By: Ranier Simons, ADAP Blog Guest Contributor
Since its inception in 1992 up until 2010, patients were generally thought to have benefited from the 340B Drug Pricing Program. That perception began to change with the passage of the Affordable Care Act (ACA), however. Although the expansion of the 340B program was supposed to have worked hand in glove with the ACA to expand the provision of affordable health care to the underinsured and uninsured, the 340B program, post-ACA, was accompanied by new challenges that have remained largely unchecked over the subsequent 15 years. The result is a program that has veered from its intended purpose. This is evidenced by explosive growth in the number of healthcare providers, or covered entities, participating in the program, while 340B hospitals have actually reduced the charity care they offer to needy patients. The total value, at list price, of the purchases made under the program now exceeds $124 billion (Fein, May 2024), even as medical debt in the United States has soared to $220 billion (Rakshit, February 2024). An IQVIA study demonstrated that only 1.4% of 340B patients receiving 340B drugs through contract pharmacies had any assistance with their out-of-pocket costs at the pharmacy counter. But the growing chorus calling for reform of the 340B Program now includes a new idea: 340B pricing made available through rebates instead of upfront payments. Patients are beginning to ask if it is an idea that could benefit them?
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Photo Source: Healthcare Dive |
In August 2024, Johnson & Johnson Health Care Systems, Inc (JJHCS) announced its 340B rebate model (J&J, Aug 2024). The new model was an attempt to correct some of the improper utilization of the 340B program and ensure that patients received direct benefits from the savings. Instead of the most prevalent chargeback model, JJHCS decided to offer Stelara and Xarelto to disproportionate share hospital (DSH) covered entities via rebate (J&J, Aug 2024). All other 340B eligible entities would remain on the standard chargeback model. DSH-covered entities would be required to purchase the two drugs from wholesalers at the commercial non-discounted price and then submit a rebate claim for the 340B discount. After the claims are validated, the rebates would be deposited into the bank accounts of the DSH-covered entity. This arrangement applied regardless of whether the medication was dispensed through an in-house pharmacy or contract pharmacy.
Stelara and Xarelto are high-volume, expensive medications. Offering the 340B rebate on these two medications would provide significant savings for a large patient base and their providers, and it would also affect JJHCS’s financial bottom line. The rebate would be calculated as a Wholesale Acquisition Cost (WAC) 340B ceiling price even if a 340B DSH hospital has an agreement with a wholesaler for a lower price (J&J Innovative Medicine, 2024). The rebate concept is not novel. Kalderos, a data infrastructure and analytics company, presented a similar ideology in 2020 based on a discount drug payment platform of their own creation. Their research showed that converted entities benefited from higher revenues when rebates were based on WAC as opposed to contract pharmacy reimbursement tied to discounted Average Wholesale Price (AWP) (Fein, 2022).
HRSA responded to JJHCS unfavorably, even though the 340B statute requires HRSA to “provide for ‘any rebate or discount’ in accounting for the “amount required to be paid” under the program. HRSA nevertheless claimed that JJHCS’ proposed 340B rebate model violates the 340B statute. The agency’s interpretation of the law is that the rebate model’s requirement that a covered entity pay a commercial price upfront and then receive a rebate thereafter (even though payment is promised in “no more than seven to ten days”) violates the statute because the initial price is higher than the statutory ceiling price. Additionally, HRSA claims that it has the authority to approve any proposed rebate or other models before they are allowed to go into effect, even though it has never done so for any model employed over the 33 years that the program has been in effect.
In contrast, JJHCS contends that the 340B rebate plan is like the rebate processes that AIDS Drug Assistance Programs (ADAPs) use and the replenishment model that most 340B covered entities use.
In October 2024, Bristol-Myers Squibb (BMS) informed HRSA that it would also start using a 340B rebate model, and it was met with the same resistance by the agency. Despite some patient advocates arguing the BMS model is explicitly pro-patient, in that it offers “even faster” rebate payments if the covered entity “agrees to share” 340B pricing with the patient. The BMS model provides a real opportunity to encourage covered entities to live up to the original intent of the program by providing a direct benefit to patients at the pharmacy counter.
HRSA has informed both JJHCS, BMS, and other manufacturers proposing rebate models that it will take significant enforcement action if they proceed. The threats of enforcement action were particularly sharp concerning Johnson & Johnson Health Care Systems. In that case, HRSA stated that implementation of the rebate would result in civil monetary penalties as well as termination of the company’s Pharmaceutical Pricing Agreement (PPA). A termination would mean that any affected manufacturer would not be able to participate in not just the 340B program but would also lose Medicare Part D and Medicaid coverage for all its products, cutting off potentially millions of patients from the drugs on which they are dependent for their health and safety.
JJHCS, BMS, and multiple other manufacturers filed suit against HRSA arguing that the rebate model is explicitly permitted by statute. ADAP Advocacy and CF United jointly filed an amicus brief in support of the JJHCS and BMS lawsuits (ADAP & CF, 2025). They were the first two patient advocacy groups to do so.
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Photo Source: ADAP Advocacy |
Amanda Boone, co-founder of CF United, a patient advocacy group representing people living with cystic fibrosis and other rare diseases, said, “Our patient organization, CF United, decided to file an amicus brief in support of this issue because the experiences of cystic fibrosis patients and other rare disease communities illustrate the urgent need for reform. The current system leaves many of us—who are already battling life-threatening conditions—burdened with insurmountable medical debt, often without being informed of available financial assistance.” Boone is a member of ADAP Advocacy’s patient working group focused on 340B reform.
The amicus brief supports the JJHCA and BMS lawsuits by adding needed color to the complaint from a patient perspective and highlighting additional issues for the court’s consideration. First, the amicus brief explains that manufacturers have a right to utilize the 340B rebate model under the statute (ADAP & CF, 2025). The statute does not specify a mode of 340B reimbursement. Nor does the statute give HRSA any “pre-approval” authority to solely and exclusively decide whether a particular rebate model is valid. The brief explains that assuming such authority is wholly inconsistent with the plain language of the statute and HRSA’s implementation of the program to date.
Second, the brief explores how some covered entities, particularly the large, highly resourced hospitals that receive up to 80% of the billions in profits from the program, serve their economic interests at the expense of patients at the pharmacy counter. According to the factual background provided in the brief, 340B program purchases increased by 1,000% from 2011 to 2022, but charity care decreased from 2.60% to 2.15% (ADAP & CF, 2025). Most egregiously, many 340B hospitals, even as they are making millions from the program, pursue aggressive collections against poor patients without offering any charity care to those in need (ADAP & CF, 2025). The 340B rebate model, particularly as BMS has proposed it, enables transparency that can and should benefit patients. BMS’ model ensures that 340B purchases are legitimate, directs the rebate to the proper entities, and helps encourage low-cost pricing to be shared directly with patients.
Third, the amicus briefs express serious concerns about HRSA’s threat to remove JJHCS’s PPA because of the far-reaching adverse effects it would have on patients. William Sarraille, ADAP Advocacy’s Special Counsel on issues related to the 340B Drug Pricing Program, explains, “HRSA’s threat to remove manufacturers from the 340B program—and thereby cut off Medicare and Medicaid patient access to their drug therapies—was a recklessly anti-patient act. Sadly, it showed that HRSA cares more about protecting covered entities that engage in diversion, duplicate discounts, and that fail to share 340B pricing with patients than it does about patient access to desperately needed medications.” Sarraille adds, “HRSA could have insisted on certain safeguards in helping to adapt the rebate model for such covered entities as clinics serving HIV and AIDS patients, but it was willing, under lobbyist pressure, to put patients at risk in a blanket refusal to entertain any additional transparency.”
Community Access National Network’s President & CEO, Jen Laws, added, “HRSA has had 30 years to figure itself out in terms of correcting some of the misaligned incentives of the 340B program. Indeed, as recently as the passing of the Inflation Reduction Act, HRSA got the nudge from federal legislators to figure it out. The agency has simply refused to do so.” CANN was the first patient advocacy organization in the HIV space to express support for the new rebate model so long as protections existed for Grantees.
Laws’ reference to the Inflation Reduction Act’s (IRA) drug price negotiation program is, in fact, part of the impetus for the litigation. Under rules established to implement the IRA, drug manufacturers are responsible for ensuring duplicate IRA and 340B discounts are not applied. Without a rebate model, manufacturers will inevitably pay those duplicates, contrary to the IRA.
“You can’t just say, ‘Well, good luck figuring it out’ and then disempower any ability to audit claims”, Laws commented. “HRSA doesn’t have the capacity and covered entities, PBMs, and third-party administrators have refused to do so”, he added. “If you’ve got nothing to hide, this shouldn’t be such a big deal.” Laws argued that it is always CANN’s preference for policy issues to be hammered out by policymakers as opposed to judges with what amounts to ‘downloaded expertise’, either by litigation or legislation. “We support 340B reform. Adjusting payment models to empower manufacturers to ensure their dollars meant to benefit patients actually are benefiting patients is simply good stewardship of the program. It’s a damned shame HRSA can’t get on board with that,” he added.
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Photo Source: CANN |
In general, hospitals oppose the 340B rebate model. They purport that the rebate model would cause financially damaging delays in recouping rebates, would place manufacturers in charge of 340B pricing, instead of HRSA, and would overburden hospitals with bureaucratic red tape (Freedman et al., 2024). Conversely, manufacturers point out that their rebate system increases transparency, provides for prompt payment, upon validation of a claim, within 7-10 days (faster than covered entities are required to pay wholesalers), and involves only the submission of data that covered entities already are required to collect and maintain. Additionally, the platform for execution is free (J&J, Aug 2024). Ryan White clinics oppose the model out of concern for the upfront financial expenditure, but are, at least at this point, carved out of several of the proposed models, including the JJHCS model, which is limited to disproportionate share hospitals.
In filing its amicus brief in support of the manufacturers' new rebate model, ADAP Advocacy noted because of the difference between 340B hospitals and some covered entities, like clinics serving clients living with HIV, it appreciates that, in deploying rebate mechanisms, steps have been taken to carve out some 340B clinic types.
The 340B rebate program has evolved far from its narrowly focused beginnings. Instead of being patient-focused, directly benefiting the vulnerable populations it was meant for, it has become a runaway cash cow for those knowledgeable enough to game the system and willing to put their interests above their patients. Various 340B rebate policy proposals aim to make sure rebate revenues flow in the manner they were originally meant. Patients deserve better, and the country continues to suffer excessive medical and fiscal expenditures due to 340B abuse. All eyes will be watching the outcomes of these and future 340B lawsuits.
[1] ADAP Advocacy, CF United. (2025, February 10). Motion for Leave by Amici Curiae, CF United, and ADAP Advocacy. Retrieved from https://www.adapadvocacy.org/urls/DC_Dist_Court_Johnson-Johnson_v_Dorthy-Fink_DHHS_Diana-Espinosa_HRSA_02-10-25.pdf
[2] Fein, A. J., PhD. (2022, January 14). The 340B rebate model: a solution to the contract pharmacy controversy. https://www.drugchannels.net/2022/01/the-340b-rebate-model-solution-to.html
[3] Freedman, L., Hardy, X., Santiago, A. (2024, November 12). Unpacking Johnson & Johnson’s Lawsuit Over 340B Rebate Model. Retrieved fromhttps://www.mintz.com/insights-center/viewpoints/2146/2024-11-19-unpacking-johnson-johnsons-lawsuit-over-340b-rebate#:~:text=The%20announcement%20of%20the%20rebate,protect%E2%80%9D%20the%20DSH%20covered%20entities.
[4] Johnson, Carole. (2024, September 17). Letter to JJHCS. Retrieved from https://340breport.com/wp-content/uploads/2024/09/HHS-letter-to-JJ-09.17.2024.pd
[5] Johnson & Johnson. (2024, August 23). Notice to 340B End Customers Regarding Purchases of STELARA and XARELTO. Retrieved from https://sponsors.aha.org/rs/710-ZLL-651/images/Johnson%20%20Johnson%20Innovative%20Medicine%20340B%20Rebate%20Model%20Policy%20Update%2008-23-2024_FINAL.pdf?version=0
[6] Johnson & Johnson Innovative Medicine. (2024).12 things to know about J&J’s 340B Rebate Model Policy. Retrieved from https://transparencyreport.janssen.com/12-things-to-know-about-j-js-340b-rebate-model-policy#:~:text=340B%20rebates%20will%20be%20paid,”%20until%20January%201%2C%202026.&text=J&J's%20rebate%20model%20requires%20industry,purchase%20and%20the%20product%20dispense.
[7] Rajan, G., Coates, S. (2024, November 15). Lilly sues US agency over blocking of drug-rebate program. Retrieved fromhttps://www.reuters.com/legal/lilly-sues-us-agency-over-blocking-drug-rebate-program-2024-11-15/#:~:text=Eli%20Lilly%20said%20its%20program,Sign%20up%20here.
[8] White, S. (2024, September 30). Letter to HRSA. Retrieved from /https://transparencyreport.janssen.com/letter-in-response-to-hrs
Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.