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May 9, 2025

The Honorable Robert F. Kennedy, Jr. 
Secretary U.S. Department of Health and Human Services 
200 Independence Avenue, S.W.
Washington, DC 20201 

Dear Secretary Kennedy:

On behalf of our nearly 5,000 member hospitals, health systems and other health care organizations, including our more than 2,100 340B hospitals, and our clinician partners — including more than 270,000 affiliated physicians, 2 million nurses and other caregivers — and the 43,000 health care leaders who belong to our professional membership groups, the ���������� Association (AHA) writes to urge you to reject the effort by several large drug companies to undermine the 340B Drug Pricing Program by imposing a “rebate model,” rather than the longstanding “upfront discount” model that the Department of Health and Human Services (HHS) has allowed since the outset of the program. On May 2, 2025, HHS filed a Notice in the United States District Court for the District of Columbia in connection with litigation about these proposed “rebate models.” Because this Notice stated that the Department “expects to be in a position to provide guidance for stakeholders in thirty days,” we write now, with great urgency, to explain the ruinous consequences that these “rebate models” will inflict on hospitals, patients and communities across the country.

The 340B Program is a vital lifeline for hospitals, particularly those serving rural and low-income communities. If HHS authorizes these proposed “rebate models,” it would come at the expense of America’s most vulnerable patients and communities. We respectfully ask that you deny the drug companies’ requests to approve their unlawful “rebate models.”

HHS’ Notice to the district court correctly explained that “[l]arge-scale implementation of rebate models to effectuate the 340B ceiling price would be a significant change for the 340B Program and its stakeholders.” These proposed “rebate models” would fundamentally transform the 340B Program. They would eviscerate HHS’ authority to oversee the program in a neutral manner, and hand over enforcement authority to the drug companies. But as true as it is, the statement in HHS’ Notice understates the impact of the “rebate model” on hospitals and their most vulnerable patients. Any use of “rebate models,” whether large-scale or small-scale, would not just be a “significant change.” It would be a significantly harmful change. As a bipartisan group of nearly 200 members of Congress wrote, the proposed rebate models “would create significant financial challenges for safety-net hospitals” and would “reduce resources available for providing comprehensive services to patients and communities, undermining the core purpose of 340B.” Congressional Letter 1, 2 (Sept. 27, 2024), at
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These rebate policies will dramatically erode the 340B discount that Congress intended for them to receive. For starters, hospitals will be forced to advance millions of dollars to the drug companies. “This approach is to the manufacturer’s financial benefit because the company retains those sums for a longer time and creates hurdles for covered entities to claim the discount.” Id. Already “operating under much lower operating margins than non-340B hospitals,” id. at 2. America’s 340B hospitals cannot afford to make zero-interest loans without any guarantee of when — or whether — they will be paid the discounts they are owed by law. They certainly cannot do so based on mere promises by the drug companies to provide rebates in a timely manner. In fact, hundreds of hospitals reported to the AHA that these rebate policies could cause them to violate their bond covenants, which would lead to catastrophic financial distress and, for some, permanent closure.

340B hospitals also will have to spend enormous amounts to comply with the rebate policies that could otherwise be used for patient care. This is true under the proposed “large-scale” models or any smaller ones that the drug companies may propose down the road. “Rebate model” policies have no precedent in the three decades since the start of the 340B Program. Hospitals therefore have no existing infrastructure to comply with them — let alone the many different variations and requirements across the hundreds of drug companies that could adopt them. If the drug companies impose any form of a pre-discount “rebate model,” many 340B hospitals will be forced to hire new full-time employees to meet the drug companies’ demands, and they will have to purchase new technologies to provide the required purchase data and to track the rebates they are owed. In a world of finite resources, 340B hospitals will have no choice but to divert funds away from patient services and toward burdensome compliance with these “rebate models.”

The drug companies cannot justify those calamitous consequences. They claim that their “rebate models” are necessary because there is widespread abuse in the 340B program. But the data show otherwise. As we explain below in Section I.C., a careful review of the most recent audit data show that there is comparatively little diversion —and even that number is trending downward. By contrast, audits demonstrate that drug companies are more often violating 340B Program requirements. We urge HHS to reject the drug industry’s false narrative that “rebate models” are necessary to maintain for program integrity. At a minimum, in weighing the costs and benefits of approving a “rebate model,” we encourage the agency to not let these false claims outweigh the predictable and considerable adverse effects that they will have on hospitals, patients, and communities.

For these reasons alone, we recommend HHS reject the proposed “rebate models.” In addition, we also believe these rebate models are unlawful and should not be approved. As explained below, the 340B statute itself, Supreme Court precedent, longstanding HHS regulations, and even the words of the drug companies themselves make clear that these proposed rebate models are incompatible with the law. The drug companies may be dissatisfied with the 340B statute or how it has been enforced, but that does not permit them to try to enforce the statute themselves through their illegal “rebate models.” If the agency was to approve this unlawful self-enforcement, it would allow the drug companies to “capture” the agency that is supposed to regulate it.

The AHA appreciates HHS’ careful evaluation of its options. We hope that the promised guidance will account for the legal and practical considerations explained below. And we hope that you reject the drug companies’ effort to further profit at the expense of the “340B hospitals [that] perform valuable services for low-income and rural communities but have to rely on limited federal funding for support.” Am. Hosp. Ass’n v. Becerra, 596 U.S. 724, 738 (2022) (Kavanaugh, J.).

Our detailed comments follow.