The Current Legal Landscape of the 340B Drug Pricing Program

The federal 340B Drug Pricing Program ("340B Program") was created by Congress in 1992 through an amendment to the Public Health Service Act.^[i] The program, which is administered by the Health Resources & Services Administration ("HRSA"), 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."^[ii] The 340B Program requires pharmaceutical manufacturers to offer "covered entities" a discounted price (not exceeding a specified "ceiling price") for covered outpatient drugs. To fill prescriptions for these discounted outpatient drugs, covered entities frequently contract with third-party pharmacies, known as "contract pharmacies," which are often large, for-profit chains. 

Several critical aspects of the 340B Program continue to be challenged through litigation, including manufacturers' distribution restrictions on contract pharmacy arrangements, HRSA's enforcement authority, and federal preemption challenges to state legislative action. Further, HRSA continues to announce new features of the 340B Program—most recently, an administrative dispute resolution process to address claims of both manufacturer and covered entity noncompliance, and a voluntary 340B Rebate Model Pilot Program.^[iii] 

Trends in 340B Program Litigation

A current area of debate in 340B Program litigation is the question of whether drug manufacturers may impose conditions on covered entities. Examples of challenged conditions include requiring that covered entities submit limited claims data to detect duplicate discounts, and limiting 340B drug distribution to covered entities' in-house pharmacies or to a single designated contract pharmacy. HRSA has challenged these distribution restrictions through enforcement letters. However, to date, federal appellate courts have consistently sided with manufacturers, finding that Section 340B does not prohibit manufacturers from imposing conditions on the distribution of covered drugs to covered entities, provided that these conditions do not prevent bona fide offers at ceiling prices or "violate Section 340B on their face." 

Another development in the 340B Program litigation is a challenge to HRSA's enforcement authority and the agency's interpretation of its regulatory power. In 2024, the D.C. Circuit constrained HRSA's enforcement capabilities, holding that courts "cannot defer to HRSA's interpretation of Section 340B under Chevron," and instead "may follow the agency's interpretation of the statute only to the extent it has the 'power to persuade'" under Skidmore deference. 

The Third Circuit similarly rejected HRSA's expansive interpretation of its regulatory power, holding that, "because Section 340B is 'silent about delivery,' HRSA erred in concluding that the statute 'requires drug makers to deliver drugs to an unlimited number of contract pharmacies.'" These decisions reflect an apparent shift in federal appellate courts limiting HRSA's enforcement authority by requiring HRSA to demonstrate clear statutory authority rather than relying on its interpretation of ambiguous provisions. 

In response to manufacturers' distribution restrictions, and a perceived gap in federal enforcement power, many state legislatures have enacted legislation aimed at regulating drug distribution mechanisms and protecting contract pharmacy arrangements. Manufacturers have challenged these state laws with varying success.The Eighth Circuit upheld an Arkansas act that prohibited manufacturers from interfering with covered entities' contract pharmacy arrangements, finding that the act was not preempted by federal law—at least insofar as covered entities retained title to 340B-priced drugs, with contract pharmacies acting as their agents. The court reasoned that rather than requiring manufacturers to provide 340B pricing discounts to contract pharmacies, the Act "assists in fulfilling the purpose of 340B" by "prohibit[ing] pharmaceutical manufacturers from interfering in a covered entity's agreement with a contract pharmacy." 

Many challenges to state legislative efforts remain ongoing, with active litigation in many different jurisdictions, so this is an area that requires close attention. 

Recent 340B Program Updates

In the last two years, HRSA has announced two noteworthy updates to its 340B Program. The first, announced in April 2024, established an updated administrative dispute resolution process—revising the process to be less formal than the one previously finalized in 2020—for resolving claims by both covered entities and manufacturers alleging program noncompliance. Claims may be submitted by covered entities "that may have been overcharged for covered outpatient drugs purchased from manufacturers."^[iv] 

Before manufacturers may submit a claim against a covered entity for alleged duplicate discounts or diversion, however, they must conduct an audit of the covered entity. Further, to obtain HRSA approval to conduct such an audit, the manufacturer must establish "reasonable cause" for the audit, supported by "sufficient facts and evidence."^[v] 

In light of HRSA's limited audit capacity, these additional obstacles to participation in the administrative dispute resolution process raise concerns for both manufacturers and covered entities regarding enforcement gaps, involuntary program exclusion, and significant financial impacts for both parties. 

The second update is the 340B Rebate Model Pilot Program, which was introduced to "test the rebate model" on selected drugs from a small pool of approved manufacturers (limited to the 10 drugs selected for the Medicare Drug Price Negotiations Program for Initial Price Applicability Year 2026).^[vi] Following a notice-and-comment period, HRSA's Office of Pharmacy Affairs ("OPA") approved eight manufacturer plans for participation in the Rebate Model Pilot Program.^[vii] These plans take effect January 1, 2026. Since the initial wave of approvals, one additional plan has been approved, and it takes effect April 1, 2026. 

The 340B Rebate Model Pilot Program is intended to inform the development of any future program-wide 340B rebate models, and OPA has reserved the right to revoke rebate model approval for manufacturers, expand the pilot to other drugs, and approve additional manufacturers for participation in the program. There is also pending litigation regarding whether manufacturers require HRSA's preapproval before launching a rebate model. 

The announcement of the 340B Rebate Model Pilot Program has made waves in the industry, not only for manufacturers but also for health care provider entities, including hospitals. On December 1, 2025, the American Hospital Association, joined by several health systems and a state hospital association, filed a lawsuit challenging HRSA's 340B Rebate Model Pilot Program. The plaintiffs are seeking a temporary restraining order to stop the Program from going into effect on January 1, 2026, while the court considers their challenge.