the Rebate Program to include as many as 15 more drugs. See Agency Information Collection Activities: Proposed Collection: Public Comment Request; Information Collection Request Title: 340B Rebate Model Pilot Program Application, Implementation, and Evaluation, 91 Fed. Reg. 9,632 (Feb. 26, 2026) (hereinafter “2026 ICR”). Put another way, HRSA is persisting with a flawed concept that deviates from the purpose of the 340B Program. In so doing, it will inflict more than a billion dollars in costs annually on the hospitals that Congress designed the 340B Program to benefit. It will jeopardize access to care for millions of Americans. It will force 340B hospitals to divert their scarce resources away from providing comprehensive services to patients and toward compliance with a new discount mechanism that benefits only drug companies and their third-party vendor, Second Sight Solutions. And it will do so in a way that has inherent and insurmountable design flaws. 

HRSA has said it is considering a rebate mechanism because it believes that it “must balance the interests of two industries at loggerheads.” Reply in Supp. of Mot. For Stay Pending Appeal at 1, Am. Hospital Ass’n v. Kennedy, No. 25-2236 (1st Cir. Dec. 31, 2025) (“Stay Reply Br.”); see RFI, 90 Fed. Reg. 7,288 (“HRSA sought a balanced and measured approach to allow eligible manufacturers to implement rebate models, at the Secretary’s direction and discretion, within certain parameters that would cause minimal impact on 340B covered entities.”); Declaration of Chantelle Britton ¶ 4, Am. Hospital Ass’n v. Kennedy, 1:25-cv-600 (D. Me. Dec. 15, 2025) (“Britton Decl.”). That belief is mistaken. First, HRSA’s statement draws a false equivalence between some of the world’s most profitable publicly traded companies, and American safety-net providers that rely on razor-thin margins to care for rural and other underserved communities. Second, this is the wrong lens through which to view this question. Even if HRSA believes itself to be “positioned between two regulated industries,” Stay Reply Br. at 4, it must give primacy to covered entities on this issue, see H.R. Rep. 102-384, pt. 2, at 16 (1992). HRSA appears to have done exactly the opposite. See RFI, 90Fed. Reg. 7,288 (“HRSA became interested in testing the merits and shortcomings of a rebate model, including whether it would be beneficial to manufacturers participating in the MDPNP as well as to 340B program integrity efforts relating to the prevention of 340B Medicaid duplicate discounts and diversion.” (emphasis added)). HRSA’s stated goal of “thoroughly balancing competing interests” (and its concomitant failure to privilege covered entities) fails from the start. 

Relatedly, no reasonable cost-benefit analysis could justify the astronomical economic and non-economic burdens a Rebate Program will impose. HRSA estimated that its original Program, which included only 10 drugs, would have imposed $200 million in annual administrative costs on 340B hospitals and other covered entities. This prediction was based on HRSA’s estimate that a rebate mechanism would require only 2 hours of additional work per week for covered entities. The AHA previously explained that these 2 hour and $200 million numbers—while unjustifiable—vastly underestimated the true administrative costs associated with a 10-drug Rebate Program.   

HRSA’s recent pronouncements reveal that it has doubled down on its flawed methodology and ensuing underestimations. It now states that the “scope of the potential 340B Rebate Model Pilot Program will be limited to manufacturers with Medicare Drug Price Negotiation Program Agreements with the Centers for Medicare & Medicaid Services for the initial price applicability years 2026 and 2027.” 2026 ICR, 91 Fed. Reg. 9632. While couched as a limitation, that is actually an expansion. 

Per the ICR, the new Rebate Program could include up to 25 drugs from 13 drug companies. Consistent with this expanded scope, HRSA has increased its preliminary estimate of data collection burden hours from two per covered entity per week to five per covered entity per week. Id. at 9633. Using HRSA’s original assumption that each extra burden hour will cost a covered entity $132 (based on a pharmacist’s 2024 hourly wage and overhead costs), HRSA would now appear to admit that its contemplated Rebate Program will cost covered entities more than $500 million each year in labor costs (3,796,000 hours x $132 = $501,072,000). See id. The proposed Rebate Program therefore would divert at least half a billion dollars away from providing “more comprehensive services” and care for “more eligible patients.”  H.R. Rep. No. 102-384, pt. 2, at 12 (1992). The previous $200 million labor cost could not justify HRSA’s original Rebate Program; a $500 million one certainly cannot either. 

To make matters worse, HRSA’s estimates drastically understate the Rebate Program’s administrative costs. Hospitals have made clear that they will need to devote far more than 2 to 5 hours per week to comply with a rebate mechanism. Our most conservative estimates are that a Rebate Program will require 340B hospitals, on average, to hire at least one new FTE. Using HRSA’s own methodology, that estimate translates into a $750 million price tag—just for 340B hospitals, just for one FTE, just for labor costs. An estimate of only one new FTE is almost certainly low, but even at that conservative $750 million number, the decision to move forward with a Rebate Program would be irrational. 

But that is not all. When the most conservative estimates of the Rebate Program’s other operational costs (e.g., third-party vendors and TPAs, auditors, IT specialists, etc.) are added to that already-conservative labor cost estimate, the total administrative costs to 340B hospitals alone will exceed $1 billion. “[T]hat’s billion with a b.” White Stallion Energy Cir., LLC v. EPA, 748 F.3d 1222, 1259 (D.C. Cir. 2014) (Kavanaugh, J., concurring in part and dissenting in part), rev’d sub nom. Michigan v. EPA, 576 U.S. 743 (2015). And this figure does not even include other sizable financial expenses like “float costs” and loss of cost-of-goods-sold (COGS) discounts. 

Nor does it include the many downstream, non-economic costs that a rebate mechanism will inflict on patients and communities. These harms are real and inevitable. See Am. Hosp. Ass’n v. Kennedy, No. 2:25-cv-600, 2025 WL 3754193, at *8 (D. Me. Dec. 29, 2026) (observing that “the downstream effect” of the Rebate Program will cause hospitals to “cut back services and suspend partnerships with drug distributors,” and holding that “[t]hese claims are not unsubstantiated fears of what the future might hold.”). Patients will lose access to discounted or free drugs, vital health care services, and much more—all because hospitals will need to divert resources toward complying with an unnecessary rebate mechanism. See Michigan, 576 U.S. at 752 (“‘[C]ost’ includes more than the expense of complying with regulations; any disadvantage could be termed a cost…—including, for instance, harms that regulation might do to human health.”). So after this RFI/ICR comment period, when HRSA has a full tally of all relevant costs, it will have no choice but to conclude that a Rebate Program cannot justify a multi-billion-dollar-imposition on 340B hospitals and other covered entities. Id. at 752–53 (2015) (“Consideration of cost reflects the understanding that reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.” (emphasis in original)). 

Ultimately, any switch to a rebate mechanism will suffer from the same fundamental defect that the AHA explained when HRSA issued its first Notice: a rebate mechanism is a “solution” in search of a problem.³ There is nothing wrong with the upfront discount mechanism. HRSA has not identified a single problem with it, and nothing in the past several months has changed that reality. Given covered entities’ 30-year reliance on that upfront discount mechanism, the AHA respectfully submits that the “ancient legal principle[,] ‘if it ain’t broke, don’t fix it,’” must govern here.⁴ 

HRSA cannot avoid this fact by claiming that the Rebate Program is a “test.” Not only has HRSA never explained what it is actually testing for, see infra at 39-40 n.5, but it is a “test” (or “pilot”) in name only. Based on information in the ICR, all covered entities will be required to participate in the Rebate Program. This kind of mandatory participation in a government program does not even meet the Pharmaceutical Research and Manufacturers of America’s (PhRMA) definition of a “test.” See Pharmaceutical Research and Manufacturers of America, Comment Letter on Global Benchmark for Efficient Drug Pricing (GLOBE) Proposed Rule (HRSA-2025- 14998) 2 (Feb. 23, 2026), https://cdn.aglty.io/phrma/policy-issues/innovative-medicines/Final%20PhRMA%20Comments%20on%20GLOBE%20NPRM.pdf (“GLOBE is a mandatory funding mechanism, not a “‘test.’”); see also id. (“GLOBE does not fall within this definition. It is not an experiment. Instead, it will generate—with certainty— billions of dollars in forced, punishing rebates from manufacturers.”); id. (“Imposing price controls in a nationwide manner, however, and charging manufacturers 25 percent rebates based on such price controls, is hardly a mere “‘test.’”).   

Because there is no sound or lawful reason to abandon the upfront discount model, and because the costs of any switch will massively outweigh any expected benefits, HRSA should not proceed with any rebate mechanism. Any other decision would do serious, irreparable harm to 340B hospitals and the patients they serve.
 

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¹ To avoid repetition, the AHA incorporates all of its previous comment letters addressing HRSA’s 340B Rebate Model Pilot Program. See American Hospital Association, Comment Letter on Application Process for the 340B Rebate Model Pilot Program (HRSA-2025-14998) (Aug. 27, 2025), https://www.aha.org/system/files/media/file/2025/08/aha-comments-to-hrsa-on-proposed-340b-rebatemodel-pilot-program-letter-8-27-2025.pdf; American Hospital Association, Comment Letter on 340B Rebate Model Pilot Program Application, Implementation, and Evaluation, OMB No. 0906-0111 - Extension (Sep. 30, 2025), https://www.aha.org/lettercomment/2025-09-30-aha-letter-hrsa-re-340brebate-model-pilot-program. The AHA also incorporates all of its legal filings in the United States District Courts for the District of Columbia and Maine, and the United States Courts of Appeals for the District of Columbia and First Circuit.

² The current RFI recognizes that the purpose of the 340B program is to “enable covered entities ‘to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.’” RFI, 91 Fed. Reg. at 7288 (quoting H.R. Rep. No. 102–384(II), at 12 (1992)).

³ American Hospital Association, Comment Letter on Application Process for the 340B Rebate Model Pilot Program (HRSA-2025-14998) 2 (Aug. 27, 2025), https://www.aha.org/system/files/media/file/2025/08/aha-comments-to-hrsa-on-proposed-340b-rebatemodel-pilot-program-letter-8-27-2025.pdf.

⁴ Tr. of Oral Arg. at 33, In re: Grand Jury, No. 21-1397 (Jan. 9, 2023).