HRSA's 340B Pilot Tests What Already Works While Ignoring What Doesn't

On July 31, 2025, the Health Resources and Services Administration (HRSA) announced a voluntary 340B Rebate Model Pilot Program. Starting January 1, 2026, the pilot could apply to 10 drugs subject to Medicare price negotiation, allowing manufacturers to provide post-purchase rebates instead of upfront discounts. To be fair, in terms of actual financial impact for covered entities this may end up being a distinction without a difference because of the draft guidance offered by the Centers for Medicare and Medicaid Services (CMS) in June 2025 regarding “retrospective” payment processes. While HRSA Administrator Tom Engels framed this as addressing "concerns we have received from both covered entities and manufacturers," the pilot creates statutory violations that threaten program integrity and neglects the fact that the model has already been proven in AIDS Drug Assistance Programs (ADAPs).

The timing and design of this pilot raise fundamental questions about HRSA's priorities. Instead of addressing well-documented concerns regarding 340B program exploitation by large hospital systems at the expense of market competition and patient benefit, the agency is testing a model that already functions successfully elsewhere, while potentially accommodating institutional resistance to transparency and accountability.

The ADAP Gold Standard: Proof Already Exists

The most compelling argument against this pilot lies in its redundancy. ADAPs, administered in every U.S. state and territory, have operated successfully under rebate models for nearly the entire history of the 340B program. These programs demonstrate that rebate mechanisms can be effective, transparent, and fully compliant with statutory protections while enhancing program integrity and protecting patient access.

ADAPs represent the gold standard of 340B implementation, proving that rebate systems can safeguard against duplicate discounts and maintain access without upfront pricing. These programs show that prospective discounts are not the only viable approach to ensuring people living with HIV and other patients, especially those with chronic, complex, or disabling health conditions, receive necessary medications at affordable prices.

The success of ADAP rebate models over decades makes HRSA's pilot approach particularly puzzling and, frankly, wasteful. Rather than conducting an unnecessary pilot, the agency could focus resources on codifying a permanent rebate-based structure informed by ADAP experience for medications subject to the 340B program. The evidence base for rebate models already exists and has been tested at scale across every state and territory.

Voluntary Participation: Ensuring Failure

The pilot's voluntary nature for covered entities virtually guarantees inadequate data collection. Given widespread complaints from covered entities about rebate models, maintaining current distribution mechanisms while making rebate engagement optional will likely lead to minimal participation, as covered entities object to a rebate model. This voluntary structure benefits hospital systems' interests while undermining the pilot's evaluative potential.

Without mandatory participation, particularly among large covered entities serving substantial patient populations, the pilot cannot correctly evaluate the rebate model's impact on administrative burden and processes. The voluntary design ensures the pilot will be unable to test the viability of rebate models as scalable solutions, effectively wasting resources while providing political cover for maintaining the status quo - all while not delivering data on exactly “how” patients are served.

As ever, the casual observer on this issue cannot be surprised that the model lacks any requirement for covered entities to disclose details on 340B revenue use, completely obscuring the necessary distinctions between patient interests and covered entity interests served by the program.

Hospital Resistance: Cash Flow or Compliance?

The opposition to rebate models from large hospital systems reveals more about their operational priorities than legitimate patient access concerns. 340B Health, a special interest group representing safety-net hospitals, claims that rebate models would force disproportionate share hospitals to front an average of more than $72 million while waiting for rebates, "straining their ability to deliver critical care services." It’s worth noting that the proposed rebate model requires manufacturers to fulfill rebate claims within 10 days for medications subject to Medicare drug price negotiation and, under the draft guidance offered by CMS in June, these same manufacturers would be allowed a retrospective payment window of 14 days under Medicare claims. There is not a world of difference here, despite the clamoring of objectors.

Additionally, the framing from certain covered entities obscures the reality that these entities operate with substantial revenues, often far exceeding the entire federal awards provided to all state ADAPs combined. The concerns about transitioning from discount to rebate reflect, at most, a change in cash flow timing, not in total financial benefit.

More fundamentally, legitimate covered entities should have no substantive concerns with rebate models. If covered entities are not exploiting the program, the same dollars are simply moving later in the claims process - not being withheld or denied arbitrarily. Hospital systems arguing that oversight, transparency, or delayed benefit somehow threatens access are effectively admitting that their financial benefit may not align with actual patient care delivery or statutory obligations that prohibit duplicate discounts.

The intensity of hospital opposition raises important questions about program integrity. The pushback from certain covered entities, in the absence of evidence that legitimate claims would be denied, suggests potential concerns about whether current claims could withstand scrutiny under heightened transparency requirements.

Statutory Violations by Design

The pilot's most egregious flaw lies in its explicit violation of federal law. While applying only to Medicare-negotiated drugs, the pilot excludes Medicaid duplicate discount protections under the rebates section. This represents a fundamental violation of the 340B statute, which requires an explicit prohibition on duplicate discounts across other programs.

This design flaw is not merely technical. Preventing manufacturers from identifying duplicate Medicaid rebates not only conflicts with the law but invites large-scale exploitation of federal and state resources - the very issue that has generated many existing concerns about the 340B program. The pilot essentially directs regulatory loopholes that undermine program integrity rather than strengthening it.

The exclusion of Medicaid duplicate discount prevention represents a concerning (and quite possibly illegal) accommodation to covered entities that should welcome, rather than resist, measures preventing duplicate discounts.

Accommodation Over Accountability

The pilot's design reveals a troubling pattern of accommodating institutional resistance rather than enforcing program integrity. Hospital systems have consistently opposed measures that increase transparency or accountability in 340B operations. The American Hospital Association expressed concern that the pilot "authorizes a significant departure from how the 340B program has successfully operated for decades and sets a dangerous precedent." But duplicating the proven model offered by ADAPs is certainly not a “departure”, rather it’s an explicit effort to return the program to its original intent using best practices already known to the ecosystem.

However, the 340B program's current operation has generated widespread concerns about exploitation by large hospital systems that capture savings without demonstrable patient benefit. The program was designed to help safety-net providers stretch scarce resources to serve vulnerable populations, not to generate revenue streams for large hospital systems.

Covered entities that operate in good faith should welcome clarity, transparency, and compliance for the benefit of the patients they serve. Those who object to the mere possibility of statutory enforcement only reinforce concerns about potential misuse of program benefits intended for vulnerable patients.

It’s Time For Comprehensive Reform

Rather than conducting an unnecessary pilot that accommodates hospital resistance, HRSA should focus on building a permanent, comprehensive rebate framework that reflects real-world success, centers patient access and affordability, and enforces statutory accountability across all payers.

This framework should draw from the ADAP experience, which has demonstrated that rebate models can and do work effectively when implemented adequately with statutory clarity and with the explicit purpose and result of meeting patient needs. The pilot's current design - voluntary participation, statutory violations, and accommodation of institutional resistance - suggests HRSA is willing to waste valuable resources and time rather than accept and adopt the obvious answer before it.

While this is a good step, in the right direction, it is simply not enough to deliver on the promises of the program’s intent - promises patients deserve to see fulfilled.

Comprehensive reform remains essential. Such reforms should focus on improving patient access while enforcing the transparency and accountability that large hospital systems have consistently resisted. When institutional behavior persistently resists oversight designed to protect vulnerable populations, the solution is increased accountability, not accommodation through poorly designed policies that weaken statutory protections.