Federal Appeals Court Blocks Trump-Era Hospital Drug Rebate Plan

A federal appeals court has blocked a Trump administration initiative that would have required hospitals serving low-income Americans to pay full prices upfront for certain high-cost prescription drugs before receiving rebates later, marking a significant development in U.S. healthcare and drug pricing policy.

On Wednesday, the Boston-based 1st U.S. Circuit Court of Appeals denied a request from President Donald Trump’s administration to pause an injunction issued by a federal judge in Maine. That injunction halted a Health Resources and Services Administration (HRSA) program that would have fundamentally changed how safety-net hospitals purchase some of the most expensive medications covered under Medicare drug price negotiations.

The lawsuit was brought by the American Hospital Association (AHA) along with several healthcare providers, who argued that the new drug pricing model represented a sudden and harmful departure from decades of established policy. Under the long-standing 340B Drug Pricing Program, drugmakers have been required to offer upfront discounts to hospitals that serve vulnerable and low-income populations. The hospitals warned that replacing upfront discounts with a rebate-based system would impose hundreds of millions of dollars in additional costs and strain already limited resources.

The blocked policy would have applied to the first 10 medications selected for Medicare price negotiations under the Inflation Reduction Act of 2022, passed during President Joe Biden’s administration. These drugs include widely used treatments such as Eliquis, a blood thinner sold by Pfizer and Bristol Myers Squibb; Xarelto, produced by Johnson & Johnson; and Merck & Co.’s diabetes drug Januvia.

HRSA argued that its 340B Rebate Model Pilot Program, announced in July, was designed to prevent drug manufacturers from providing duplicate discounts, which they are permitted to avoid under the Inflation Reduction Act. Under the pilot, manufacturers could charge hospitals wholesale prices and issue rebates afterward to align with negotiated Medicare prices.

However, U.S. District Judge Lance Walker ruled that HRSA failed to properly assess the impact of the rebate model on rural and safety-net hospitals, violating the Administrative Procedure Act. His December 29 injunction stopped the program from taking effect on January 1, a decision now upheld by the appeals court.