[Federal Register Volume 91, Number 147 (Monday, August 3, 2026)]
[Notices]
[Pages 48883-48903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-15633]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Resources and Services Administration
Notice Regarding 340B Rebate Model Pilot Program
AGENCY: Health Resources and Services Administration (HRSA), Department
of Health and Human Services (HHS).
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: The U.S. Department of Health and Human Services (HHS), Health
Resources and Services Administration (HRSA), Office of Pharmacy
Affairs (OPA), which administers the 340B Drug Pricing Program (340B
Program), is issuing this Notice to announce the availability of a
revised 340B Rebate Model Pilot Program (Pilot). The Pilot provides a
rebate mechanism through which qualifying drug manufacturers may
effectuate the 340B ceiling price for certain drugs sold to covered
entities. Consistent with HRSA's longstanding statutory authority,
rebates will be used instead of upfront discounts.
HRSA issued a Request for Information (RFI) \1\ to gather input
from interested parties regarding the potential use of rebates to
effectuate the ceiling price under the 340B Program, including the
standards and procedures that should govern the approval of
manufacturer rebate plans and the impacts on all stakeholders. After
carefully considering all comments from interested parties and
different policy alternatives, HRSA is announcing this Pilot, which
will implement a rebate approach for a limited set of drugs, and which
builds on established and successful rebate programs.
---------------------------------------------------------------------------
\1\ Request for Information (91 FR 7287) (Feb. 17, 2026),
available at https://www.federalregister.gov/documents/2026/02/17/2026-03042/request-for-information-340b-rebate-model-pilot-program.
---------------------------------------------------------------------------
This Notice is effective immediately as published, unless revised
by a future notice. HRSA reserves the right to issue revisions or
addenda to this Notice at a later date.
[[Page 48884]]
DATES: Eligible manufacturers seeking to participate in the 340B Rebate
Model Pilot Program must submit plans to [email protected] no later
than August 24, 2026, for an effective date of January 1, 2027, for
selected drugs for initial price applicability year 2026 and 2027
during their price applicability periods.
FOR FURTHER INFORMATION CONTACT: Chantelle Britton, Director, Office of
Pharmacy Affairs, HRSA, 5600 Fishers Lane, Mail Stop 10W29, Rockville,
MD 20857; email: [email protected]; telephone 301-594-4353.
SUPPLEMENTARY INFORMATION:
I. Background
Section 340B of the Public Health Service Act entitled ``Limitation
on Prices of Drugs Purchased by Covered Entities,'' was created under
section 602 of Public Law 102-585, 106 Stat. 4943, 4967, the ``Veterans
Health Care Act of 1992,'' and codified at section 340B of the Public
Health Services Act (PHSA) \2\ (hereinafter ``the 340B statute'' or
otherwise referred to herein as ``section 340B''). Section 340B
requires pharmaceutical manufacturers participating in Medicare Part B
(which covers physician-administered drugs) and Medicaid to sell drugs
at reduced prices to certain healthcare providers known as ``covered
entities.'' While the 340B Program ``was intended to enable certain
hospitals and clinics `to stretch scarce federal resources as far as
possible, reaching more eligible patients and providing more
comprehensive services, Am. Hosp. Ass'n v. Hargan, 289 F. Supp. 3d 45,
47 (D.D.C. 2017) (quoting H.R. Rep. No. 102-384, pt. 2, at 12 (1992)),
participation is not limited to small hospitals that traditionally
serve a low-income population, such as community disproportionate share
hospitals. Rather, large academic medical centers and integrated health
systems may also qualify if they meet certain criteria. As of April 1,
2026, the 340B Program includes 15,249 covered entities \3\ and 49,214
associated sites \4\ and reached $100 billion in purchases at
discounted 340B pricing in 2025.
---------------------------------------------------------------------------
\2\ 42 U.S.C. 256b.
\3\ A ``covered entity'' is an entity that is listed within
section 340B(a)(4) of the PHSA, meets the requirements under section
340B(a)(5) of the PHSA, and is registered and listed in the 340B
database. 42 CFR 10.3.
\4\ Associated sites include offsite outpatient facilities
integral to a parent 340B hospital or a site that shares a grant
number or designation number for community health centers or
Federally Qualified Health Center Look-alikes.
---------------------------------------------------------------------------
Section 340B(a)(1) of the PHSA instructs HHS to enter into
pharmaceutical pricing agreements with manufacturers of covered
outpatient drugs \5\. Under section 1927(a)(1) and (5)(A) of the Social
Security Act, a manufacturer must enter into an agreement with the
Secretary that complies with section 340B ``[i]n order for payment to
be available under section 1903(a) or under part B of title XVIII of
the Social Security Act for covered outpatient drugs of a
manufacturer.'' These ``are not transactional, bargained-for
contracts'' but rather ``simply incorporate statutory obligations and
record the manufacturers' agreement to abide by them.'' Astra USA, Inc.
v. Santa Clara Cnty. 563 U.S. 110, 113, 118 (2011). When a drug
manufacturer signs a pharmaceutical pricing agreement, it agrees that
the prices charged for covered outpatient drugs to covered entities
will not exceed statutorily defined 340B ceiling prices. 340B ceiling
prices are based on quarterly pricing reports that manufacturers
provide to the Secretary through the Centers for Medicare & Medicaid
Services (CMS) and are calculated by HRSA.
---------------------------------------------------------------------------
\5\ OMB Control Number 0915-0327.
---------------------------------------------------------------------------
Section 340B imposes two core prohibitions on covered entities: (1)
duplicate discounts, and (2) diversion of drugs purchased under the
340B Program. 42 U.S.C. 256b(a)(5). To prevent duplicate discounts, the
statute specifies that a covered entity shall not request a discount
for a drug that is already subject to a separate Medicaid rebate
requirement. Id. Sec. 256b(a)(5)(A); see also Social Security Act
Sec. 1927(a)(5)(C) (creating a default mechanism for enforcing
duplicate discount prohibition if HRSA fails to implement a mechanism
to enforce the prohibition). And to prevent diversion, the statute
specifies that ``a covered entity shall not resell or otherwise
transfer the drug to a person who is not a patient of the entity.'' Id.
Sec. 256b(a)(5)(B).
The landscape governing 340B pricing obligations has also been
shaped by more recent legislation with direct implications for how 340B
ceiling prices interact with other federal drug pricing programs. In
the Inflation Reduction Act of 2022, Public Law 117-169, 136 Stat.
1818, Congress gave the Secretary authority to negotiate the prices
that Medicare pays for certain pharmaceutical products that lack
generic competition and that account for a disproportionate share of
Medicare's expenses (``selected drugs''). 42 U.S.C. 1320f(a), 1320f-
1(b), (d), (e) (hereinafter ``the Medicare Drug Price Negotiation
Program'' or ``MDPNP''). The MDPNP \6\ applies only to manufacturers
that choose to participate in Medicare and Medicaid and applies only to
the prices that Medicare pays for the selected drugs. Id. Sec. 1320f-
1(b), (d). If negotiations for a selected drug are successful, the
manufacturer memorializes its agreement to make the drug available to
Medicare beneficiaries at the negotiated price, which is called the
maximum fair price (MFP). Id. Sec. 1320f-2(a).
---------------------------------------------------------------------------
\6\ https://www.cms.gov/priorities/medicare-prescription-drug-affordability/overview/medicare-drug-price-negotiation-program.
---------------------------------------------------------------------------
The negotiated price of drugs and biologics in the MDPNP and the
340B Program are not cumulative. 42 U.S.C. 1320f-2(d). If a
manufacturer provides a drug to a Medicare beneficiary at the MFP
established by the MDPNP and if the negotiated price is lower than the
340B ceiling price, then the manufacturer need not also provide a 340B
discount to the covered entity. Id.; see Ctrs. for Medicare & Medicaid
Servs. (CMS), Medicare Drug Price Negotiation Program: Final Guidance,
Implementation of Sections 1191-1198 of the Social Security Act for
Initial Price Applicability Year 2028 and Manufacturer Effectuation of
the Maximum Fair Price in 2026, 2027, and 2028, at 253-256 (Sept. 30,
2025), https://perma.cc/37EL-GRUW. Negotiated prices for the first year
of the MDPNP took effect on January 1, 2026. Id. at 154.
II. Statutory Framework and Early Implementation of the 340B Program
A. Statutory Flexibility in Pricing Mechanisms
Since its beginning, the 340B price reductions were to be
``implemented, at the discretion of the Secretary, either by a point-
of-purchase discount, a rebate, or other mechanism.'' H.R. Rep. No.
102-384, pt. 2, at 12 (1992); id. (stating manufacturers ``would have
to enter into an agreement with the Secretary of HHS to provide price
reductions (whether through a discount, rebate, or other mechanism) to
these `covered entities' on covered outpatient drugs''); see also
Guidance Regarding Section 602 of the Veterans Health Care Act of 1992;
Limitation on Prices of Drugs Purchased by Covered Entities, 58 FR
27289, 27290 (May 7, 1993) (stating that the act creating the 340B
Program is ``an attempt to provide federal purchasers with a process
whereby they will receive drug discounts or rebates''). As the House
Report stated:
The Committee bill does not specify whether ``covered entities''
would receive
[[Page 48885]]
these favorable prices through a point-of-purchase discount, through
a manufacturer rebate, or through some other mechanism. A mechanism
that is appropriate to one type of ``covered entity,'' such as
community health centers, may not be appropriate to another type,
such as State AIDS drug purchasing programs. The Committee expects
that the Secretary of HHS, in developing these agreements, will use
the mechanism that is the most effective and most efficient from the
standpoint of each type of ``covered entity.''
H.R. Rep. No. 102-384, pt. 2, at 16 (1992).
B. Early Reliance on Upfront Discounts and Replenishment Models
During the 340B Program's early stages, covered entities maintained
separate physical inventories of 340B drugs for eligible patients and
drugs purchased at a higher commercial price for ineligible patients.
Over time the replenishment (or virtual inventory) model emerged as the
standard approach. Under a replenishment model, a pharmacy first
dispenses drugs to patients from one commercial inventory, also
referred to as its neutral inventory. Specialized software then
evaluates each dispense to determine whether the patient qualifies as a
340B-eligible patient of the covered entity. Once a sufficient quantity
of eligible dispenses has accumulated, the covered entity is authorized
to purchase a matching replenishment quantity of that drug at the
discounted 340B price through its wholesaler account, which is then
shipped to the pharmacy to restock its neutral inventory. In this way,
the covered entity effectively captures the 340B discount retroactively
on drugs already dispensed to eligible patients, allowing it to realize
the cost savings the program is designed to provide.
After several years of experience with this system, HRSA identified
limitations for certain covered entities. In particular, it found that
State AIDS Drug Assistance Programs (ADAPs) ``have drug purchasing
systems that have prevented their participation in the section 340B
discount program.'' 62 FR 45824 (Aug. 27, 1997). To address this
constraint, unlike other 340B entities, ADAPs can choose to participate
as a direct purchase entity (i.e. receive the 340B discount upfront)
and/or through a rebate mechanism. In the ADAP rebate model, ADAPs pay
retail prices to dispensing pharmacies on behalf of their clients. The
Secretary subsequently recognized this approach, permitted ADAPs to
obtain 340B pricing through rebates from manufacturers equal to the
difference between the retail price paid and the 340B ceiling price,
and required manufacturers to offer such rebates to ADAPs, emphasizing
that the agency was ``recogniz[ing] a rebate option'' for these
providers.
C. Emergence of Rebate Proposals and Recent Agency Actions
Following passage of the MDPNP, a number of pharmaceutical
manufacturers approached HRSA in 2024 with proposals to implement a new
rebate model for complying with 340B pricing requirements. Each
proposal for a rebate model worked in a similar way: covered entities
(or contract pharmacies acting on their behalf) would initially
purchase drugs at commercial prices and then, after dispensing the
drugs to 340B patients, would submit claims to the manufacturers for a
cash rebate ``equal to the difference between the acquisition cost and
the 340B ceiling price.''
In the fall of 2024, several pharmaceutical manufacturers informed
HRSA that they intended to roll out rebate models irrespective of the
Secretary's approval. HRSA responded to these proposals with similar
letters and expressed concern that ``[s]hifting to the rebate model
would disrupt how the 340B Program has operated for over thirty years''
and sought clarification on how rebates would affect providers and
patients. To that end, HRSA requested responses to a detailed list of
questions to enable it to better evaluate the manufacturers' proposals.
The letters sought additional information about how the manufacturers
would process and approve or reject claims; inquired into data privacy
practices; and sought assurances that in implementing the rebates, the
manufacturers would comply with their obligations under section 340B.
Each manufacturer responded to these questions, and covered entities
expressed concerns that the proposed models would fundamentally shift
how the 340B Program has operated for over 30 years. At the time, HRSA
considered information from a variety of stakeholders, including
manufacturers, covered entities, trade organizations representing the
interests of covered entities and manufacturers, information technology
(IT) companies, and other supply chain trade organizations.
HRSA concluded its deliberations by determining manufacturer-
imposed rebate approaches violate a manufacturer's obligations under
Section 340B(a)(1) of the Public Health Service Act because the 340B
statute requires Secretarial pre-approval of any rebate mechanism and
that no manufacturer may unilaterally shift from upfront discounts to a
rebate structure without HHS authorization. The court in Eli Lilly &
Co. v. Kennedy, No. 24-cv-03220, 2025 WL 1423630 (D.D.C. May 15, 2025)
agreed, holding that HRSA does have authority to require pre-approval
of rebate models and that manufacturers may not implement such models
unilaterally.\7\ Id. at *14.
---------------------------------------------------------------------------
\7\ On July 21, 2026, the D.C. Circuit affirmed the district
court's ruling upholding HHS's position that Section 340B permits
rebate models and manufacturers may not unilaterally implement such
models without HHS Secretarial approval. Novartis Pharms. Corp. v.
Kennedy, No. 25-5177 (D.C. Cir. July 21, 2026).
---------------------------------------------------------------------------
Consistent with these developments, after considering the
information received, on August 1, 2025, HRSA published a Federal
Register Notice (``2025 Notice'') inviting manufacturers with MDPNP
Agreements with CMS for initial price applicability year 2026 to
participate in a voluntary rebate model pilot program. 90 FR 36163
(Aug. 1, 2025); see also HRSA Announces Application Process for the
340B Rebate Model Pilot Program and Request for Public Comment (July
31, 2025), https://www.hrsa.gov/about/news/press-releases/rebate-model-pilot-program. The pilot program was intended to launch a rebate model
across a limited set of drugs that were subject to the MDPNP in 2026 to
ensure a fair and transparent 340B rebate model process for all
stakeholders involved.
HRSA received 1,243 public comments from stakeholders in response
to the 2025 Notice, including from covered entity and manufacturer
trade organizations, individual covered entities, and drug
manufacturers. HRSA's review of the public comments helped to inform
the Agency's review of and decision on whether to approve the
manufacturer applications, and the conditions of approval.
On October 30, 2025, HRSA announced the approval of eight
manufacturer applications for participation in the pilot program, with
an effective date of January 1, 2026. HRSA later approved a ninth
manufacturer application for participation in the pilot program with an
effective date of April 1, 2026.
On December 1, 2025, covered entity stakeholders filed suit under
the Administrative Procedure Act in the U.S. District Court for the
District of Maine to enjoin implementation of the 2025 340B Rebate
Model Pilot Program. See Am. Hosp. Ass'n v. Kennedy, 820 F. Supp. 3d 30
(D. Me. 2025). On December 29, 2025, the District Court granted the
Plaintiffs' request for a preliminary injunction, thus triggering a
nationwide pause of the Pilot, while
[[Page 48886]]
confirming that in establishing and implementing the 2025 340B Rebate
Model Pilot Program, HRSA was not required to respond to public
comments. Id. at 45. HHS appealed the preliminary injunction to the
U.S. Court of Appeals for the First Circuit, which denied a stay of the
District Court's order, thus keeping in place a nationwide pause of the
2025 Pilot. Am. Hosp. Ass'n v. Kennedy, 164 F.4th 28 (1st Cir. 2026).
HHS later voluntarily dismissed its appeal of the preliminary
injunction, which was granted by the First Circuit on January 20, 2026,
and opted to withdraw the 2025 Pilot. On February 10, 2026, the
District Court formally vacated and remanded to HHS the ``340B Rebate
Model Pilot Program Application Notice,'' 90 FR 36163 (Aug. 1, 2025),
the ``Corrected 340B Rebate Model Pilot Program Application Notice,''
90 FR 38165 (Aug. 7, 2025), and the approvals of applications from drug
manufacturers submitted pursuant to those notices (announced between
October 30 and November 14, 2025).
III. Expansion and Transformation of the 340B Program
At its inception, the 340B Program operated as a relatively simple
pricing requirement. Covered entities were few in number, and the
statutory scheme contemplated a straightforward transactional model in
which manufacturers would provide drugs at discounted prices at the
point of sale. Program administration reflected those assumptions:
entities dispensed drugs directly, often from segregated inventories,
and the application of the ceiling price occurred in a largely
contemporaneous and verifiable manner. This structure aligned with the
program's scale. With limited participants and relatively simple
distribution arrangements, an upfront discount model provided a
practical and administrable means of ensuring compliance with the
ceiling price requirement.
Over time, however, the program expanded significantly.
Administrative guidance permitted covered entities to rely on contract
pharmacies and to utilize replenishment inventory systems rather than
maintaining separate physical inventories.\8\ Congress further expanded
the program through the Patient Protection and Affordable Care Act,
which increased the number and types of eligible covered entities.\9\
Public Law 111-148, Sec. 7101(a), 124 Stat. 119, 821-22 (2010). As a
result of these developments, the 340B Program has evolved into a large
and economically significant component of the pharmaceutical
marketplace.
---------------------------------------------------------------------------
\8\ See, e.g., 61 FR 43549 (Aug. 23, 1996) (permitting one
contract pharmacy per covered entity); 75 FR 10272 (March 5, 2010)
(permitting covered entities to use multiple contract pharmacies).
\9\ The ACA added five additional categories of hospital covered
entities: Pediatric Hospitals, Rural Referral Centers, Critical
Access Hospitals, Cancer Hospitals, and Sole Community Hospitals.
---------------------------------------------------------------------------
That growth has been substantial. In 2022, total 340B program sales
reached $53.7 billion when measured at the discounted 340B price by
2023, covered entities purchased $66.3 billion in covered outpatient
drugs under the program, representing approximately 23.4% growth in
just 1 year. Comparatively, in 2023, prescription drug spending in the
U.S. grew 10.1%. By 2024, covered entities purchased $81.4 billion in
covered outpatient drugs under the program, representing approximately
50% growth in just 2 years.
Over a longer horizon, there was a 174% increase in the number of
covered entities between 2013 and 2023. As the market has shifted,
covered entities now include large hospital systems and extensive
networks of affiliated hospital outpatient sites, often operating
through numerous arrangements with contract pharmacies.
A 340B contract pharmacy is a retail or specialty pharmacy that has
entered into a formal agreement with a covered entity to dispense drugs
on the covered entity's behalf. Because many covered entities, such as
federally qualified health centers, lack the ability to operate their
own in-house pharmacy, contract pharmacy arrangements provide a
mechanism to extend their 340B Program benefits to eligible patients by
leveraging existing pharmacy infrastructure. Under this arrangement, a
contract pharmacy dispenses drugs to the covered entity's eligible
patients, while the covered entity retains ultimate responsibility for
ensuring compliance with 340B Program requirements, including proper
tracking of eligible dispenses and accurate replenishment ordering.
As the 340B Program has grown, so too has its operational
complexity. Transactions now frequently occur through multi-step
distribution channels involving contract pharmacies and retrospective
eligibility determinations. Because 340B transactions often flow
through multi-step distribution channels, including contract pharmacies
that serve multiple covered entities, real-time eligibility
verification at the point of sale is not always feasible, leaving
eligibility determinations to be made after the fact based on claims
data that may be incomplete or inconsistently documented. This
retrospective approach creates a gap between when a drug is dispensed
and when eligibility is confirmed, making it difficult to ensure that
discounted purchases are accurately matched to qualifying patients
(i.e., raising the risk of diversion) and raising the risk that the
same transaction could be counted toward both a 340B discount and a
Medicaid rebate, a duplicate discount that the statute expressly
prohibits. In this environment, administrative and program integrity
challenges, including difficulties in verifying patient eligibility at
the point of sale and preventing statutorily prohibited diversion and
duplicate discounts, present challenges as the 340B Program has evolved
over time.
The progression of the 340B Program from a narrow pricing safeguard
to a complex, multi-billion-dollar system thus underscores the
importance of flexibility in determining how statutory pricing
obligations are implemented. The 340B statute itself contemplates such
flexibility, directing that the ceiling price be determined ``taking
into account any rebate or discount, as provided by the Secretary.'' 42
U.S.C. 256b(a)(1). Accordingly, the method by which that price is
effectuated must be capable of adapting to the Program's current scale
and operational realities.
While HRSA initially administered the Program as primarily an
upfront discount drug purchasing model, the size and complexity of the
340B Program and the pharmaceutical distribution chain, together with
the MDPNP framework and nonduplication requirements,\10\ warrant
reconsideration of whether the upfront discount model remains the most
effective means of
[[Page 48887]]
carrying out statutory objectives. In exercising its stewardship role,
HRSA must balance covered entities' longstanding reliance on the
upfront discount model against the need to ensure effective program
oversight, safeguard the benefits of 340B pricing, and maintain program
integrity and accountability in a rapidly evolving landscape, as it has
done in the past.
---------------------------------------------------------------------------
\10\ As stated in Medicare Drug Price Negotiation Program:
Revised Guidance, Implementation of Sections 1191-1198 of the Social
Security Act for Initial Price Applicability Year 2026, ``in
accordance with section 1193(d)(1) of the Social Security Act, the
Primary Manufacturer of a selected drug is not required to provide
access to the Maximum Fair Price (MFP) for a selected drug to MFP-
eligible individuals who are eligible to be furnished, administered,
or dispensed such selected drug at a covered entity described in
section 340B(a)(4) of the (Public Health Service (PHS)) Act if the
selected drug is subject to an agreement described in section
340B(a)(1) of the PHSA and the 340B ceiling price (defined in
section 340B(a)(1) of the PHSA is lower than the MFP for such
selected drug. Under section 1193(d)(2) of the Social Security Act,
the Primary Manufacturer is required to provide access to the MFP to
340B covered entities in a deduplicated amount to the 340B ceiling
price if the MFP for the selected drug is lower than the 340B
ceiling price for the selected drug.''
---------------------------------------------------------------------------
IV. Program Integrity Considerations
When HRSA adopted the rebate option for ADAPs in 1998, commenters
asserted that such a model should be limited only to ADAPs and not
expanded to other categories of covered entities. HRSA responded that
it agreed with those commenters, ``at this time.'' 63 FR 35241, 35241-
42 (June 29, 1998). As noted above, however, the Program has changed
dramatically in the intervening 28 years. Since 1998, there have been
multiple reports by Congress and governmental agencies noting the
exponential growth of the Program; \11\ the difficulty of enforcing the
prohibition on duplicate discounts; \12\ and concerns surrounding
diversion.\13\ The 1998 ADAP guidance predates the adoption of the
outpatient prospective payment system in 2000 (which led CMS to codify
a regulatory policy on off-campus provider billing), as well as the
enactment of Medicare Part D in 2003 (which created a new outpatient
drug benefit for Medicare beneficiaries while dramatically expanding
the use and understanding of rebates in the pharmaceutical supply
chain), the Deficit Reduction Act in 2005 (which added pediatric
hospitals as a class of 340B covered entities), the Affordable Care Act
in 2010 (which added five additional categories \14\ of 340B hospital
covered entities), and the Inflation Reduction Act in 2022 (which gave
CMS the authority to negotiate drug prices but creating the potential
for a new category of duplicate discounts).
---------------------------------------------------------------------------
\11\ Comm. on Energy and Com., Review of the 340B Drug Pricing
Program (2018) (noting that the number of unique covered entities
had grown 300% between 2011 and 2017; that the number of child sites
had increased by 78% during that period; and that the number of
contract pharmacies had increased 158% in that same period). See
also U.S. Gov't Accountability Off., GAO-26-108784, 340B Drug
Discount Program: Agency Oversight Has Improved, but Actions Needed
to Address Weaknesses (2025) (finding a 174% increase in the number
of covered entities between 2013 and 2023).
\12\ U.S Dep't of Health & Hum. Servs. Off. of Inspector Gen.,
OEI-05-1300431 at 2, Memorandum Report: Contract Pharmacy
Arrangements in the 340B Program (2014) (noting that ``contract
pharmacy arrangements create complications in preventing duplicate
discounts''); see also U.S Dep't of Health & Hum. Servs. Off. of
Inspector Gen., OEI-05-14-00430, State Efforts to Exclude 340B Drugs
from Medicaid Managed Care Rebates at 10 (2016); see also U.S. Gov't
Accountability Off., GAO 20-212, 340B Drug Discount Program:
Oversight of the Intersection with the Medicaid Drug Rebate Program
Needs Improvement (2020).
\13\ U.S Dep't of Health & Hum. Servs. Off. of Inspector Gen.,
OEI-05-1300431 at 2, Memorandum Report: Contract Pharmacy
Arrangements in the 340B Program (2014).
\14\ The Affordable Care Act added pediatric hospitals; rural
referral centers; critical access hospitals; cancer hospitals; and
sole community hospitals.
---------------------------------------------------------------------------
The growing complexity of the pharmaceutical supply chain, combined
with the enactment of the statutory provisions cited above, makes
program integrity a growing risk. For example, the 340B statute is
clear that a manufacturer is not required to provide a rebate for a
unit of a covered outpatient drug under the Medicaid Drug Rebate
Program and provide 340B pricing for that same unit of drug. Yet the
growing number of child sites of covered entities and contract
pharmacies and the growth in the number of patients who are eligible
for insurance coverage for prescription drugs make it more difficult to
guard against duplicate discounts with an up-front discount model.
Child sites and contract pharmacies introduce complexity because they
operate separately from the covered entity itself, often billing under
their own identifiers or through intermediary systems that may not be
fully integrated with the covered entity's patient eligibility records.
When a prescription is dispensed at one of these locations, the covered
entity may lack real-time visibility into whether a Medicaid payer is
involved, making it difficult to flag the transaction and exclude it
from 340B pricing before the discount is applied. Without an ability to
verify if a drug is 340B priced, the same drug purchase risks being
simultaneously discounted under 340B and submitted for a Medicaid
rebate, precisely the duplicate discount the statute is designed to
prevent. Moreover, the HHS Office of Inspector General has noted that
the prohibition on duplicate discounts is difficult to enforce with
respect to drugs dispensed to Medicaid managed care enrollees,
especially because the Medicaid Exclusion File, (MEF) \15\ which HRSA
created in 1993 for fee-for-service Medicaid, is inadequate to capture
duplicate discounts with respect to Medicaid managed care enrollees,
and that this inadequacy results in both duplicate discounts going
unreported as well as excluding some non-340B claims from rebate
invoices, thereby resulting in foregone Medicaid rebates to states.\16\
The Government Accountability Office (GAO) has identified a similar
concern.\17\
---------------------------------------------------------------------------
\15\ Pursuant to section 340B(a)(5)(A)(ii) of the PHSA, HRSA
established the 340B Medicaid Exclusion File (MEF) as the mechanism
to assist 340B covered entities and States in the prevention of
duplicate discounts for drugs subject to Medicaid rebates. 58 FR
34058, 34058 (June 23, 1993). The 340B MEF is available on 340B
Office of Pharmacy Affairs Information System. HRSA publishes the
340B MEF, which lists all of the covered entities that choose to
bill Medicaid fee-for-service for the 340B drugs used for their
Medicaid patients (carve-in), as the official data source to
facilitate the prevention of duplicate discounts.
\16\ U.S. Dep't of Health & Hum. Servs. Off. of Inspector Gen.,
OEI-05-14-00430, State Efforts to Exclude 340B Drugs from Medicaid
Managed Care Rebates (2016).
\17\ U.S. Gov't Accountability Off., GAO-26-108784, Agency
Oversight Has Improved, But Actions Needed to Address Weaknesses
(2025).
---------------------------------------------------------------------------
While there is no federal estimate of the financial extent of
duplicate discounts in 340B, the topic has been evaluated by industry
and academia. Manufacturer commenters stated in 2019, when the 340B
program was less than half its current size, Medicaid/340B duplicate
discounts amounted to as much as $1.5 billion annually. HRSA is using
the flexibility granted by the 340B statute and recognized by Congress
on the enactment of the program to expand the use of a rebate model in
the program. The Pilot will use a rebate approach to mitigate the
deficiencies cited by Congress and other governmental entities in
enforcing the prohibition on duplicate discounts, by proving a
mechanism to avoid duplicate discounts.
V. Summary of Public Comments and HRSA Responses
On February 17, 2026, HRSA published a Request for Information
(RFI) (91 FR 7287 (Feb. 17, 2026)) to gather broad stakeholder comments
on a wide range of topics having to do with the potential use of
rebates to effectuate the ceiling price under the 340B Program. The RFI
sought comments on whether HRSA should implement a rebate model under
the 340B Program, how best to operationalize any such rebate framework
for stakeholders, and the potential operational and financial impacts
of transitioning to a rebate model under the 340B Program. The RFI also
sought comment on reliance interests in continuing to obtain the 340B
ceiling prices through upfront discounts and whether such reliance
interests are reasonable in light of the Secretary's express statutory
authority to provide for acquisition of covered outpatient drugs at the
340B ceiling price via ``rebate or discount.'' Commenters were invited
to provide privileged or confidential information that they believed
was necessary to
[[Page 48888]]
comment on the RFI. Those comments were not made public and were
submitted to a separate email box ([email protected]).
HRSA reviewed 2,449 public comments in response to that RFI,
including 1,170 identical comments as part of a letter campaign. HRSA
also received 26 non-public submissions for a total of 2,475 comments,
all of which HRSA considered in the design of the revised Pilot.
This substantial feedback on the RFI came from a broad range of
stakeholders across the health care and pharmaceutical sectors,
including hospitals, health systems, federally qualified health
centers, rural providers, Tribal organizations, manufacturers,
pharmacies, technology companies (technology vendors with platforms to
receive claims submissions), advocacy groups, and other interested
parties. Comments reflect differing perspectives on the potential
implementation of a rebate-based approach. Many covered entity
stakeholders expressed concerns regarding the financial, operational,
and administrative implications of a rebate model, including potential
cash flow impacts and implementation burden. Covered entities expressed
a high degree of consistency in comments across provider types. While
Critical Access Hospitals, rural hospitals, FQHCs, and larger health
systems emphasized different operational challenges, there was broad
agreement that a rebate model could increase financial and
administrative burden. The principal differences in covered entity type
comments were in the nature of the risks highlighted: cash flow and
liquidity for rural providers, operational complexity for larger
systems, and patient access concerns for community-based and specialty
safety-net providers. In contrast, manufacturers, technology vendors,
some employer and purchaser coalitions, several patient advocacy groups
and other stakeholders generally support a rebate model, emphasizing
its potential to improve transparency, enhance program integrity, and
address manufacturer challenges related to avoiding duplicative price
concessions, including those involving the MDPNP and the Medicaid Drug
Rebate Program. Across stakeholder groups, HRSA also received input on
the importance of minimizing administrative burden and ensuring that
any model leverages existing data and operational processes. The
comments received on the RFI also provided HRSA with information on the
potential advantages and disadvantages that implementation of a rebate
model would have on the patients served by different covered entity
types.
HRSA carefully reviewed and evaluated all comments submitted in
response to the RFI. The agency conducted a systematic assessment of
stakeholder input and used that feedback to inform the design and
policy rationale of this revised Pilot. The following sections describe
in greater detail how stakeholder perspectives shaped specific
components of this revised Pilot and explain HRSA's responses to the
principal issues raised. HRSA's evaluation considered both the
substance and the evidentiary support of the comments received, and the
agency's responses to the major comment themes are summarized below.
A. Reliance Interests Related To Maintaining Up Front Discounts
Commenters express differing views on the reliance interests of
covered entities in the current upfront discount model. Several covered
entity organizations express concern that HRSA has not accounted for
covered entities' reliance interests in maintaining an upfront discount
model. These commenters state that an upfront discount model has been
used in the Program for more than 30 years and covered entities have
reasonably relied on this consistency when designing their internal
operations. They argue that there is no reason to shift to what they
view as a costly rebate mechanism given this history. By contrast,
manufacturers assert the costs of implementing a rebate mechanism have
been overstated and the benefits of a rebate mechanism far outweigh the
additional costs. They further assert that a rebate mechanism is not a
novel concept as it has been used in a limited capacity in the 340B
Program for decades, is widely employed across the drug industry, and
the current replenishment system functions in several respects like a
rebate mechanism, particularly insofar as post-dispensing
determinations and financial true-up already occur outside the point of
sale.
HRSA does not agree that exclusive reliance on an upfront discount
model is reasonable or that such reliance foreclose consideration of
alternative statutory mechanisms. The 340B statute expressly recognizes
the authority to provide the 340B ceiling price via ``rebate or
discount,'' which provides the Secretary, through HRSA, discretion in
how best to operationalize the statutory pricing requirement.
Therefore, stakeholders cannot reasonably claim that a rebate model is
unforeseeable or outside the range of expected administrative options.
Rebates are a common reimbursement mechanism across the pharmaceutical
sector and have been recognized by HRSA since 1998 as a valid mechanism
for 340B reimbursement for AIDS drug assistance programs. Rebates are
also used extensively in Medicare Part D, including with respect to
Part D drugs that are dispensed by pharmacies that may have contract
pharmacy agreements with 340B Program covered entities. To the extent
covered entities structured their operations around a single delivery
mechanism, such reliance must be understood in light of the 340B
statute's plain language and the 340B Program's evolving administrative
framework and the evolution of the pharmaceutical distribution chain
over the past 20 years.
The Medicare Part D Program relies extensively on rebates.
Manufacturers pay rebates to Part D plans in exchange for formulary
placement and other services such as developing a pharmacy network and
Part D benefit design. Typically, dispensing a drug for which there is
a rebate agreement to a Part D enrollee triggers the payment of a
rebate from the manufacturer to the Part D plan, and CMS has a
mechanism in place to report the payment of that rebate via its Direct
and Indirect Remuneration guidance.\18\ HRSA anticipates that a rebate
model would work similarly to the operation of rebates in the Part D
Program; the 340B covered entity's dispensing of a drug that qualifies
for the 340B price reduction would trigger the payment of a rebate by
the manufacturer. Over the 20-year history of the Part D Program, a
sophisticated rebate mechanism has developed and HRSA anticipates that
a rebate model in the 340B Program would work similarly.
---------------------------------------------------------------------------
\18\ See https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-indirect-remuneration-dir.
---------------------------------------------------------------------------
The significant growth in size and complexity of the 340B Program
has introduced oversight challenges that were less pronounced when the
Program was smaller and less complicated. While covered entities have
relied on the upfront discount model for three decades, HRSA in its
stewardship role must balance these interests against the rapidly
changing 340B landscape that requires HRSA to weigh competing policy
concerns, including program accessibility, administrative feasibility,
statutory compliance, and the prevention of duplicate discounts and
diversion.
The Supreme Court has explained that in those instances where an
agency
[[Page 48889]]
must consider reliance interests when deciding whether to change a
long-standing policy, an agency may consider whether language in the
ultimate source of the alleged reliance interests should have warned
the public away from relying too heavily on a particular policy. See
Dep't of Homeland Sec. v. Regents of Univ. of Cal., 591 U.S. 1, 32
(2020) (explaining that it would be permissible for the Department of
Homeland Security to ``respond that reliance on forbearance [from
removal] and benefits was unjustified in light of the express
limitations in the [agency memorandum]'' stating that it conferred no
substantive rights). But even if one assumed for the sake of discussion
that covered entities' reliance interests in this context are
reasonable as a matter of law, such a conclusion does not thereby
transform such reliance interests into a categorical prohibition
against the Secretary exercising his express statutory discretion to
provide for 340B pricing via ``rebate or discount.'' Were it not
otherwise, reliance interests would have the impermissible effect of
amending statutory language that gives an agency the express discretion
to choose between two different implementation methods. As the Supreme
Court has explained, ``even if [an agency] ultimately concludes that
the reliance interests rank as serious, they are but one factor to
consider. [The agency] may determine, in the particular context before
it, that other interests and policy concerns outweigh any reliance
interests.'' Regents of Univ. of Cal., 591 U.S. at 32.
Such is the case here. As cited throughout this Notice, HRSA
recognizes that there are costs associated with a rebate model, and for
this reason has incorporated implementation features designed to limit
or reduce operational disruption. The 340B statute expressly gives the
Secretary the authority to choose between discounts or rebates. HRSA
has taken into consideration covered entities' reliance interests and
found that, on balance, they do not outweigh the significant benefits
of proceeding with the Pilot as described in this Notice.
Moreover, it is true that the 340B statute ``was intended to enable
certain hospitals and clinics to stretch scarce federal resources as
far as possible, reaching more eligible patients and providing more
comprehensive services.'' Am. Hosp. Ass'n v. Hargan, 289 F. Supp. 3d
45, 47 (D.D.C. 2017) (internal quotation marks and citation omitted).
But as the Supreme Court recently confirmed in rejecting hospitals'
reliance on the general purpose of a statute designed to increase
certain hospitals' Medicare payments, ``[n]o statute pursues a single
policy at all costs, and we are not free to rewrite this statute (or
any other) as if it did.'' Advocate Christ Med. Ctr. v. Kennedy, 605
U.S. 1, 19 (2025) (internal quotation marks and citation omitted). As
explained above, the 340B Program has witnessed unprecedented growth
recently that has caused certain 340B Program stakeholders to
reasonably question whether covered entities are complying with the
340B statute's requirements, including the prohibition against
duplicate discounts. The Pilot as described in this Notice exercises
the Secretary's express statutory authority to provide for 340B pricing
via rebate, applied to a well-defined subset of 340B drugs that
represent a relatively modest portion of overall 340B drug discounts.
B. Duplicate Discount Prevention and Program Integrity
Commenters identify duplicate discount prevention and overall
program integrity as key considerations in evaluating a potential 340B
rebate model. Manufacturers, technology and data intermediaries,
certain pharmacy and manufacturer vendor stakeholders and some employer
purchaser organizations emphasize that the current 340B framework
presents challenges in identifying and preventing duplicate discounts
across federal pricing programs, including Medicaid (fee-for-service
and managed care) and Medicare, particularly in light of the
implementation of the MDPNP and the Medicare Prescription Drug
Inflation Rebate Program. These commenters state that existing
mechanisms, such as the MEF and claims modifiers, are limited in their
ability to ensure accurate, real-time identification of 340B
utilization and often require post-hoc audits, manual reconciliation,
and dispute resolution. Some commenters cite industry analyses,
proprietary data, and government oversight reports suggesting that
duplicate discounts may represent a significant source of program
inefficiency and financial exposure. These commenters reference
government reports identifying challenges in preventing duplicate
discounts, particularly within Medicaid managed care, and separately
cite industry analyses estimating that duplicate discounts could affect
a substantial portion of 340B transactions and represent tens of
billions of dollars annually, as well as hundreds of millions of
dollars in unresolved disputes. These commenters assert that the
implementation of the maximum fair prices under the MDPNP, further
increases the likelihood of overlapping price concessions across
programs and state that a rebate model, supported by claims-level data
validation, could improve transparency and enable more accurate
coordination across pricing programs, thereby reducing the incidence of
duplicate discounts and related disputes.
Manufacturers express that existing mechanisms are insufficient to
reliably identify and prevent duplicate discounts between the 340B
Program and the MDPNP. These commenters emphasize that, under the
current framework, manufacturers lack timely access to claims-level
data to identify all units subject to 340B pricing for which maximum
fair price effectuation is not required. Manufacturers state that
current efforts rely on claims modifiers, estimation methodologies, and
voluntary data reporting that do not provide the manufacturers with
precision they desire to minimize duplication of discounts.
Manufacturers further highlight the operational challenges created by
timing misalignments, whereby 340B eligibility is often determined
after pricing decisions must be made, increasing the risk of duplicate
discounts and requiring retrospective reconciliation through resource-
intensive ``pay-and-chase'' processes. Based on these limitations,
manufacturers contend that a rebate-based model, which links price
concessions to validated claims data, would provide a more accurate,
transparent, and administratively efficient mechanism to identify and
prevent duplicate discounts across federal pricing programs.
Covered entity groups acknowledge the importance of preventing
duplicate discounts but contend that the current framework, when
properly implemented, is sufficient to meet statutory requirements,
including in the context of MDPNP implementation. These commenters
state that covered entities already maintain compliance systems,
including inventory controls, billing safeguards, and audit processes,
to prevent duplicate discounts and diversion, and that existing
coordination mechanisms can be adapted to address MDPNP-related
requirements.
Many commenters also express concern that a rebate model could
shift compliance responsibility and financial risk onto covered
entities while introducing additional administrative complexity,
particularly given the requirements associated with MDPNP
implementation. Commenters also identify alternative approaches to
[[Page 48890]]
addressing duplicate discounts within the existing framework, including
enhanced use of claims modifiers, improvements to the MEF, standardized
data-sharing arrangements, and the potential use of centralized or
third-party clearinghouse models that do not require a shift from
upfront discounts to a rebate-based pricing mechanism.
In response to these comments, HRSA recognizes the importance of
ensuring program integrity and enabling manufacturers to prevent
duplicate price concessions across all applicable pricing programs.
HRSA believes that a rebate-based approach, which is authorized by the
340B statute, including the use of standardized claims-level data, will
improve the identification and prevention of duplicate discounts. HRSA
will use data collected through the Pilot, including rebate
submissions, denials, and dispute outcomes, to more effectively prevent
duplicate discounts relative to existing mechanisms and to inform
future policy considerations related to program integrity and
compliance. HRSA believes that the manufacturer data collection from
covered entities under this Pilot will enable manufacturers to better
identify 340B transactions both for purposes of their nonduplication
efforts in MDPNP and deduplication in Medicaid Managed Care.
Also, there are many advantages a rebate model has for prospective
program integrity measures and overall transparency, including ensuring
that stakeholders have transparency into 340B transaction information.
Alternatives that would preserve the upfront discount model or rely on
clearinghouse mechanisms would not inform whether rebates are an
efficient means of effectuating the 340B ceiling price, an option
expressly authorized under the 340B statute, and therefore would fail
to advance the central purpose of the Pilot. HRSA does not believe that
reliance solely on standardized claim identifiers, audits, or improved
coordination between government programs would be sufficient to address
duplicate discount risks. Retrospective reviews, audits, and dispute
resolution processes are inherently reactive, identifying potential
duplicate discounts only after they have occurred. Conversely, a rebate
model incentivizes covered entity compliance as a prerequisite to
receiving 340B discounts.
Improved coordination across government programs is complicated by
differences in timing, data availability, and program administration,
which limit the ability to reconcile transactions accurately and in
real time. As a result, these approaches alone may not provide the
level of precision, timeliness, and scalability necessary to ensure
compliance with statutory nonduplication requirements. A rebate-based
model, which ties price concessions to validated, claims-level data
prior to payment, is intended to enhance HRSA's oversight of the 340B
Program and improve program integrity by enabling more accurate,
prospective identification of eligible transactions.
The Pilot will assist HRSA's evaluation of retrospective, claims-
based reconciliation and may offer additional safeguards to assess
whether a rebate model can improve transparency and HHS will use
information from this Pilot to support compliance with statutory
requirements across federal drug pricing programs.
C. Administrative and Implementation Costs to Covered Entities
Several commenters, primarily covered entities and provider
organizations, assert that implementation of a rebate model would
impose significant additional costs on covered entities across multiple
dimensions. These commenters identify increased administrative burden,
staffing needs, system modifications, and heightened financial exposure
related to cash flow as key areas of concern. Many compare the costs
associated with the upfront discount model to projected costs under a
rebate-based approach and contend that the latter would be
substantially higher.
By contrast, manufacturers and technology company commenters
dispute these characterizations, arguing that the cost estimates
submitted by covered entities are overstated or unsupported.
Manufacturer and technology company commenters emphasize that covered
entities are already required to collect and maintain the relevant
claims-level data as part of routine billing, compliance, and audit
activities. In their view, the data sharing requirements contemplated
under a rebate model are materially similar to existing obligations
imposed by Medicare, Medicaid, and commercial payers. These commenters
further assert that existing infrastructure, including internal systems
and third-party administrators (TPAs), can be leveraged to support data
submission and rebate processing, thereby mitigating any incremental
administrative burden or associated costs.
More specifically, covered entity and provider organizations
commenters raise the following concerns regarding the potential costs
of implementing a rebate pilot program, which manufacturer and
technology company commenters contend are overstated.
1. Comments Concerning Current Administrative Costs Under the Upfront
340B Discount
Covered entities and provider organizations generally describe
current administrative costs for the upfront discount replenishment
model as manageable and well-integrated into existing operations,
noting that their systems, staffing, and workflows have been developed
over time to support compliance with 340B requirements, including
inventory management, split-billing, duplicate discount prevention, and
audit readiness. Covered entities employ third-party administrators
(TPA), which are specialized vendors that manage the administrative and
operational functions of the 340B Program on behalf of covered
entities, including tracking patient eligibility, managing split-
billing software, processing claims data, and ensuring compliance with
program requirements. These commenters emphasize that while program
participation entails ongoing administrative effort, including use of
third-party administrators (TPAs), compliance monitoring, and periodic
audits, these activities are predictable, standardized, and embedded
within existing pharmacy and billing infrastructure.
Manufacturers and technology company commenters offer a contrasting
view, asserting that current administrative processes under the upfront
discount model are complex, fragmented, and resource-intensive. In
particular, they point to challenges in identifying and resolving
duplicate discounts, preventing diversion, and avoiding discounts that
are not required under the nonduplication provision of the MDPNP. These
commenters state that existing mechanisms, such as the MEF, which is
the mechanism that HRSA developed pursuant to section 340B(a)(5)(A)(ii)
of the PHSA, as well as claims modifiers, are insufficient and often
require significant manual reconciliation, audits, and dispute
resolution efforts, resulting in ongoing administrative costs across
stakeholders. Commenters cited to an Office of Inspector General report
\19\ that noted that the MEF is not able to identify claims for
outpatient prescription drugs paid by Medicaid managed care plans and
noted that this is a particular area of vulnerability for duplicate
Medicaid discounts. They further emphasize that, under the
replenishment model,
[[Page 48891]]
covered entities receive 340B pricing upfront without contemporaneous
verification of eligibility, while manufacturers lack access to the
claims-level data necessary to confirm compliance with statutory
requirements. In their view, this lack of transparency contributes to
inefficiencies and necessitates reliance on retrospective oversight
mechanisms that are resource-intensive, limited in scope, and
ineffective at preventing improper claims in real time.
---------------------------------------------------------------------------
\19\ https://oig.hhs.gov/documents/evaluation/2918/OEI-05-14-00430-Complete%20Report.pdf.
---------------------------------------------------------------------------
2. Comments Concerning Administrative Costs Under a Potential 340B
Rebate Model Pilot Program
Commenters also expressed divergent views regarding the
administrative costs associated with implementing a 340B rebate model
pilot program. Covered entities, provider trade associations, contract
pharmacy representatives, third-party administrator consultants and
patient advocacy stakeholders, generally assert that a rebate model
would introduce substantial new administrative requirements, including
claims-level data submission, rebate tracking, reconciliation across
multiple systems, and management of denied or disputed claims. They
state that implementation would likely require additional staffing and
operational changes as well as increased reliance on TPAs or other
external vendors, potentially resulting in additional service fees and
contractual complexity. Commenters further express concern that,
particularly during a transition period or for drugs not included in a
pilot, covered entities may be required to maintain both existing
upfront discounts processes and new rebate-related workflows, creating
duplicative operational burdens. Several commenters also note that
variability in manufacturer-specific requirements, such as differing
data formats, submission timelines, validation criteria, and dispute
processes, combined with a lack of standardized systems, could increase
administrative complexity, require the use of multiple platforms, and
lead to higher operational costs and inefficiencies.
By contrast, manufacturers and trade organizations assert that the
incremental administrative burden associated with a rebate model would
be limited or manageable. They emphasize that covered entities already
collect and maintain much of the relevant claims-level data as part of
routine billing and compliance activities, including data captured in
electronic health records and submitted to payers. According to these
commenters existing systems and TPAs can be leveraged to support data
submission and rebate processing, minimizing the need for new
infrastructure. They further contend that a rebate model could, over
time, reduce administrative burden by improving data transparency,
decreasing reliance on retrospective audits and dispute resolution, and
enabling more efficient identification and prevention of duplicate
discounts and other compliance issues within the 340B Program.
3. Comments Concerning Staffing Impacts Under a Potential 340B Rebate
Model Pilot Program
Commenters provide a range of quantitative estimates regarding
potential staffing impacts associated with a 340B rebate model pilot
program. Covered entities generally predict that a rebate model would
result in the need for additional personnel to support claims-level
data submission, rebate tracking, reconciliation, and denial or dispute
resolution activities. Several commenters estimate that implementation
could require approximately 0.5 to 1 full-time equivalent (FTE) for
smaller entities and 1 to 2 or more FTEs for larger organizations or
those with higher prescription volumes or extensive contract pharmacy
networks. A covered entity trade association commenter cites that over
80% of surveyed entities anticipated needing additional staff, with
associated annual personnel costs ranging from approximately $30,000 to
over $200,000 per FTE, depending on role and location. In addition,
commenters report that existing rebate-related processes can require 10
to 40 or more hours per week of staff time and indicate that a rebate
model could increase workload due to expanded reporting,
reconciliation, and appeals processes. These commenters provided only
estimates of anticipated staffing impacts.
Manufacturers and other groups, on the other hand, assert that
staffing impacts would be limited, emphasizing that covered entities
already maintain the relevant claims-level data and operational
infrastructure necessary to support rebate processing. These commenters
state that, in addition to leveraging existing billing systems and
TPAs, the administrative workload associated with rebate models may be
comparable to or lower than current processes over time, particularly
as improved data transparency reduces the need for manual audits and
dispute resolution. One manufacturer trade group contends that a rebate
model would leverage existing staffing and workflows, rather than
necessitating new personnel or fundamentally different operational
systems. Manufacturers also question the reliability of specific
quantitative estimates submitted by covered entity commenters, citing
concerns about survey sample size, response bias, and assumptions
regarding rebate payment timelines that differed materially from the
Pilot's requirements.
In particular, a manufacturer trade group emphasizes that modern
pharmacy and health system infrastructure including automation, batch
processing, and TPAs can handle data extraction, formatting, and
submission with minimal manual intervention once systems are
configured. Accordingly, it maintains that ongoing staffing demands
would be limited with most processes becoming automated after initial
implementation. Finally, manufacturers assert that over time a rebate
model could reduce overall administrative burden, including staffing
demands, by improving data transparency and minimizing the need for
labor-intensive retrospective activities such as audits,
reconciliation, and dispute resolution.
A technology vendor commenter that has developed and deployed a
340B Program rebate processing platform similarly asserts that staffing
impacts can be minimized through direct TPA integration. That commenter
reports that, as of spring 2026, 53 TPAs are able to submit data
directly to its rebate processing platform on behalf of covered
entities, which in its view would significantly reduce or eliminate any
potential burden of data compilation on the part of covered entities
and reduce the need for additional in-house staff. The commenter
asserts that for the more than 7,000 covered entities that have
previously submitted data to the vendor's existing 340B ESP platform,
the incremental work necessary to submit data under a rebate model is
very limited because the required data fields are the same. With regard
to covered entity concerns of maintaining processes for both existing
upfront discounts processes and new rebate-related workflows, the Pilot
design seeks to reduce burden in this area by requiring plans to allow
covered entities to order the selected drugs under existing
distribution mechanisms (e.g., 340B wholesaler accounts with WAC prices
loaded) to ensure purchases flow through existing infrastructure,
eliminating the need for duplicative operational burdens.
[[Page 48892]]
4. Comments Concerning Systems and Infrastructure for Implementation of
a Potential 340B Rebate Model Pilot Program
Commenters express differing views regarding the systems and
infrastructure required to implement a 340B rebate model pilot program.
Most covered entity groups express that their current IT systems,
pharmacy management platforms, and TPA arrangements are designed to
operate under the existing upfront discount and replenishment model and
would require significant modification or replacement to support
claims-level rebate submission and reconciliation. These commenters
describe potential needs for new data integration across electronic
health records, pharmacy systems, billing platforms, and financial
systems, as well as the development of new workflows to manage rebate
eligibility determination, submission, and tracking. Some commenters
estimate that implementation could require tens of thousands of dollars
in annual software and reporting costs for smaller entities, with
estimates commonly ranging from approximately $30,000 to $50,000 per
year for software, tracking functionality, and workflow redesign. Other
commenters, particularly larger health systems, project substantially
higher costs associated with systems integration, vendor support, and
operational implementation, in some cases describing hundreds of
thousands of dollars in one-time implementation costs and significant
ongoing vendor expenditures. Commenters also express concern that
variation in manufacturer-specific data requirements or platform
requirements could necessitate the use of multiple systems, increasing
complexity, interoperability challenges, and long-term maintenance
costs. Manufacturers argue the opposite and assert that existing
systems and infrastructure are largely sufficient to support a rebate
model, noting that covered entities already maintain and transmit the
relevant claims-level data for purposes of billing and reimbursement
under Medicare, Medicaid, and commercial payers. These commenters state
that current IT systems and TPAs could be leveraged to facilitate data
submission and reconciliation and emphasize the availability of
centralized or interoperable platforms designed to streamline rebate
processing and improve data transparency. They further assert that such
systems could reduce fragmentation over time by enabling standardized
data exchange and more efficient coordination among stakeholders.
Technology vendors that have developed rebate processing platforms
similarly assert that existing systems and infrastructure are
sufficient to support implementation. One such commenter, a technology
company that has engaged with HRSA since 2019 to develop and
operationalize a 340B rebate model, states that its platform is capable
of effectuating discounted pricing directly to covered entities as a
rebate at the unit level. This commenter reports that multiple
manufacturers are already using its platform to collect claims data,
that thousands of covered entities have registered on the platform, and
that covered entities have reported fully onboarding in less than ten
minutes through a self-service process. The commenter further explains
that the platform integrates with existing billing, pharmacy, and TPA
systems through publicly available application programming interfaces
(or APIs), supports near real-time data submission, and incorporates
automated validations that check for duplicate discounts before they
occur. The commenter also notes that beta testing with covered
entities, including health centers, hospitals, and clinics, confirmed
that covered entity partners such as TPAs can connect to the platform
using existing systems cheaply and quickly, and that standard TPA
reports could be leveraged to create dispensation reports matching the
format required by the platform. Based on this experience, the
commenter contends that the administrative burden on covered entities
is minimal once systems are configured, and that a rebate model will
simplify the process of identifying when the right discount applies to
the right dispense, thereby reducing the costs associated with
manufacturer good-faith inquiries, audits, and dispute resolution under
the current model.
5. Comments Concerning Other Anticipated Costs or Impacts of a
Potential 340B Rebate Model Pilot Program
Commenters identified a range of additional anticipated costs and
operational impacts associated with a potential 340B Rebate Model Pilot
Program beyond those related to direct administrative, staffing, and
systems requirements. Covered entities and provider organizations
express concern that a rebate model could result in secondary financial
effects, including loss of wholesaler prompt-pay or cost of goods
discounts, increased borrowing or financing costs to manage larger
working-capital requirements, and potential inventory-related financial
risk associated with purchasing drugs at higher upfront prices. While
few commenters quantified these secondary effects directly, several
quantified the underlying financial exposure, 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 (e.g., a 0.5% reduction in days cash on hand and more than $1
million in cumulative liquidity impacts over 5 years). Some commenters
also note the potential for disruptions (or actual disruptions, during
the brief period in preparation for the earlier rebate model) to
contract pharmacy arrangements, including reduced participation by
pharmacy partners due to increased administrative complexity and
financial risk, as well as broader impacts on wholesaler relationships,
credit limits, and purchasing terms. In addition, commenters indicate
that these combined pressures could lead to reductions in patient
services, program offerings, or workforce capacity, particularly for
smaller or resource-constrained covered entities. Commenters estimates
for indirect financial exposures varied and ranged from hundreds of
thousands of dollars annually to tens of millions of dollars annually
for larger covered entities.
Manufacturer groups did not identify significant additional
categories of cost beyond those associated with implementation and
administration and instead emphasized potential offsetting benefits.
These commenters state that improved claims-level transparency and
coordination across pricing programs could reduce inefficiencies,
minimize disputes, and improve overall program integrity. Some also
suggested that more accurate application of discounts could lead to
more predictable financial flows and reduced long-term administrative
and compliance costs.
6. Response to Comments Concerning Administrative and Implementation
Costs to Covered Entities
HRSA carefully considered the full range of comments while
considering a range of policy options to best meet the commenters'
varying perspectives. HRSA recognizes that most covered entities
currently operate under an upfront discount model that reduces the need
for post-purchase reconciliation. HRSA agrees that the upfront discount
model limits certain administrative steps. However, the record
demonstrates that covered entities and their contract pharmacy partners
already perform
[[Page 48893]]
extensive administrative functions under the 340B Program, including
inventory management, compliance oversight, audit preparation,
collection and submission of claims-level data to manufacturers, TPAs,
and payers, and reconciliation activities. The record further
demonstrates that IT systems and vendors already exist in a competitive
marketplace to allow covered entities to shift to a rebate model
without significant burden. These existing capabilities reflect a
mature operational infrastructure that can be leveraged, rather than
replaced, under a rebate model to more effectively prevent duplicate
discounts and address the program integrity concerns discussed in this
Notice.
HRSA finds that many projections of administrative burden rest on
assumptions that do not align with the design of the Pilot or that do
not accurately reflect what is needed administratively to implement a
rebate approach. For example, several commenters assumed that covered
entities would be required to develop and maintain manufacturer-
specific data submissions, support multiple proprietary submission
platforms, submit purchasing data, encounter-level information,
patient-level clinical information, or real-time claims feeds, and
manually reconcile claims across multiple systems. Other commenters
projected substantial staffing increases, including estimates of six or
seven additional full-time employees, more than 12,000 additional
annual labor hours, or approximately 240 additional staff hours per
week, to support rebate administration, based on assumptions that data
would require extensive manual collection, validation, and submission.
Similarly, some commenters projected significant one-time system
development costs by assuming the need to build new interfaces between
electronic health records, split-billing software, third-party
administrators, financial systems, and multiple manufacturer portals.
These projections generally assumed limited automation, manufacturer-
specific reporting requirements, or ongoing parallel workflows that are
not contemplated under the Pilot. By contrast, the Pilot requires
submission only for the limited universe of drugs included in the
Pilot, utilizes standardized pharmacy and medical claims data elements,
and relies primarily on information that covered entities already
collect, maintain, and retain in the ordinary course of billing,
dispensing, audit, and compliance activities. As discussed in Section
VIII.D., the Pilot does not require submission of purchasing records,
encounter-level clinical documentation, or other patient-level
information beyond the standardized claims elements specified by HRSA.
HRSA also anticipates that use of standardized submission formats and
centralized reporting will substantially reduce the need for the manual
reconciliation and customized interfaces assumed by many commenters.
HRSA published its estimate of the annual administrative cost in an
Information Collection Request \20\ to total $523,345,680 for the
15,249 covered entities reporting claims. Based on that estimate, HRSA
projects administrative costs of reporting claims data for the Pilot
will average approximately $34,320 per entity, but may vary by entity
type.
---------------------------------------------------------------------------
\20\ https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202606-0906-001.
---------------------------------------------------------------------------
The Pilot is structured to enable covered entities, manufacturers,
and vendors to operationalize processes and identify implementation
challenges on a limited, manageable scale. Based on 2025 data, the
included products represent less than 5.5% of total 340B sales with the
remaining 94.5% of drug sales continuing under the upfront 340B
discount model in 2027. This approach allows for the evaluation and
adjustment of workflows and data exchange mechanisms based on actual
experience prior to broader application, generating concrete, practice-
based evidence on how the rebate model operates.
Given the limited scope of the Pilot and its reliance on existing
data infrastructure and operational processes, HRSA anticipates that
any staffing impacts will generally be modest. The record shows that
covered entities already collect and maintain relevant claims and
purchase data and routinely utilize TPAs and automated systems for
billing, compliance, and reconciliation activities. As a result, HRSA
expects that, in many cases, additional staffing will be unnecessary
because they may be absorbed within existing operational structures or
supported through existing third-party arrangements. In limited cases,
where operational structures are less sophisticated or TPAs are not
utilized, covered entities may need additional staffing to support the
Pilot's claims reporting processes.
Several commenters quantified one-time implementation activities
associated with a rebate model, including process development, workflow
redesign, staff training, IT system configuration, legal review, and
early-stage reconciliation. One academic medical center estimated
approximately $90,000 in one-time administrative implementation costs
and an additional $130,000 for initial IT integration and system
configuration. Other commenters estimated approximately 40 hours of
initial IT development, 20 hours of legal review, and elevated staffing
requirements during the initial implementation period. HRSA recognizes
that implementation of a new reporting process may require certain
transitional activities. However, many commenters' estimates assumed
manufacturer-specific submission requirements, manual reconciliation
across multiple proprietary platforms, and customized interfaces that
are not contemplated under the Pilot's standardized reporting approach.
Consequently, while commenters identified legitimate startup
activities, HRSA expects that implementation costs under the Pilot
would be substantially reduced through standardized data elements,
centralized reporting processes, and reliance on information already
maintained by covered entities in the ordinary course of billing and
compliance activities and the costs will be transitional. These costs
are inherent to the adoption of a new operational approach, which
requires that new processes be introduced on a limited scale to allow
for calibration and refinement. HRSA expects that, as processes become
standardized and integrated into routine operations, these transitional
costs will diminish, consistent with ordinary program evolution.
Regarding systems and infrastructure, HRSA recognizes that
implementation of a rebate model may require coordination with IT
platforms to support the submission and validation of claims data. As
an initial matter, the costs of the rebate IT platform must be paid by
manufacturers. That is a requirement of participation in this Pilot.
Additionally, consistent with comments from manufacturers and
technology stakeholders, the record shows that rebate processing
platforms have already been developed or are in the process of being
operationalized and are designed to integrate with existing billing,
pharmacy, and TPA systems. HRSA anticipates that these platforms will
leverage existing data flows and automation capabilities, thereby
minimizing the need for covered entities to develop new systems. While
some covered entity commenters raise concerns that covered entities do
not currently submit the data outlined in the Pilot to these IT
platforms, HRSA
[[Page 48894]]
disagrees as manufacturers have utilized similar platforms and
oftentimes the same company for implementation of various contract
pharmacy requirements since at least 2021.\21\ Moreover, covered
entities' data collection and reporting obligations under the current
system extend beyond these specific manufacturer systems. HRSA expects
that manufacturers and their designated platform vendors will be
responsible for the development, operation, and maintenance of rebate
processing platforms, including associated system costs for the rebate
processing platform, and encourage platform designs that promote
interoperability, minimize disruption to existing workflows, and reduce
administrative burden on covered entities.
---------------------------------------------------------------------------
\21\ In 2021, several participating 340B manufacturers sought to
limit the number and kinds of contract pharmacies to which they
would ship orders by requiring certain claims level data in order
for a covered entity to utilize a contract pharmacy. HRSA initially
disallowed this practice, advising the manufacturers that the
manufacturers needed to ``deliver covered drugs to any contract
pharmacies with which a covered entity chooses to partner.'' In the
D.C. Circuit's ruling in Novartis Pharms. Corp. v. Johnson, 102
F.4th 452 (D.C. Cir. 2024), the Court held that the manufacturers
had discretion to impose certain conditions on delivery.
---------------------------------------------------------------------------
In response to commenter assertions that a rebate model would
impose unmanageable costs and complexity, the record includes
operational data from a technology vendor that has developed and
deployed a rebate processing platform for the 340B Program. That
commenter reports that the data fields and utilization data required
for rebate submission are the same as those already submitted by more
than 7,000 covered entities through the vendor's 340B ESP platform,
making the incremental increased effort for those entities very
limited. For entities that have not previously submitted data through
such platforms, the commenter states that the upload, mapping, and
validation steps are designed to be straightforward and user-friendly
and typically require approximately 15 minutes per data upload
submission, based on actual usage patterns. Furthermore, 53 TPAs are
able to submit data directly to the rebate platform on behalf of
covered entities, which the commenter states would significantly reduce
or eliminate any potential data compilation burden on covered entities.
Over 10,000 covered entities have already completed registration on the
340B rebate platform.
With respect to other anticipated costs, including vendor fees and
training, HRSA notes that participation in the 340B Program has always
entailed some level of compliance and operational cost. Covered
entities derive significant financial benefit from participation in the
Program. For example, manufacturer commenters cited industry analyses
estimating that covered entities derive substantial financial benefit
from the difference between 340B acquisition costs and third-party
reimbursement rates.
Covered entities are expected to maintain compliance as program
requirements evolve. As part of its ongoing oversight, HRSA conducts
audits and compliance reviews, and provides education and guidance to
covered entities based on those efforts. Covered entities routinely
update policies, procedures, IT systems and operational practices to
align with program requirements and guidance and there may be
operational costs associated with program participation and to ensure
compliance. In addition, in 2025, covered entities purchased
approximately $100 billion in covered outpatient drugs under the 340B
Program, underscoring the scale of discounted drug purchasing available
to covered entities and the resulting financial resources and savings
available to support care for underserved populations.
Overall, HRSA concludes that while a rebate model may introduce
incremental or transitional administrative and operational changes,
HRSA believes the magnitude of the associated costs is likely to remain
low. The core data elements required for rebate processing, namely,
standardized pharmacy and medical claims data, are already generated,
maintained, and routinely transmitted by covered entities and their
contract pharmacy partners in the ordinary course of billing and
reimbursement across Medicare, Medicaid, and commercial payers. As a
result, the rebate model builds on existing data infrastructure and
workflows rather than requiring the creation of entirely new systems or
data streams. In addition, commenters note that established
technologies, including automated claims processing, batch data
submission, and TPAs, can be leveraged to facilitate rebate submission
and reconciliation with minimal manual intervention once implemented.
Also, increased claims-level transparency may reduce reliance on
retrospective audits, dispute resolution processes, and other resource-
intensive compliance activities, offsetting some administrative costs
over time. Taken together, these considerations support HRSA's
conclusion that the overall costs of implementing a rebate model are
likely to be modest, and in some cases, may be offset by efficiencies
gained through improved data visibility and streamlined program
administration. HRSA believes the anticipated benefits of the Pilot
outweigh the costs.
D. Payment Timing and Potential Cash-Flow Impacts for Covered Entities
Many commenters expressed concern that covered entities would be
required to pay wholesale acquisition cost (WAC) upfront and wait for
rebate payments, potentially creating liquidity constraints, reliance
on credit, and financial instability, particularly for rural and
safety-net providers. Other commenters stated that this would have
limited impact because rebates would be paid prior to when drug
purchase payments are due to wholesalers and that 340B rebate models
cost the same or less than current drug inventory models. Commenters
further state that the potential cash-flow impacts of a rebate-based
model may be inaccurate or overstated. These commenters note that the
numbers provided are only estimates and that healthcare providers
already operate within reimbursement frameworks in which payment is
received after the point of purchase, including under Medicare,
Medicaid, and commercial payer systems, and asserted that rebate
payment timelines could be structured to align with or occur prior to
standard drug purchasing payment obligations. The commenters further
note that wholesalers commonly provide covered entities with payment
windows or credit arrangements for product purchases, allowing entities
to receive and dispense medications prior to remitting payment for the
corresponding wholesaler invoice. These commenters also indicate that
unit-based rebate models could reduce delays associated with current
models that require accumulation of a full package size before
purchasing at the 340B discounted price and improve the predictability
of reimbursement over time.
HRSA has considered the comments but based on available studies of
a rebate model, HRSA believes that the Pilot is unlikely to result in
unstable cash flow for covered entities, as certain commenters have
predicted. IQVIA, a healthcare data analytics firm, recently
empirically evaluated the opposing narratives about the impact of a
shift from upfront discounts to rebates on providers' cash flow.\22\
IQVIA modeled the effects on cash flow of existing drug inventory and
replenishment models
[[Page 48895]]
and compared those effects with a rebate model. Its analysis modeled
liquidity impact and interest costs under a variety of assumptions,
including different rebate timelines, different wholesaler payment
timelines, different interest rates, and different 340B discount
percentages. Their study concluded that: for entity-owned pharmacy
purchases, interest costs for the rebate model (0.19%) were no larger
than for the predominant drug inventory model used by those pharmacies,
referred to as physical replenishment. For contract pharmacies, the
rebate model had lower interest costs (0.03%) than both types of
replenishment model, physical and credit-based replenishment. Even
under unfavorable assumptions, rebate interest costs remained under
1.2%.
---------------------------------------------------------------------------
\22\ https://www.iqvia.com/locations/united-states/library/white-papers/how-will-a-rebate-model-impact-cash-flow-in-the-340b-drug-pricing-program.
---------------------------------------------------------------------------
Similarly, a 2021 study by 3 Axis Advisors (another healthcare data
analytics company) found a 340B rebate model improves cash flow
relative to replenishment models in the case of covered entities that
use contract pharmacies.\23\
---------------------------------------------------------------------------
\23\ https://www.3axisadvisors.com/projects/kalderos-rebate-model-1021.
---------------------------------------------------------------------------
HRSA has incorporated several design elements intended to mitigate
potential cash-flow impacts on covered entities. First, the Pilot
requires prompt rebate payments, within 10 calendar days of submission
of a complete claim. This accelerated payment timeline is intended to
precede the payment deadlines associated with standard wholesaler
payment terms, thereby reducing or eliminating the need for covered
entities to ``float'' the WAC price or finance drug purchases for
extended periods. Thus, while many covered entities would need to place
an order at the higher WAC price for the drugs included in the Pilot,
payment to wholesalers for those orders, in most cases, would occur
after the rebate from the manufacturer is received. Therefore, HRSA
expects the cash-flow impacts on covered entities to be minimal.
Second, the Pilot requires unit-level rebate processing, which allows
covered entities to receive rebates based on individual dispenses or
administrations rather than waiting for full package utilization, as
occurs under the current replenishment model. This approach is expected
to accelerate the timing and frequency of rebate payments, resulting in
more predictable and continuous cash flow. Third, the Pilot accounts
for starting inventory considerations to facilitate the transition from
upfront discounts to rebates for a limited set of drugs. HRSA has
incorporated operational flexibilities, such as a 15-day implementation
grace period for unreplenished accumulations, to address commenter
concerns regarding inventory timing, cash flow, and potential gaps
between drug purchase and rebate eligibility during the transition to a
rebate-based model.
Taken together, these design features are intended to ensure that
covered entities can access 340B pricing in a timely manner while
minimizing short-term liquidity pressures. HRSA emphasizes that timely
rebate payment is a core requirement of manufacturer participation in
the Pilot and is critical to maintaining operational stability for
covered entities. HRSA intends to monitor manufacturer compliance with
established payment deadlines and may take appropriate enforcement
action where delays occur. Such actions may include corrective measures
and, where warranted, removal of manufacturers from the Pilot that
demonstrate repeated or systemic noncompliance with rebate payment
requirements. If, for example, covered entities report that a
manufacturer is consistently exceeding the 10 calendar day threshold
for rebate payment, then HRSA could review a sample of allegedly
affected transactions over a sufficient period of time (e.g., 10
calendar days) and, if HRSA were to find that a significant portion of
those transactions (e.g., five or more percent) were delayed without
justification, HRSA could initiate removal proceedings of that
manufacturer from pilot participation for non-compliance.
E. Rebate Denials and Dispute Resolution
Commenters raise a range of concerns regarding rebate denials and
dispute resolution under a potential 340B rebate model. Covered
entities and other groups generally express concern that rebate
determinations made after dispensing could introduce uncertainty
regarding payment outcomes, including the risk of denied or delayed
rebates. Several commenters indicate that even modest denial rates
could result in unrecoverable financial losses and increase
administrative burden associated with tracking, appealing, and
reconciling denied claims. Commenters also express concern regarding
the potential for inconsistent or non-standardized denial criteria
across manufacturers, as well as the absence of clearly defined
timelines, documentation requirements, or dispute resolution processes.
In addition, some commenters noted that existing dispute mechanisms in
related programs require significant manual effort and extended
resolution periods, which could be exacerbated under a rebate model if
claim volumes increase.
Other commenters disagree and argue that the rebate model could
improve the accuracy and efficiency of rebate determinations by
enabling claims-level validation prior to payment and reducing the need
for post hoc reconciliation. These commenters indicate that improved
data transparency could help prevent improper payments and reduce the
volume of disputes over time, particularly if standardized data
elements and submission processes are used. Some commenters also note
that centralized or platform-based approaches could facilitate more
timely identification and resolution of discrepancies, provided that
clear rules, standardized data requirements, and defined dispute
resolution processes are established. They also indicated that such
centralized or platform-based approaches support more predictable
outcomes for covered entities, facilitate more efficient manufacturer
review processes, and minimize the need for appeals.
In response to commenter concerns regarding rebate denials and
dispute resolution, HRSA includes design features within the Pilot to
promote transparency, consistency, and accountability in rebate
determinations. Specifically, the Pilot requires manufacturers to
document and report denied claims, including the basis for each denial
and the status of any associated dispute. HRSA intends to use this
information to monitor denial patterns and assess whether rebate
determinations are applied in a consistent and appropriate manner
across participating manufacturers and will remove manufacturers from
the Pilot where appropriate. If, for example, covered entities report
that a manufacturer is consistently denying rebate payment without
acceptable justification, then HRSA could review a sample of allegedly
affected transactions over a sufficient period of time (e.g., 10
calendar days) and, if HRSA were to find that a significant portion of
those transactions (e.g., 5 or more percent) were denied without
acceptable justification, HRSA could initiate removal proceedings of
that manufacturer from pilot participation for non-compliance.
In addition, the Pilot will provide a defined pathway for covered
entities to challenge denied claims, including specified timeframes for
review and response, to facilitate timely resolution of disputes. Tools
will be made available for reporting rebate denials to be challenged to
assist HRSA's review
[[Page 48896]]
and facilitation of resolution. This information will be made public on
our website within 30 calendar days of the Pilot's effective date. HRSA
anticipates that these measures will reduce administrative burden
associated with prolonged reconciliation efforts, improve visibility
into rebate outcomes, and support more standardized processes for
dispute resolution. To the extent that disputes cannot be resolved
through these mechanisms, covered entities may pursue available
remedies through the 340B Administrative Dispute Resolution (ADR)
process in accordance with the regulations issued pursuant to 42 U.S.C.
256b(d)(3)(A).
Commenters recommend that HRSA establish mechanisms to receive
ongoing feedback during implementation of any rebate model pilot
program. Suggested approaches included formal stakeholder engagement
processes, such as public listening sessions, advisory groups, or
technical working groups representing a range of stakeholders, as well
as periodic opportunities for written input. Commenters also emphasized
the importance of collecting and analyzing quantitative data generated
through the Pilot, including information on rebate submissions,
denials, dispute resolution, and payment timelines, and suggested that
certain data be made available to support transparency and evaluation.
In addition, commenters recommend that HRSA issue interim and final
evaluation reports and use implementation experience to refine program
design. Some commenters further highlight the need for direct
communication channels and technical assistance to address operational
issues in real time. HRSA is considering these recommendations in
developing processes to monitor Pilot implementation, gather
stakeholder input, and evaluate program outcomes.
F. Data Collection and Reporting Requirements
Commenters provide differing perspectives regarding the data
collection and reporting requirements associated with a 340B Rebate
Model Pilot Program. Most covered entities generally state that a
rebate model could require expanded data collection and reporting,
including claims-level tracking, validation, and reconciliation across
multiple systems. Some commenters indicate that these requirements
could necessitate additional staff time and coordination across
pharmacy, billing, compliance, and finance functions, particularly for
entities with limited administrative resources or complex contract
pharmacy arrangements. Commenters also raise concerns regarding the
potential for variation in reporting requirements across manufacturers,
which could increase complexity and require the use of multiple
reporting systems or formats. Smaller covered entities indicate that
they have limited IT capacity and express concern regarding the
potential need for system modifications, increased reliance on TPAs,
and additional data management resources. Some of these commenters also
raised concerns regarding data privacy and security, particularly with
respect to the transmission of claims-level information to
manufacturers or third-party platforms.
On the other hand, manufacturers asserted that the incremental data
collection and reporting burden would be limited, noting that covered
entities already collect and maintain the relevant claims-level data as
part of routine third-party billing, compliance, and audit processes.
These commenters stated that existing TPAs and automated reporting
systems could be leveraged to support data submission and reporting and
that standardized data formats and centralized platforms could reduce
duplicative reporting requirements over time.
In response to these comments, HRSA intends to limit data
collection manufacturers may impose on covered entities under the Pilot
to the minimum necessary to effectuate rebate payments and support 340B
program integrity and nonduplication under the MDPNP. HRSA believes
that limiting the required data collection to a narrowly defined set of
standardized pharmacy and medical claims data elements substantially
reduces the potential burden relative to broader reporting models
considered during development of the Pilot. In response to stakeholder
feedback, HRSA declined at this juncture to require additional data
elements proposed by manufacturers, including purchasing data,
encounter data, invoice-level information, and patient-level clinical
information, because HRSA determined that collecting and reconciling
such information could create additional operational complexity and
systems burden for covered entities acclimating to a new rebate
environment. Instead, the Pilot relies primarily on claims-level
information that is already generated and maintained in the ordinary
course of pharmacy and medical billing and that, in many cases, is
already exchanged through existing payer, TPA, or contract pharmacy
relationships.
HRSA anticipates relying on a defined set of standardized pharmacy
and medical claims data elements that are commonly available and
already maintained by covered entities or their vendors in the ordinary
course of billing and dispensing operations. For example, CMS requires
submission of prescription drug event data (PDE) for purposes of
calculating payments to Part D plans. HRSA expects that data submitted
by covered entities to manufacturers will be comparable to data already
being collected and maintained through existing third-party vendor
relationships and therefore does not expect a significant impact on
covered entities disproportionate to the significant benefits covered
entities derive from the 340B Program.
In addition, the reporting requirements are limited to the selected
drugs for initial price applicability years 2026 and 2027 as included
on the CMS Medicare Drug Price Negotiation Selected Drug List during
their price applicability periods, which represents a small portion of
overall 340B utilization relative to the total number of covered
outpatient drugs available under the Program. HRSA anticipates that
this limited scope will allow covered entities and vendors to leverage
existing infrastructure and implement operational changes incrementally
rather than across the full universe of 340B transactions. HRSA also
encourages the use of standardized reporting formats and interoperable
systems to reduce variability and improve efficiency.
HRSA further believes that the burden associated with limited
claims-level reporting is justified by the importance of ensuring
program integrity, duplicate discount prevention, and coordination
across federal pricing programs, including the MDPNP and Medicaid
rebate programs. The Pilot is intended to generate implementation data
and operational experience regarding these issues in a controlled and
limited environment. HRSA anticipates that the Pilot will help to
improve transparency, support prospective validation of transactions,
and reduce reliance on retrospective audits and dispute resolution
processes that many stakeholders described as resource-intensive under
the current framework.
HRSA further notes that the Pilot introduces new reporting
requirements for manufacturers that are not present under the upfront
discount model. As a condition of participation, manufacturers will be
required to report rebate data to HRSA, including information necessary
to support program oversight and monitoring. HRSA anticipates that
these requirements will enhance transparency
[[Page 48897]]
and enable HHS to evaluate the operational impacts of the rebate model.
G. Data Privacy Considerations and HIPAA Compliance
In light of the differing perspectives regarding the data
collection and reporting requirements discussed in Section F, HRSA
recognizes the importance of addressing questions regarding the
applicability of the Health Insurance Portability and Accountability
Act of 1996 (HIPAA) to the data transfers contemplated under the Pilot.
Although specific public comments raising concerns about HIPAA
compliance and the ability of 340B covered entities that are HIPAA
covered health care providers to disclose protected health information
(PHI) under the Pilot were not submitted in response to the RFI, HRSA
is aware that questions regarding the intersection of HIPAA and claims-
level data submissions have arisen in other contexts within the 340B
Program. HRSA addresses these questions here to provide clarity to
covered entities, manufacturers, and other stakeholders regarding the
applicability of HIPAA to the disclosure of PHI under the Pilot.
As an initial matter, HRSA notes that the data elements required
under the Pilot, as set forth in Section VIII.D of this Notice, are
limited to standardized pharmacy and medical claims fields such as date
of service, NDC-11, quantity dispensed, prescriber ID, service provider
ID, 340B ID, RX BIN, RX PCN, and health plan identification
information. These data elements do not include direct patient
identifiers such as patient names, addresses, dates of birth, Social
Security numbers, medical record numbers, or other information that
would directly identify individual patients.
To the extent that the data submitted under the Pilot is not
individually identifiable health information, it is not PHI as defined
under the HIPAA Privacy Rule, 45 CFR 160.103, and accordingly is not
subject to the restrictions on use and disclosure set forth in the
HIPAA Privacy Rule (45 CFR part 160 and subparts A and E of part 164).
The Pilot requires that manufacturer plans ensure the IT platform used
for data submission has mechanisms in place to protect the privacy of
the data submitted. Under the HIPAA Privacy Rule, individually
identifiable health information that has been de-identified in
accordance with 45 CFR 164.514 is no longer PHI, and the Privacy Rule's
restrictions on use and disclosure do not apply to such de-identified
information. The HIPAA de-identification standard may be satisfied
through either the expert determination method, under which a person
with appropriate knowledge and experience applies statistical and
scientific principles and methods to determine that the risk of
identifying an individual is very small, 45 CFR 164.514(b)(1), or the
safe harbor method, under which specified identifiers are removed and
the covered entity has no actual knowledge that the remaining
information could be used alone or in combination with other
information reasonably available to an intended recipient to identify
an individual, 45 CFR 164.514(b)(2). Any de-identification of PHI to
meet HIPAA obligations must comply with the HIPAA Privacy Rule
requirements. Covered entities that submit data that has been properly
de-identified consistent with 45 CFR 164.514 to manufacturers through
the platforms would not be disclosing PHI to manufacturers and
therefore would not need to rely on a HIPAA permission to allow the
disclosure.
HRSA also recognizes that some stakeholders have raised questions
in other contexts regarding the point at which de-identification occurs
in the data transmission process, and specifically whether data may be
considered PHI at the moment of transfer from a covered entity to a
manufacturer's platform even if it is subsequently de-identified.
HRSA's general view is that this concern may reflect a misunderstanding
of how rebate processing platforms operate. As described in publicly
available documentation for existing 340B claims data platforms, de-
identification occurs through automated processes prior to data
ingestion by the platform, such that neither the manufacturer nor its
vendor receives or retains PHI.\24\ Where such automated de-
identification is validated through an expert determination under 45
CFR 164.514(b)(1), the resulting data does not constitute PHI
regardless of whether the underlying source data, prior to automated
processing, included identifiable elements.\25\ HRSA emphasizes that
the Pilot's design is intended to ensure that manufacturers do not
receive or have access to PHI at any point in the data submission
process.
---------------------------------------------------------------------------
\24\ 340B ESP Frequently Asked Questions, available at https://help.340besp.com/en/articles/14482537-frequently-asked-questions-faqs#h_2b2d0863da.
\25\ If a HIPAA covered health care provider is relying on the
platform to de-identify PHI, the platform would be acting as a HIPAA
business associate of the provider and would be required to have a
valid business associate agreement in place. For additional
information about HIPAA business associates and their requirements,
see: https://www.hhs.gov/hipaa/for-professionals/privacy/guidance/business-associates/index.html.
---------------------------------------------------------------------------
Even assuming, for purposes of analysis, that the data submitted by
covered entities under the Pilot were to constitute PHI, HRSA notes
that the HIPAA Privacy Rule generally permits covered entities to
disclose PHI without individual authorization for purposes of payment.
Under 45 CFR 164.506(c), a covered entity may use or disclose PHI for
its own payment activities, which include activities undertaken to
obtain reimbursement for the provision of health care, including the
determination of eligibility or coverage and the adjudication of health
benefit claims. See 45 CFR 164.501 (definition of ``payment''). A
covered entity's submission of claims-level data to a manufacturer,
including vis-[agrave]-vis a rebate processing platform, in order to
effectuate a rebate that reduces the covered entity's net acquisition
cost for a covered outpatient drug relates to, and may affect by
rebate, the payment activity of the covered entity.\26\ HRSA further
notes that the HIPAA Privacy Rule's minimum necessary standard, 45 CFR
164.502(b) and 164.514(d), requires that disclosures of PHI be limited
to the minimum necessary to accomplish the intended purpose. The
Pilot's data requirements, which are restricted to a defined and
limited set of standardized claims fields, are designed to satisfy this
standard.
---------------------------------------------------------------------------
\26\ We note that OCR has acknowledged the permitted disclosure
of PHI for rebate purposes to a pharmaceutical manufacturer In a
similar scenario, stating ``the Privacy Rule permits a health plan
to disclose protected health information, such as prescription
numbers, to a pharmaceutical manufacturer for purposes of
adjudicating claims submitted under a drug rebate contract.'' See:
https://www.hhs.gov/hipaa/for-professionals/faq/455/does-hipaa-permit-health-plans-to-disclose-information-to-pharmaceutical-manufacturers/index.html.
---------------------------------------------------------------------------
HRSA also notes that certain of the covered entities that have
raised data privacy concerns in other contexts routinely transmit
materially identical claims-level data, including through the same or
similar vendor platforms, for purposes of contract pharmacy
replenishment, third-party payer billing, and compliance with Medicare,
Medicaid, and commercial insurance requirements. The data elements
required under the Pilot are comparable to, and in many cases, a subset
of the information that covered entities already collect, maintain, and
transmit in the ordinary course of these operations.
Finally, HRSA notes that the Pilot incorporates multiple data
safeguard requirements that further mitigate any residual privacy risk
to individuals. As
[[Page 48898]]
detailed in Section VIII.A, manufacturer plans must ensure that the IT
platform has assurances in place to ensure data security, that data
collection is limited to the specific elements necessary for providing
340B rebates, and that the platform has mechanisms in place to protect
patient identifying information consistent with HIPAA and other
applicable privacy and data security laws not inconsistent with federal
law or 340B program requirements. The Pilot further requires that IT
platforms have the capacity to filter and use only the data required to
effectuate the rebate. These requirements, taken together, are designed
to ensure that data submitted under the Pilot is collected,
transmitted, and maintained in a manner that protects patient privacy
while enabling the claims-level transparency necessary to support
program integrity. HRSA does not anticipate that compliance with the
Pilot's data submission requirements will require covered entities to
violate HIPAA or any other applicable federal data privacy law. HRSA
will further monitor implementation to confirm that participating
manufacturers and their designated platforms maintain appropriate
privacy and data security protections and whether any such violations
would need to be reported to appropriate officials.
H. Required Reporting by Manufacturers
Manufacturers, technology and data intermediaries, and certain
transparency-oriented stakeholders generally support the submission of
data regarding the Pilot by manufacturers to HRSA. They indicate that
the data can be used to assess compliance with a rebate model and its
effectiveness. Commenters suggest that aggregate data, making certain
to protect confidential and proprietary information, should be shared
with the public and would be useful for all stakeholders. Several
commenters express concern about the use of the 340B Prime Vendor to
collect this information due to a perceived conflict of interest.
HRSA will require participating manufacturers to submit purchase
data reports to the agency. HRSA will continue to assess reporting
burden and implementation experience and may refine requirements as
appropriate to balance program integrity objectives with administrative
feasibility. HRSA agrees that the collection of Pilot data is important
to evaluate adherence to the rebate framework and to evaluate the
impact and effects of the Pilot. HRSA also agrees that providing
aggregate data, which will not contain confidential or proprietary
information, to the public is important to provide further transparency
into the 340B Program.
HRSA appreciates the commenters' concerns regarding perceived
conflicts of interest in connection with the agency's use of the 340B
Prime Vendor for certain Pilot-related activities. The 340B Prime
Vendor, a contractor engaged by HRSA to provide operational support to
covered entities participating in the 340B Program, including
negotiating additional discounts with manufacturers and offering tools
and resources to help entities manage Program compliance, does not make
any eligibility determinations, enforcement decisions, or policy
judgments regarding the 340B Program. HRSA does not agree that use of
the 340B Prime Vendor to assist with Pilot data collection, for
example, would pose a conflict of interest--actual or perceived. HRSA
retains full authority over all aspects of the 340B Program and the
long-standing role of the 340B Prime Vendor, which is recognized in the
340B statute (42 U.S.C. 256b(a)(8), is operational and administrative
in nature and akin to contractor support functions.
I. Impact on Patient Care
Covered entities, provider organizations, and some patient advocacy
groups generally state that a shift from upfront discounts to a rebate-
based model could affect the timing and availability of financial
resources used to support patient care. They express concerns that
patients will lose access to discounted drugs and needed services
because covered entities will necessarily have to divert resources away
from patient care and toward complying with a rebate pilot that carries
a significant price tag. These commenters state that the rebate Pilot
will undermine access to care for patients, particularly for small,
rural, or under-resourced covered entities. They assert that certain
covered entities will not be able to pay the list price for IRA drugs
because they lack cash reserves or borrowing power to cover the initial
costs of these medications and will be forced to turn away patients in
need because they cannot afford to maintain their usual inventory of
drugs. If the Pilot is implemented, these commenters indicate that
potential delays in receiving rebates combined with potential rebate
denial rates could reduce funds available to support patient services.
Several commenters also provide examples of the scale of services
supported by 340B savings, noting that such savings are used to fund
sliding fee discount programs, medication assistance for uninsured and
underinsured populations, and clinical services, with some entities
reporting that tens of thousands of patients annually rely on these
programs. Other commenters indicate that 340B savings support a broad
range of services, including behavioral health, chronic disease
management, and outreach programs, and expressed concern that
reductions or delays in these resources could result in reduced service
capacity, limitations on access to medications, or delays in care,
particularly for smaller or resource-constrained providers. Patient and
caregiver submissions emphasize the importance of ensuring that 340B
savings translate into direct patient benefits, including reduced out-
of-pocket costs. As a further adverse impact on patient access to care,
commenters also highlight the potential withdrawal of certain retail
pharmacies from processing 340B claims for IRA drugs dispensed at
contract pharmacies. According to these commenters, if pharmacy chains
opt not to provide 340B pricing, even on a temporary basis, for drugs
included in the Pilot, this could result in patients having to go
elsewhere and potentially travel far distances to obtain necessary
medications--a problem that is particularly acute for rural
communities.
In contrast, manufacturer commenters state that a rebate model
could maintain or enhance patient access by improving program integrity
and ensuring that discounts accrue to the patients that the 340B
Program was intended to benefit. Some commenters cite industry analyses
suggesting that duplicate discounts may affect up to approximately 25%
of 340B drug transactions, representing tens of billions of dollars
annually, and asserted that reducing such inefficiencies could improve
the overall availability of resources within the healthcare system.
These commenters also indicate that improved claims-level transparency
and coordination across programs, including with the MDPNP, could
support more accurate pricing and reduce the need for post hoc
reconciliation, which may contribute to more predictable financial
flows over time. While pharmacy stakeholders raise concerns about the
seamless implementation of the Pilot with respect to contract pharmacy
claims, they also highlight that testing rebates in the 340B Program
could be done with certain safeguards in place such as 10-day rebate
payment timelines, minimal
[[Page 48899]]
necessary data, and clear federal oversight.
Congress created the 340B Program so covered entities could
``stretch scarce federal resources as far as possible, reaching more
eligible patients and providing more comprehensive services.'' H.R.
Rep. No. 102-384(II), at 12 (1992). The Pilot does not deviate from
that statutory purpose. Nor does implementation of a rebate-based model
modify the statutory 340B ceiling price, covered entity eligibility
requirements, or the legal framework governing patient eligibility
under the 340B Program. Rather, the Pilot changes the mechanism and
timing by which the 340B price is effectuated, shifting from an upfront
discount to a post-dispense rebate that is expressly authorized by the
340B statute.
HRSA further notes that the Pilot is structured to mitigate any
potential operational or financial disruption to covered entities.
Manufacturers participating in the Pilot would be required to issue
rebates within the defined 10-day timeframe, from the date of data
submission and the agency expects that, in most cases, covered entities
will submit data shortly after dispense so that covered entities would
receive rebate payments before payment obligations to wholesalers
become due. As a result, HRSA does not anticipate that the Pilot will
materially impair covered entities' cash flow or their ability to
furnish services to patients.
In addition, HRSA anticipates the Pilot will provide program
integrity benefits that ultimately support patient care and stewardship
of federal resources. By introducing claims-level verification and
improved transparency, a rebate model will reduce the risk of duplicate
discounts and diversion that undermine the integrity and sustainability
of the 340B Program.
J. Other Comments
Commenters also raise a range of additional issues that did not
fall within the specific topics outlined above. Several covered
entities and provider organizations recommend that any rebate model
pilot be limited in scope, including restricting participation to a
subset of covered entities, such as voluntary participants, specific
provider types, or entities with sufficient administrative and
financial capacity to implement the model. These commenters state that
a more targeted approach would allow HRSA to evaluate operational
feasibility while minimizing potential disruption to smaller or
resource-constrained entities. Other commenters suggest limiting the
Pilot to certain drug categories, dispensing settings, or payer types
to better isolate potential program impacts.
Additional comments address issues such as the need for clear
implementation guidance, stakeholder education and training, alignment
with existing federal and state requirements, and coordination across
federal programs including the MDPNP. Some commenters also emphasized
the importance of standardization across manufacturers, including
consistent data requirements, timelines, and processes, to reduce
complexity and administrative burden.
HRSA has designed the Pilot to be limited in scope. HRSA will
continue to consider stakeholder input regarding participation
parameters and implementation approaches and may refine design
elements. HRSA intends to ensure that stakeholders receive education
and technical assistance as the Pilot is underway and more information
on the mechanism by which stakeholders submit feedback and receive
technical support is forthcoming.
VI. Alternatives Considered
As noted in the comment summaries above, covered entity commenters
proposed several alternatives to a rebate model that they contend would
address program integrity concerns within the existing upfront discount
framework. These alternatives generally included: (1) enhanced use of
claims modifiers; (2) establishment of a centralized clearinghouse or
similar data-sharing mechanism; (3) more intensive audits and oversight
activities; and (4) narrower pilot structures, including limiting
participation to voluntary participants, restricting the Pilot to
certain covered entity types, limiting the Pilot to fewer drugs or
dispensing settings, or excluding physician-administered drugs,
contract pharmacy arrangements, or other categories of transactions.
HRSA carefully considered each of these proposals and, for the reasons
explained below, does not believe that any of these alternatives,
individually or in combination, would adequately achieve the program
integrity and evaluation objectives that the Pilot is designed to
advance. Several covered entity commenters urged HRSA to rely on
enhanced use of claims modifiers as the primary mechanism for
preventing duplicate discounts, rather than transitioning to a rebate
model. Under this approach, covered entities and pharmacies would apply
standardized identifiers to claims at the point of adjudication to flag
340B transactions, enabling payers and manufacturers to distinguish
340B utilization from non-340B utilization without altering the upfront
discount purchasing model. HRSA acknowledges that claims modifiers are
a component of the current framework for identifying 340B transactions.
However, HRSA does not believe that reliance on claims modifiers alone
would adequately address the program integrity deficiencies that the
Pilot is designed to mitigate and prevent.
The existing MEF, which HRSA created in 1993 to prevent duplicate
discounts under the Medicaid Drug Rebate Program, relies on claims
modifiers as its central mechanism. Yet multiple governmental oversight
bodies have found this approach may be insufficient. In 2016, the HHS
Office of Inspector General (OIG) reported that the MEF is inadequate
to capture duplicate discounts with respect to Medicaid managed care
enrollees, and that this inadequacy results in both duplicate discounts
going unreported as well as the exclusion of some non-340B claims from
rebate invoices, thereby resulting in foregone Medicaid rebates to
states.\27\ The OIG further noted in that same report that contract
pharmacy arrangements create additional complications in preventing
duplicate discounts. The GAO has identified similar deficiencies.\28\
And the House Committee on Energy and Commerce, in its 2018 review of
the 340B Program, documented the exponential growth of the program and
the corresponding challenges in maintaining program integrity under
existing mechanisms.\29\ These findings demonstrate that claims
modifiers, as currently implemented, may not be the best method to
ensure compliance with the statutory duplicate discount prohibition,
particularly in the context of Medicaid managed care and the
increasingly complex distribution channels through which 340B drugs are
dispensed.
---------------------------------------------------------------------------
\27\ OIG, State Efforts to Exclude 340B Drugs from Medicaid
Managed Care Rebates, supra note 7.
\29\ Committee on Energy and Commerce, Review of 340BDrug
Pricing Program,'' supra note 2.
---------------------------------------------------------------------------
Moreover, claims modifiers can be applied inconsistently, may be
incomplete or unavailable at the time of adjudication, and depend on
voluntary compliance by covered entities and dispensing pharmacies
without an enforcement mechanism that ties the receipt of the 340B
discount to verified claims data. Under the current model,
manufacturers have argued that they lack timely access to claims-level
data to identify all units subject to 340B pricing. The implementation
of maximum fair prices under the MDPNP further increases concerns of
[[Page 48900]]
overlapping price concessions across programs, potentially compounding
the limitations of a claims modifier approach.
Other covered entity commenters proposed the establishment of a
centralized or third-party clearinghouse model as an alternative to a
rebate-based approach. Under this proposal, an intermediary would serve
as a central data hub to coordinate 340B transaction information among
covered entities, manufacturers, and payers, with the goal of
facilitating real-time or near-real-time identification of 340B
utilization and preventing duplicate discounts without requiring
covered entities to transition away from upfront discounts.
HRSA has considered this proposal and concludes that a
clearinghouse model is, in substance, an enhanced claims modifier
system operating under a different name. Like claims modifiers, a
clearinghouse would depend on covered entities to accurately and
completely report 340B transaction data to the intermediary, and on the
intermediary to relay that information to manufacturers and payers in a
timely and standardized manner. As manufacturer commenters have
observed, unlike a clearinghouse, a rebate model by its very nature
incentivizes covered entity compliance as a prerequisite to receiving
340B discounts. Under a rebate model, the covered entity must
affirmatively submit validated claims data to receive the discount,
which may help to align the incentive structure with program integrity
objectives. A clearinghouse, by contrast, would preserve the current
dynamic in which the discount is provided upfront and compliance
verification occurs only after the fact. In addition, proposals to
establish clearinghouses or similar intermediaries are not explicitly
authorized under the 340B statute.
Commenters also proposed significantly narrowing the Pilot itself,
including limiting participation to voluntary participants, restricting
participation to entities with sufficient operational capacity,
limiting the Pilot to fewer drugs or dispensing settings, or excluding
physician-administered drugs or contract pharmacy arrangements. HRSA
carefully considered these alternatives, including limiting the Pilot
to certain entity types.
Regulatory regimes that impose fixed compliance costs (e.g., legal,
operational, and administrative) may disproportionately burden small
entities that often lack the economies of scale of larger entities.
Large hospitals, for example, have dedicated legal, compliance,
accounting, and information technology departments capable of absorbing
shifting regulatory mandates without disrupting patient care. As
discussed throughout and below, we do not believe small hospitals and
non-hospital healthcare entities will struggle to accommodate such
changes. The Regulatory Flexibility Act of 1980 (RFA) directs agencies
to avoid ``one-size-fits-all'' approaches and instead consider
alternatives that mitigate impacts on small entities, especially when
``the problems that gave rise to government action may not have been
caused by those smaller entities.'' \30\ The procedural requirements of
the RFA (e.g., 5 U.S.C. 604) are not statutorily mandated for this
notice since this notice does not constitute a rulemaking action per 5
U.S.C. 553. Nevertheless, HRSA has carefully considered the principles
of the RFA in line with HHS's 2003 guidance.\31\ This guidance directs
HRSA to mitigate impacts on small entities through, for example,
``lessening the record-keeping and reporting requirements, delaying
effective dates, establishing minimal requirements, or, if possible,
waiving certain requirements'' for any ``proposed and final notices
that function as rules.'' \32\ Furthermore, Executive Order 12866
directs agencies to consider streamlining regulatory requirements for
small entities when developing significant regulatory actions and the
Office of Management and Budget's Office of Information and Regulatory
Affairs (OMB OIRA) has determined that this notice is ``significant''
per Section 3(f)(1) of E.O. 12866.\33\ Likewise, the Paperwork
Reduction Act of 1995 directs agencies to minimize the paperwork burden
imposed on small entities.\34\
---------------------------------------------------------------------------
\30\ Regulatory Flexibility Act, 5 U.S.C. 603(a) (2024).
\31\ U.S. Dep't of Health & Hum. Servs., Guidance on Proper
Consideration of Small Entities in Rulemakings of the U.S.
Department of Health and Human Services (May 2003), https://aspe.hhs.gov/sites/default/files/documents/dd6288d1b8db19ee8a1f37b3ce775003/guidance-proper-consideration-hhs-2003-rulemaking.pdf.
\32\ U.S. Dep't of Health & Hum. Servs., Guidance on Proper
Consideration of Small Entities in Rulemakings of the U.S.
Department of Health and Human Services (May 2003), https://aspe.hhs.gov/sites/default/files/documents/dd6288d1b8db19ee8a1f37b3ce775003/guidance-proper-consideration-hhs-2003-rulemaking.pdf. While participation in this 340B Rebate Model
Pilot Program is voluntary for 340B manufacturers, when HRSA
approves a given manufacturer's plan for pilot participation, it
will become mandatory for 340B covered entities acquiring 340B drugs
from that manufacturer.
\33\ Exec. Order No. 12,866, 58 FR 51735 (Oct. 4, 1993).
\34\ Paperwork Reduction Act, 44 U.S.C. 3501-3520.
---------------------------------------------------------------------------
HRSA categorizes covered entities by types that correspond to the
statutory definition of ``covered entity'' provided at Section
340B(a)(4) of the PHSA.\35\ There are 22 such types that are largely
divisible into two categories: 340B hospitals and non-hospital
entities. The former category, nonprofit or governmental hospitals
participating in 340B, accounted for about 87% of program purchases in
2024.\36\ These 340B hospitals constitute roughly half of all U.S.
hospitals \37\ and they provide inpatient and outpatient care. About
90% of hospitals' 340B purchases ($64.1 billion; roughly 79% of total
340B purchases) come from disproportionate share hospitals (DSH). DSHs
are nonprofit or governmental hospitals that serve a large volume of
low-income, Medicaid, and uninsured patients. The latter category, non-
hospital entities, are generally clinics and health centers that
receive federal grant funding. These non-hospital entities are more
variegated in purpose and structure. Federally qualified health centers
(FQHC, also known as Community Health Centers) provide comprehensive
outpatient primary care while other non-hospital entities provide
specialized care restricted to a narrow public health mission (e.g.,
340B Black Lung Clinics treat active and retired coal miners suffering
from Coal Mine Dust Lung Disease). FQHCs and Look-Alikes (i.e., clinics
that meet all FQHC rules but do not receive federal funding; FQHC-LAs)
constitute about half non-hospital entities' 340B purchases ($5.2
billion; roughly 6% of total 340B purchases).
---------------------------------------------------------------------------
\35\ 42 U.S.C. 256b(a)(4) (2018).
\36\ This includes Disproportionate Share Hospitals, Children's
Hospitals, Rural Referral Centers, Critical Access Hospitals, Free-
Standing Cancer Hospitals, and Sole Community Hospitals. 2024 340B
Covered Entity Purchases, Health Res. & Servs. Admin. (Dec. 2025),
https://www.hrsa.gov/opa/updates/2024-340b-covered-entity-purchases.
\37\ The American Hospital Association (AHA) estimates a total
of over 6,000 hospitals and HRSA data shows about 3,000 participate
in 340B. Am. Hosp. Ass'n, Fast Facts on U.S. Hospitals, 2026 (2026),
https://www.aha.org/statistics/fast-facts-us-hospitals. 340B OPAIS,
Health Res. & Servs. Admin., https://340bopais.hrsa.gov/ (last
visited July 5, 2026).
---------------------------------------------------------------------------
As mentioned earlier in the discussion of potential impacts of a
340B Rebate Model Pilot Program, a 2025 report estimated that 340B
covered entities' financing (interest) costs associated with
transitioning to a 340B rebate model would be negligible (less than one
half a percent of the drugs' list price), but it also found that these
costs may be disproportionately larger for smaller entities that would
need to obtain small business loans at higher
[[Page 48901]]
interest rates.\38\ But after careful consideration, HRSA has
determined that these differences between the average hospital and the
average FQHC do not justify carving up the Pilot. Phasing in, or
otherwise scoping, the Pilot would fail to account for these
differences and would undermine the integrity of the Pilot, which will
provide important information to HRSA. Indeed, clean delineations along
the lines of covered entity type may not be a particularly robust
measure of disproportionality of impact (rendering such a distinction
potentially arbitrary). HRSA specifically determined that limiting
participation to non-hospital entities, voluntary covered entities, or
only operationally sophisticated entities could introduce substantial
selection bias and reduce the reliability and generalizability of Pilot
findings. Covered entities vary significantly in size, structure,
patient population, dispensing models, and reliance on contract
pharmacy arrangements. A narrowly tailored or self-selected participant
pool would not adequately reflect these differences and would constrain
the agency's ability to assess how a rebate model functions across the
broader 340B environment. Similarly, further limiting the number of
drugs included in the Pilot would reduce the agency's ability to
evaluate rebate administration and duplicate discount prevention in the
context of the MDPNP and other overlapping pricing programs.
---------------------------------------------------------------------------
\38\ IQVIA, How Will a Rebate Model Impact Cash Flow in the 340B
Drug Pricing Program? (2025), https://www.iqvia.com/locations/united-states/library/fact-sheets/how-will-a-rebate-model-impact-cash-flow-in-the-340b-drug-pricing-program.
---------------------------------------------------------------------------
The nonduplication and duplicate discount issues that the Pilot is
designed to address are inherently drug-specific and apply to all
covered entities. The program integrity risk, along with the
nonduplication risk, that the Pilot is designed to mitigate thus
attaches to particular drugs, namely, those drugs for which overlapping
federal pricing obligations create a heightened risk of duplicative
price concessions, rather than to particular categories of covered
entities. Scoping the Pilot by the drugs that generate the specific
compliance challenge is therefore a rational and direct means of
targeting the identified problem.
HRSA additionally notes that scoping the Pilot by entity type alone
would not adequately address the identified 340B program integrity
concern. The risk of duplicate discounts arises whenever a selected
drug is dispensed by any 340B covered entity, regardless of whether
that entity is a hospital, FQHC, or other provider type. Limiting the
Pilot to a subset of entity types while excluding others would leave
the duplicate discount problem unaddressed for a significant portion of
selected drug transactions, undermining the Pilot's ability to generate
meaningful implementation data and to fulfill its program integrity
objectives. By contrast, a drug-type scope ensures that the Pilot
captures all transactions for which the specific compliance risk
exists, across the full range of covered entity settings in which those
drugs are dispensed, precisely the comprehensive and representative
evaluation that the Pilot requires.
Retrospective enforcement mechanisms are inherently reactive and
identify potential duplicate discounts only after they occur. By
contrast, HRSA believes that a rebate-based model may improve
prospective identification and validation of transactions by linking
price concessions to standardized claims-level data submitted as part
of the rebate process. Retrospective reviews, audits, and dispute
resolution processes are inherently reactive, identifying potential
duplicate discounts only after they have occurred. The exponential
growth of the 340B Program, which now encompasses more than 15,000
covered entities, over 49,000 associated sites, and $100 billion in
annual purchases, has further strained the capacity of audit-based
approaches.
In contrast, 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. This structural difference addresses a core limitation shared
by all three of the alternatives proposed by covered entity commenters:
under a clearinghouse, claims modifier, or audit-based approach, the
340B discount is provided upfront and compliance is assessed only
retrospectively. Under a rebate model, the covered entity must submit
validated claims data as a precondition to receiving the discount,
creating an inherent incentive for accurate reporting and reducing the
opportunity for duplicate discounts to go undetected.
For these reasons, HRSA concludes that none of the proposed
alternatives would adequately serve the program integrity and
evaluation objectives that the Pilot is designed to advance, and that a
limited rebate pilot provides the most appropriate mechanism to
evaluate operational feasibility, duplicate discount prevention,
transparency, and coordination across federal pricing programs in the
current programmatic environment.
VII. Pilot Evaluation and Transparency
HRSA will evaluate the Pilot using a combination of quantitative
and qualitative methods. Quantitative measures will include data
submitted by participating manufacturers and covered entities regarding
rebate requests, rebate payments, payment timeliness, claim denials,
dispute resolution outcomes, reporting burden, and other operational
metrics. HRSA will also review information relating to administrative
burden, duplicate discount prevention, data quality, and program
integrity and may use data gleaned from the Pilot during reviews of
routine 340B Program audits of both covered entities and manufacturers.
Qualitative information will be collected through stakeholder
engagement activities, including written feedback, listening sessions,
technical assistance interactions, and other implementation-related
communications.
HRSA intends to conduct ongoing monitoring throughout the Pilot and
shall publish interim periodic summaries of implementation findings and
lessons learned on our public-facing website. Upon conclusion of the
first year of Pilot operations, HRSA will publish an evaluation by
April 30, 2028. To the extent practicable and consistent with
applicable law, HRSA will ensure that any public and aggregated
information regarding Pilot performance will not contain confidential,
proprietary, or individually identifiable information.
VIII. Supplemental Information
In light of all the comments received on the RFI, prior rebate
model discussions with manufacturers, and feedback received from
stakeholders on a rebate model, HRSA has developed a 340B Rebate Model
Pilot Program that is consistent with the 340B statute, and that
balances the burden on program stakeholders with the benefits to
transparency and program integrity that a rebate model would provide.
In developing the rebate pilot, HRSA considered the full range of
stakeholder feedback and incorporated key updates to the prior 340B
rebate model in direct response to that feedback.
HRSA is introducing this rebate approach in a methodical and
thoughtful manner and limiting it to a select group of drugs (as
described below). This approach will ensure a fair and transparent 340B
rebate model process for all stakeholders involved. The drugs in the
340B Rebate Model Pilot Program are limited to the NDC-11s of the
selected drugs for initial price applicability years 2026 and 2027
[[Page 48902]]
included on the CMS Medicare Drug Price Negotiation Selected Drug
List,\39\ regardless of payer or indication and shall be limited to the
price applicability period for the selected drug. Accordingly, the call
to submit plans for HRSA/OPA review is limited to the manufacturers
that have active selected drugs in the MDPNP for initial price
applicability years 2026 and 2027.\40\ HRSA/OPA is inviting qualifying
drug manufacturers that meet this criteria to apply for participation
in the 340B Rebate Model Pilot Program for a minimum 1-year period.
---------------------------------------------------------------------------
\39\ Medicare Drug Price Negotiation Selected Drug List,
available at https://www.cms.gov/files/zip/selected-drug-list-negotiated-prices-also-known-maximum-fair-prices-statutezip.zip.
\40\ https://www.cms.gov/files/document/fact-sheet-negotiated-prices-initial-price-applicability-year-2026.pdfhttps://www.cms.gov/files/document/fact-sheet-negotiated-prices-ipay-2027.pdf Fact Sheet
for Negotiated Prices for Applicability Years 2026 and 2027,
available at https://www.cms.gov/files/document/fact-sheet-negotiated-prices-initial-price-applicability-year-2026.pdf and
https://www.cms.gov/files/document/fact-sheet-negotiated-prices-ipay-2027.pdf, respectively.
_____________________________________-
Manufacturer plans for participation in the 340B Rebate Model Pilot
Program should be submitted to [email protected] no later than
August 24, 2026. Approvals, if any, will be made by September 24 2026,
for a January 1, 2027, effective date for drugs that are a selected
drug for initial price applicability period 2026 and 2027.
Manufacturers may not implement plans without first receiving HHS
approval in accordance with section 340B(a)(1) of the PHSA.
Manufacturer plans for the 340B Rebate Model Pilot Program must
include the criteria outlined below. Manufacturer plans that exceed or
go beyond these criteria must include detailed justification and will
be subject to additional levels of review by HRSA/OPA prior to approval
HRSA/OPA will review submitted plans and notify manufacturers if their
plan is approved and the manufacturer may participate in the 340B
Rebate Model Pilot Program. Submitted plans should succinctly describe
how they meet all the criteria below. HHS reserves the right to revoke
a manufacturer's approval to participate in the 340B Rebate Model Pilot
Program at any time if a manufacturer is not in compliance with the
criteria outlined below and with any other requirements set forth in
the approved manufacturer plan.
A. General 340B Rebate Model Pilot Plan Requirements
1. Plan must identify the IT platform to be used for covered entity
data submission and include assurances that all costs for IT platform
used for data submission, be borne by the manufacturer.
2. Plan must allow for 90 calendar days' notice to covered entities
and other impacted stakeholders before implementing an approved rebate
pilot plan, with instructions for registering for any IT platforms.
Changes to approved plans must be submitted to OPA for review and
approval prior to implementation, including the mechanism by which
covered entities are to acquire drugs included in the rebate model
pilot. OPA will determine if the changes can take effect immediately or
if they require a notification period to covered entities.
Manufacturers will be expected to provide HRSA with a copy of their
final approved plan for public posting on HRSA's website to ensure
consistency with what HRSA approved.
3. Plan must allow for covered entities to order the selected drugs
under existing distribution mechanisms (e.g., 340B wholesaler accounts
with WAC prices loaded) to ensure purchases flow through existing
infrastructure.
4. Plan must provide technical assistance/customer service
component and ensure that opportunities to engage directly with the
manufacturer in good faith regarding questions or concerns are made
available to covered entities through both the IT platform and provide
a point of contact at the manufacturer.
5. Plan must ensure that the IT platform has assurances in place to
ensure that the data is secure and protected and collection of the data
is limited to the elements listed below that are necessary for
providing 340B rebates pursuant to section 340B(a)(1) of the PHSA.
6. Plan must ensure that the manufacturer and the IT platform have
mechanisms in place to protect the privacy and security of PHI or other
PII, which is required to be safeguarded in a manner consistent with
any applicable federal privacy and data security laws, including HIPAA.
7. Plan must describe whether an exception that would not apply
broadly to all covered entities, and if any, will be communicated to
both HRSA and affected covered entities (e.g., covered entities without
access to a third-party administrator or rural hospitals or health
centers).
B. Reporting Requirements
1. Plan must ensure that covered entities are allowed to submit and
report data (as detailed below), at a minimum, up to 45 calendar 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. Plan must ensure that the IT platform will have 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 for initial price applicability year 2026 or 2027
during its price applicability period under the MDPNP are submitted,
the platform will be able to identify and discard unneeded data).
3. Plan must ensure that the IT platform will have the capability
to provide real-time reconciliation reports for covered entities to be
informed of the rebate status of submitted claims.
4. Plan must ensure that a quarterly 340B price file for each of
the manufacturer's 11-digit NDCs is 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 cost (i.e., post rebate price) for Medicaid billing and
also to assist with sliding fee scales or cost sharing with patients.
5. Plan must require the manufacturer to provide HRSA/OPA with
periodic reports consistent with the information outlined in this
Notice, in a format and manner specified by HRSA/OPA (instructions
forthcoming). Such data should detail data on purchases provided
through rebates, information related to claim denials, and other
information that may evaluate the effectiveness of the rebate model.
C. Rebates
1. Plan must include the rebate calculation equal to the wholesale
acquisition cost (WAC) less the 340B ceiling price on the day of
dispense.
2. Plan must specify that rebates are paid at the unit level.
3. Plan must include details to accommodate up to 2 unreplenished
accumulated packages during the implementation phase. Covered entities
shall have a 15-calendar day grace period, in which they may submit
rebate requests for up to 2 unreplenished accumulated packages prior to
the Pilot's effective date. For example, a covered entity may request a
rebate for up to 2 packages of a product dispensed from its neutral
inventory on December 16, even though the effective date for the
product's participation in the pilot is January 1. The request for such
rebates should still be made within 45 days of dispense.
4. Plan must ensure that all rebates are paid to the covered entity
(or denied, with documentation to support)
[[Page 48903]]
within 10 calendar days of completed data submission. If the submission
is returned for incomplete data, the 10-day clock for rebate payment
will restart when all necessary data is submitted.
5. Plan must ensure that 340B rebates are not denied based on
eligibility or compliance concerns with diversion or Medicaid duplicate
discounts, pursuant to section 340B(a)(5)(A) and (B) of the Public
Health Service Act and should provide for rationale and specific
documentation for reasons claims are denied (e.g., nonduplication of
discounts for a selected drug for which the MFP is required under the
MDPNP or 340B rebate provided to another covered entity on the same
claim). Rebates may not be denied for perceived lack of WAC purchases.
If a manufacturer has concerns regarding Medicaid duplicate discounts,
diversion, eligibility, or insufficient WAC purchases to support rebate
requests, the manufacturer must raise those concerns directly with
HRSA/OPA or utilize the 340B statutory mechanisms, such as audits and
administrative dispute resolution, for addressing such issues. Covered
entities are also afforded opportunities to raise concerns with HRSA/
OPA if there are issues with rebate denials through reporting tools
sent to [email protected].
6. Plan must ensure that its implementation of the Pilot is limited
to using the 340B rebates model only on sales of active selected drugs
for the initial price applicability years 2026 or 2027, as included on
the CMS Medicare Drug Price Negotiation Selected Drug List
(``List''),\41\ regardless of payer, or indication, and only during the
selected drug's effective dates of negotiated prices. The NDC-11s of
the selected drug are included in the Pilot only to the extent they are
on the List, and the selected drug is in its price applicability period
in the MDPNP.
---------------------------------------------------------------------------
\41\ https://www.cms.gov/files/zip/medicare-drug-price-negotiation-selected-drug-list.zip.
---------------------------------------------------------------------------
D. Data
1. All data requested as part of the Plan should be limited to only
the following claim fields:
------------------------------------------------------------------------
Pharmacy claims data fields Medical claims data fields
------------------------------------------------------------------------
Date of Service........................... Date of Service.
Date Prescribed........................... Claim Line Number.
Rx number................................. Claim Number.
Fill number............................... Unit of Measure.
NDC-11.................................... NDC-11.
Quantity Dispensed........................ Quantity.
Prescriber ID............................. Rendering Physician ID.
Service Provider ID....................... Service Provider ID.
340B ID................................... 340B ID.
RX BIN.................................... Health Plan Name.
RX PCN.................................... Health Plan ID.
Health Plan ID Qualifier (if
available).
------------------------------------------------------------------------
Data definitions for each field must be submitted with the
plan for HRSA's approval to ensure consistency and make it available
for covered entities. Purchasing data and encounter data requests
should not be requested as part of the pilot at this time.
For BIN, PCN, and Health Plan fields for uninsured or cash
paying patients, please allow the submission in the fields to be marked
``CASH''.
Covered entities must be permitted to resubmit data if a
rebate request is deemed incomplete or missing data.
Instructions for providing data regarding wasted or
undispensed units must be provided as part of the manufacturer's plan
and communicated to covered entities.
Covered entity data that is handled by technology platforms and
received by manufacturers as a part of this Pilot should not be used
for any purpose other than those explicitly identified in this Pilot.
This limitation extends to any collecting, aggregating, sharing, or
licensing of Pilot data by manufacturers or technology platforms.
Thomas J. Engels,
Administrator.
[FR Doc. 2026-15633 Filed 7-31-26; 8:45 am]
BILLING CODE 4165-15-P