On January 7, the U.S. Court of Appeals for the First Circuit denied the federal government’s request for a stay of the nationwide preliminary injunction barring implementation of the Health Resources and Services Administration’s (HRSA) 340B Rebate Model Pilot Program. Five days later, on January 12, the Department of Justice advised the court that the parties are discussing returning the challenged approvals to HRSA for reconsideration and that they “plan to dismiss the appeal in short order,” signaling that the current version of the pilot is unlikely to move forward on appeal.

In our earlier post (available here) we discussed Chief Judge Lance Walker of the U.S. District Court for the District of Maine’s December 29, 2025 decision in American Hospital Association v. Kennedy, which enjoined the Rebate Program nationwide under the Administrative Procedure Act (APA), finding that HRSA’s sparse record failed to address 30 years of reliance on upfront 340B discounts or the significant administrative and cash‑flow burdens the pilot would impose on safety‑net providers.

According to the plaintiffs’ complaint, the pilot would abandon the practice of providing 340B discounts at the point of sale in favor of post‑dispense rebates for a set of high‑volume drugs, forcing covered entities to pay wholesale acquisition cost (WAC) upfront and then seek reimbursement from manufacturers. The plaintiffs alleged that this shift would impose hundreds of millions of dollars in administrative and cash‑flow costs on safety‑net hospitals, jeopardize care in rural and underserved communities, and reflect a sudden, unexplained reversal of HRSA’s longstanding view that upfront discounts are the most effective and efficient way to administer the 340B program.

First Circuit Denies Stay Pending Appeal

Last week, the First Circuit denied the federal government’s emergency motion for a stay of the district court’s preliminary injunction. Applying a four-factor test, the court focused on the two “most critical” factors — likelihood of success on the merits and irreparable harm — and found that the government had not carried its burden.

On the merits, the First Circuit largely echoed the APA concerns we described in our prior blog and that drove Judge Walker’s decision. The panel emphasized the “paucity” of the administrative record supporting the 340B Rebate Model Pilot and agreed that it was “devoid of evidence” that HRSA meaningfully considered the hospitals’ substantial reliance interests in three decades of upfront 340B discounts or the hundreds of millions of dollars in projected administrative and cash‑flow costs. A single sentence acknowledging that rebate models could “fundamentally shift” the 340B program was not enough.

The court also agreed with the district court that HRSA could not cure those deficiencies through the post‑hoc declaration of the Director of the Office of Pharmacy Affairs. Because the contemporaneous record lacked any real explanation of the shift to a rebate model, the declaration did not “elaborate” on existing reasoning. Instead, it supplied new justifications after the fact, which prior case law has treated as impermissible post‑hoc rationalization. The First Circuit likewise rejected the government’s belated argument that, as an “informal adjudication” or “experimental” pilot, the Rebate Program required less explanation under the APA. The panel held those arguments waived or forfeited because the government had not developed them below.

On irreparable harm, the First Circuit endorsed the district court’s findings that safety‑net hospitals would face substantial, non‑recoverable harms absent an injunction, including floating WAC as an “interest‑free loan” to manufacturers, hiring staff to manage rebate processes, cutting programs, and even potential closure for facilities with minimal cash on hand. By contrast, the court saw no comparable irreparable harm to the federal government from preserving the status quo that has existed for more than 30 years. The panel noted that the principal costs of delay fall, if at all, on manufacturers, and that manufacturers have other tools to address the “duplication” problem between 340B and Inflation Reduction Act pricing provisions.

In light of those findings, the First Circuit denied the stay and directed the parties to propose an expedited briefing schedule, signaling its intent to resolve the appeal “without undue delay.”

DOJ Signals Likely Dismissal and Return to HRSA

Five days later, the DOJ filed a short letter with the First Circuit that strongly suggests the appeal will not proceed much further. In that letter, government counsel informed the court that the parties “are engaged in discussions about returning the approvals challenged in this litigation to the agency for reconsideration” and that “the agency intends to resolve such proceedings promptly.” The letter further states that the parties “do not believe that expediting this appeal is warranted at this time and plan to dismiss the appeal in short order,” with plaintiffs’ counsel confirming they agree with that approach.

What This Means for 340B Covered Entities and Manufacturers

For now, 340B covered entities remain under the familiar upfront‑discount model for the ten pilot drugs and can continue to operate without re‑tooling systems or financing to accommodate a rebate structure. The nationwide injunction remains in place “pending further order,” and the First Circuit’s stay denial means there is no near‑term path for the current Rebate Program to be implemented while the case is pending.

We will continue to monitor developments in AHA v. Kennedy, including any formal dismissal of the appeal and will provide updates.