340B Ceiling Price, MFP Interaction and Potential Rebate Models

The 340B Drug Pricing Program was established to help certain safety-net providers, known as covered entities, purchase covered outpatient drugs at substantial discounts (i.e., 340B ceiling price).

With the change of administration and a new Congress, there continues to be a great deal of stakeholder interest in the 340B program and potential reforms to it. Stakeholders are also considering reforms to mitigate anticipated challenges as they prepare for effectuation of the new Medicare maximum fair prices (MFPs) set to take effect in 2026, and are taking steps to avoid duplicate discounts with the 340B program.

In recent months, several manufacturers have proposed rebate models to avoid potential duplicate discount risk, but have placed them on hold following communications from the  Health Resources and Services Administration (HRSA). At least four pharmaceutical manufacturers have sued the federal government over HRSA’s decision to prohibit implementation of a 340B rebate model; those lawsuits are still ongoing.

In October 2024, the Centers for Medicare and Medicaid Services (CMS) finalized guidance on the Medicare Drug Price Negotiation Program for initial price applicability year (IPAY) 2027 and how MFPs will be effectuated in IPAYs 2026 and 2027.  The agency will create two distinct modules for the Medicare Transaction Facilitator (MTF)—a data module and a payment module—but CMS did not directly address outstanding questions related to 340B discount non-duplication. As a result, it will be up to 340B stakeholders (e.g., manufacturers, covered entities, 340B third-party administrators) to verify a drug’s 340B eligibility before issuing an MFP retrospective discount to the dispensing entity within the required 14 days.

While manufacturers remain concerned about 340B duplicate discount risk (see Figure 1), MFP effectuation also raises broader concerns for dispensing entities and patients. According to a recent analysis, dispensing entities are expected to face financial risk and cash flow disruption while awaiting receipt of MFP refunds. This may cause some pharmacies to no longer stock selected products, which could hinder access for Medicare patients taking these widely used products. In the absence of clear CMS guidance, stakeholders may look to market and contractual solutions to address these challenges.

Figure 1. Flow of Transactions for Duplicate Discounts Between 340B and MFP

Potential Components of a Rebate Model

Stakeholders have debated the merits of a 340B rebate model since 2020. Supporters assert that it would provide the clarity needed to avoid duplicate discounts, while opponents are concerned that converting upfront 340B discounts to rebates would have a negative administrative and financial impact on safety-net providers. Given the ongoing 340B duplicate discount risk as CMS finalized its approach to MFP effectuation in 2026, the focus on a rebate model has reemerged.

To prevent both a 340B discount and MFP refund on the same claim, a rebate model can be designed with the following key components:

• Covered entities purchase a drug from the wholesaler at wholesale acquisition cost (WAC) (similar to non-340B covered entities) and immediately submit purchase data to the rebate model administrator. Currently, 340B covered entities purchase drugs at or below the 340B ceiling price.
• After dispensing to a 340B-eligible patient, covered entities submit claims data within a specified time period to the 340B rebate model platform.
• The 340B rebate model platform validates the claim in terms of eligibility, location, and timeliness of submission.
• If sufficient, the 340B rebate model platform issues a rebate to the covered entity for the difference between the WAC and 340B ceiling price.

Stakeholders continue to have different perspectives on what actions are permissible under the 340B program. As noted above, HRSA previously responded, maintaining that such an approach is inconsistent with the 340B statute and litigation is ongoing. A relevant analog to consider is that a rebate model framework has been historically used for AIDS Drug Assistance Programs, obtained through written consent from HRSA’s HIV/AIDS Bureau. HRSA previously took a similar position when manufacturers began implementing 340B contract pharmacy restrictions in 2020.

Further, 340B covered entities achieve savings by purchasing drugs at or below the 340B ceiling price, while some covered entities secure sub-ceiling 340B discounts through the Prime Vendor Program. Under a rebate model, covered entities would access the savings once a refund is paid. Stakeholders may want to consider the economic impacts of a rebate model to covered entities if it results in entities losing access to sub-ceiling 340B discounts.

Key Questions for Stakeholders

There are several outstanding questions for stakeholders to consider in the near term:

1. Catalyst for Federal Reform: In the previous session of Congress, several bills were introduced to reform the 340B program but did not advance further. Senator Cassidy (R-LA) has been a proponent of 340B reform and is now the Chair of the Senate Health, Education, Labor and Pensions (HELP) Committee, which has jurisdiction over 340B matters.

Stakeholder Questions: Could growing 340B contract pharmacy restrictions, continued state-level activity, stakeholder interest in a 340B rebate model, and new HELP Committee leadership catalyze efforts to reach alignment on 340B program reform in 2025?

2. Uncertainty in the New Administration: While a new HRSA Administrator, Tom Engels, has been sworn in under the second Trump administration, it is unclear how HRSA and CMS intend to handle the 340B program and/or how it intersects with MFP effectuation.

Stakeholder Questions: Will new HRSA and CMS leadership impact the 340B program? Will the agencies continue look to stakeholders to address these operational challenges on their own?

Key Takeaways & Conclusion

With less than a year until MFP effectuation in January 2026, manufacturers of negotiated drugs and dispensing entities will need to continue with implementation efforts while monitoring for potential policy changes under the new administration. The intersection of MFP effectuation and the 340B program will be a critical area for ongoing stakeholder and policymaker engagement. Policymakers will have to balance numerous factors across stakeholders and interest groups. To learn more about how Avalere can partner with you on IRA, MFP effectuation, 340B and months. Policymakers will have to balance numerous factors across stakeholders and interest groups. To continue exploring these issues connect with us.