The planned implementation was scheduled for October 15, with a six-month grace period, but received widespread backlash from the hospital industry and regulatory bodies.

Johnson & Johnson (J&J) has abandoned its contentious plan to replace upfront 340B drug discounts with a rebate model following warnings from the Health Resources and Services Administration (HRSA). 

The drugmaker initially proposed this shift to affect purchases of its drugs, Stelara and Xarelto, by disproportionate share hospitals (DSHs). 

The planned implementation was scheduled for October 15, with a six-month grace period, but received widespread backlash from the hospital industry and regulatory bodies.

HRSA’s Warnings & J&J’s Concession

HRSA had repeatedly disapproved of the rebate plan, stating it violated the 340B statute. In multiple letters, the administrator clarified that if J&J did not withdraw the plan, the company’s Pharmaceutical Pricing Agreement (PPA) would be terminated. 

Further, HRSA warned that it could refer the issue to the Health and Human Services Office of Inspector General, leading to severe financial penalties for J&J.

In response, J&J formally notified HRSA that it would no longer proceed with the rebate plan. In a letter from Scott White, Chief Operating Officer of North America Innovative Medicine at J&J, the company emphasized its decision "under duress" due to what it called "unwarranted threats" from HRSA. 

The letter stated, “Due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues.”

Hospitals’ Concerns Over Delayed Discounts

The rebate proposal faced immediate opposition from hospitals participating in the 340B drug discount program. Critics argued that delaying drug discounts would impose financial strain on safety-net hospitals, many of which rely on the upfront savings to operate effectively. 

America's Essential Hospitals and the AIDS Healthcare Foundation were among the hospital groups that denounced the plan publicly.

In a statement, America's Essential Hospitals thanked HRSA for its "forceful response to the J&J rebate scheme," adding, "Together we have protected this vital source of safety net support for essential hospitals and their disadvantaged patients."

The AIDS Healthcare Foundation also weighed in, describing the plan as an "illegal scheme" and criticizing J&J's claims about the program’s sustainability. “J&J’s retreat shows its ‘340B is not sustainable’ argument is nonsense and should be disregarded whenever it is raised,” the foundation said.

J&J Defends Its Rebate Model

Despite the withdrawal, J&J stood by its initial intent, claiming the rebate model would bring transparency and integrity to the 340B program. The company had suggested that the rebate system provide "real-time data validation" to ensure that drugs purchased and dispensed under the program were accounted for correctly.

In the letter, J&J stated, “J&J nonetheless continues to believe that the Rebate Model is not only legally permissible but sorely needed to improve the integrity of the 340B Program.” 

J&J further accused hospitals of exploiting the program through duplicated discounts and extending benefits to affiliated entities not directly involved.

However, HRSA rejected this interpretation, maintaining that J&J's proposal was inconsistent with the 340B statute and would require approval from Health and Human Services Secretary Xavier Becerra, which had not been granted.

Hospital Industry Pushback

The hospital industry has long opposed pharmaceutical efforts to adjust the 340B program, particularly rebate models that they say shift the financial burden onto already underfunded facilities. 

In the weeks following J&J's August announcement, several hospital associations urged HRSA to take swift action to prevent the plan from progressing.

340B Health, an association representing over 1,500 hospitals, condemned the plan, noting that it would force financially strapped hospitals to bear the upfront cost of 340B drugs while awaiting uncertain rebates. 

"These hospitals would go without vital resources they need to treat their patients in need while drugmakers and third parties determine when—and whether—to approve 340B rebates," said Maureen Testoni, President and CEO of 340B Health.

HRSA’s Final Stand

HRSA has consistently backed the hospital industry's interpretation of the 340B statute. The administration’s final letter to J&J, issued on Friday, marked the culmination of weeks of regulatory pressure. 

HRSA Administrator Carole Johnson instructed J&J to halt its rebate proposal "immediately" and to notify HRSA by September 30 that the plan was officially canceled. Failure to comply, she warned, could result in civil monetary penalties and the loss of J&J’s PPA.

“HRSA has communicated this information to J&J and will take appropriate actions as warranted,” the administration said in a statement, making it clear that further attempts to implement the rebate model would not be tolerated.

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