Drug prices & Part D

Federal Court Rules Drug Companies Cannot Override 340B Discount Rules Without Government Approval

A unanimous three-judge panel told major pharmaceutical manufacturers that only the federal government can decide how hospitals and clinics receive their mandated drug discounts.

By the Goodsurance editorial teamJuly 22, 2026

The U.S. Court of Appeals for the District of Columbia Circuit ruled on July 21, 2026, that drug manufacturers may not unilaterally replace the traditional upfront-discount structure of the 340B Drug Pricing Program with a post-purchase rebate model. The case was brought by four drug companies, Novartis, Johnson and Johnson Health Care Systems, Bristol Myers Squibb, and Eli Lilly, each arguing it had the legal right to redesign how eligible hospitals and clinics receive their 340B savings.

The three-judge panel disagreed. Writing for the court, Judge Bradley Garcia found that while the statute permits both upfront discounts and rebates, control over which approach is used belongs to the HHS Secretary, not manufacturers. "The statute places the Secretary, not the manufacturers, in the driver's seat," Garcia wrote. The ruling affirms a 2025 district court decision and does not prevent HHS from approving a rebate model in the future.

The 340B program requires drug companies to sell medications at steep discounts to hospitals, community health centers, and other covered entities that serve large numbers of low-income or uninsured patients, many of whom are also Medicare beneficiaries. The savings help those facilities fund services across their patient populations.

In plain words

A federal appeals court said four large drug companies cannot change the rules of a drug-discount program on their own. The program is called 340B. It lets certain hospitals and clinics buy medicines at a lower price. The companies wanted to switch from giving discounts upfront to paying rebates later. The court said only the government can make that call. Many hospitals in this program treat Medicare patients, and the savings help fund their care.

Understand the basics first

Source: American Hospital Association
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