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(Manufacturers need approval for changes)CivilCourt of AppealsAppeal
Novartis Pharmaceuticals Corporation v. Robert Kennedy, Jr.
- Court
- Court of Appeals for the D.C. Circuit
- Decided
- Jul 21, 2026
- Docket
- 25-5177
- Judges
- Not listed
Detailed analysis & 3-line summary
AI breakdown
Where this case stands
District court: granted for the Secretary of HHS.
This decision ¡ Appeal
(Manufacturers need approval for changes)
TL;DR
- 1Four drug manufacturers proposed to change price discounts into without the Secretary's approval.
- 2The court upheld the Secretary's authority to require preapproval of any new pricing mechanisms under the 340B program.
- 3This ruling affirms the Secretary's control over how discounted drug pricing should be structured.
Key issues
- 1
Can drug manufacturers change pricing models without approval?
Holding ¡ No, they must get the Secretary's approval before implementing new models.
Why it matters
This ruling affects how pharmaceutical companies price their drugs for healthcare providers and ensures that the Secretary maintains control over drug pricing regulations.
If you were the judge?
Drug companies fought to change pricing models without approval. Is that fair?
- 1Four drug manufacturers want to change how they price drugs, moving from offering upfront discounts to providing rebates after purchase instead.
- 2The Secretary of Health and Human Services says they need his approval for this change and has asked for more details about how it will work.
- 3The manufacturers argue they should be allowed to implement the new pricing model without waiting for the Secretary's approval, but the law states they cannot.
Should manufacturers be allowed to implement without Secretary approval?
Parties
Appellant
Novartis Pharmaceuticals Corporation
Appellee
Robert Kennedy, Jr.
Roles are inferred from the case caption.
Opinion of the court
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 17, 2025 Decided July 21, 2026
No. 25-5177
NOVARTIS PHARMACEUTICALS CORPORATION,
APPELLANT
v.
ROBERT F. KENNEDY, JR., IN HIS OFFICIAL CAPACITY AS
SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND
HUMAN SERVICES, ET AL.,
APPELLEES
Consolidated with 25-5179, 25-5220, 25-5221, 25-5236
Appeals from the United States District Court
for the District of Columbia
(No. 1:25-cv-00117)
(No. 1:24-cv-03337)
(No. 1:21-cv-02608)
(No. 1:24-cv-03220)
(No. 1:24-cv-03188)
Catherine E. Stetson argued the cause for Novartis
appellants. With her on the briefs were John C. OâQuinn,
Megan McGlynn, Susan M. Cook, Sean Marotta, Paul J.
2
Zidlicky, Keenan Roarty, and Jackson B. Skeen. Matthew S.
Owen entered an appearance.
Jeffrey L. Handwerker argued the cause for appellant
Johnson & Johnson Health Care Systems Inc. With him on the
briefs were Paula Ramer and Samuel I. Ferenc.
William A. Sarraille was on the brief for amici curiae CF
United ACT Now and ADAP Advocacy in support of
appellants.
Jeffrey L. Handwerker, Paula Ramer, and Samuel I.
Ferenc were on the brief for amicus curiae Johnson & Johnson
Health Care Systems Inc. in support of reversal.
Phillip J. Perry, Andrew D. Prins, and Abid R. Qureshi
were on the brief for amici curiae Pharmaceutical Research and
Manufacturers of America and Biotechnology Innovation
Organization in support of appellants.
Matthew Modafferi was on the brief for amicus curiae
Community Oncology Alliance, Inc. in support of appellants.
Maxwell A. Baldi, Attorney, U.S. Department of Justice,
argued the cause for federal appellees. With him on the brief
were Eric J. Hamilton, Deputy Assistant Attorney General, and
Michael S. Raab and Lindsey Powell, Attorneys. Jane M.
Lyons, Assistant U.S. Attorney, entered an appearance.
William B. Schultz argued the cause for intervenor
appellees 340B Health, Genesis Healthcare System, and
University of Massachusetts Memorial Medical Center. With
him on the brief was Margaret Dotzel.
Chad Golder was on the brief for amici curiae American
Hospital Association, et al. in support of appellees.
3
Jeffrey I. Davis and Scott D. Gallisdorfer were on the brief
for amici curiae 37 State and Regional Hospital Associations,
et al. in support of appellees.
Before: HENDERSON, PILLARD, and GARCIA, Circuit
Judges.
Opinion for the Court filed by Circuit Judge GARCIA.
GARCIA, Circuit Judge: Since 1992, Section 340B of the
Public Health Service Act has required participating drug
manufacturers to sell certain drugs at reduced prices to eligible
healthcare providers. For more than three decades,
manufacturers complied with the statute primarily by allowing
providers to purchase those drugs at upfront discounted prices.
In 2024, four manufacturers proposed to the Secretary of
Health and Human Services (HHS) that they would instead use
post-purchase rebates to implement the required price
reductions. The Secretary responded that the manufacturers
could not proceed without his approval and requested more
information.
The manufacturers sued. They principally argue that the
statute permits them to unilaterally impose their proposed
rebate models on Section 340B purchasers unless and until the
Secretary disapproves them. Like the district court, we
disagree. Based on the statutory text and structure, we
conclude that Section 340B requires the Secretary to provide
for a rebate mechanism before manufacturers may implement
one. And because it is undisputed that the Secretary has never
authorized a mechanism encompassing the manufacturersâ
rebate models, the Secretary properly required the
manufacturers to await his approval while he further studied
their proposals.
4
I
A
Under Section 340B of the Public Health Service Act,
participating drug manufacturers âmust offer discounted drugs
to covered entities, dominantly, local facilities that provide
medical care for the poor.â Astra USA, Inc. v. Santa Clara
County, 563 U.S. 110, 115 (2011); see also Veterans Health
Care Act, Pub. L. No. 102-585, § 602, 106 Stat. 4943, 4967â
71 (1992) (codified as amended at 42 U.S.C. § 256b). To
encourage manufacturer participation, Congress has
conditioned Medicaid and Medicare Part B payment for a
manufacturerâs drugs on the manufacturerâs enrollment in the
340B Program. See 42 U.S.C. § 1396r-8(a)(1).
Manufacturers âopt into the 340B Program by signing a
form Pharmaceutical Pricing Agreementâ with the HHS
Secretary. Astra, 563 U.S. at 113. The statutory provision at
the heart of these appeals states:
The Secretary shall enter into an agreement
with each manufacturer of covered outpatient
drugs under which the amount required to be
paid (taking into account any rebate or discount,
as provided by the Secretary) to the
manufacturer for [certain] covered outpatient
drugs . . . does not exceed . . . [a] âceiling priceâ
[set by a statutory formula].
42 U.S.C. § 256b(a)(1).
That âceiling priceâ can be significantly lower than the
general commercial price a manufacturer charges for its drug.
See Novartis Pharms. Corp. v. Johnson, 102 F.4th 452, 456
(D.C. Cir. 2024). The statute does not specify whether the
required reduction in drug price should be obtained by an
upfront âdiscountâ or an after-purchase manufacturer ârebate.â
5
In theory, for a covered drug priced commercially at $200 per
unit, manufacturers might charge purchasers a ceiling price of
$100 by offering the drug at $100 through an upfront discount,
or by requiring a payment of $200 combined with a subsequent
$100 rebate. The primary House committee report concerning
Section 340B acknowledges that optionality and states that the
Committee âexpects that the Secretary of HHS, in developing
these agreements, will use the mechanism that is the most
effective and most efficient from the standpoint of each type of
âcovered entity.ââ H.R. Rep. No. 102-384, pt. 2, at 16 (1992).
In 1997, the Health Resources and Services
Administration (HRSA)âthe agency within HHS tasked with
administering the 340B Programâexplained that â[i]nitially,
[agency] guidance for the section 340B program described
only a discount process.â 62 Fed. Reg. 45,823, 45,824
(Aug. 29, 1997). âCovered entities generally preferred a
discount systemâ because it required âless initial outlay of drug
purchasing money.â Id. But a particular type of covered
entityâState AIDS Drug Assistance Programs (ADAPs)â
was unable to âaccess section 340B pricingâ because most
ADAPsâ âdrug purchasing systemsâ were incompatible with
the discount process. Id. HRSA thus proposed to recognize
the validity of an ADAP-specific rebate model and, after notice
and comment, finalized that proposal in 1998. Id.; see also 63
Fed. Reg. 35,239, 35,239â42 (June 29, 1998). Importantly, the
1998 guidance did not âfurther expan[d]â the rebate option âto
other categories of entities.â 63 Fed. Reg. at 35,241â42.
In 2010, Congress added a second sentence to Section
340B(a)(1), stating that each Pharmaceutical Pricing
Agreement âshall require that the manufacturer offer each
covered entity covered drugs for purchase at or below the
applicable ceiling price if such drug is made available to any
other purchaser at any price.â Patient Protection and
Affordable Care Act, Pub. L. No. 111-148, § 7102(b)(1), 124
6
Stat. 119, 827 (2010) (codified as amended at 42 U.S.C.
§ 256b(a)(1)).
B
Bristol Myers Squibb Company (BMS), Eli Lilly and
Company and Lilly USA, LLC (Lilly), Johnson & Johnson
Health Care Systems Inc. (J&J), and Novartis Pharmaceuticals
Corporation (Novartis) are four pharmaceutical manufacturers
participating in the 340B Program.
For years, these manufacturers have implemented the
required reduction in their drug prices through a so-called
product-replenishment model. See Novartis, 102 F.4th at 457â
58. Under that model, covered entitiesâor the pharmacies
covered entities contract with to dispense drugs they prescribe,
referred to as âcontract pharmaciesâââfill prescriptions from
inventories that intermingle discounted and non-discounted
drugs.â Id. at 457. â[A]fter dispensing the drugs,â covered
entities or contract pharmacies âattempt to discernâ whether
âindividual prescriptions were eligible for the discount,â and
they often âoutsource this determination to third-party
administrators.â Id. Once the covered entity, contract
pharmacy, or third-party administrator âcategorizes a certain
number of prescriptions as eligible,â the covered entity or
contract pharmacy âplaces an orderâ with the manufacturer at
the discounted 340B price âto replenish its section 340B
purchases.â Id.
Starting in the summer of 2024, the manufacturers each
proposed to HRSA that they switch from the product-
replenishment model to some form of rebate model for some
or all of their 340B drugs. The manufacturersâ proposed
models would work in the following fashion: Covered entities
(or their contract pharmacies) would initially purchase drugs at
full price. Then, after dispensing the drugs to 340B patients,
they would submit claims to the manufacturers for a cash
7
refund equal to the difference between that price and the 340B
ceiling price. The manufacturers would then review the claims
and approve them for refunds or designate them for further
review. The manufacturers assert that this reform is needed to
address alleged âprogrammatic noncompliance that is rampant
among covered entitiesââthey assert, for example, that the
product-replenishment model can create opportunities for
covered entities to obtain impermissible duplicate discounts
undetected. J.A. 818 (Novartis); see also J.A. 503 (J&J); J.A.
687 (Lilly); J.A. 718â20 (BMS). All parties agree that the
manufacturersâ scheme constitutes a rebate model, not an
upfront discount.
HRSA responded to each proposal with a similar letter.
HRSA stated that â[t]o date, the Secretary has not provided forâ
a ârebateâ model and that âimplementing such a proposal at
this time would be inconsistent with the statutory requirements
for the 340B Program, which require the approval of a rebate
model.â J.A. 450 (J&J); see also J.A. 460 (Lilly); J.A. 466,
471 (BMS); J.A. 473 (Novartis). HRSA also asked several
questions about the manufacturersâ proposalsâfor example,
â[w]hat specific claims level information would covered
entities be required to submit?â; â[w]hat protections and
safeguards would [the manufacturers] plan to implement to
ensure [rebate claim] information would solely be used in
support of the 340B Program?â; and â[w]hat are the specific
reasons that will lead [the manufacturers] to reject claims?â
HRSA additionally stated in its letters to BMS and Novartis
that â[t]he Secretary has neither approved [n]or disapproved
[the respective] rebate model[s].â
Notwithstanding HRSAâs letter, J&J announced that it
planned to implement its proposed rebate model. So HRSA
responded with follow-up letters, reiterating that the Secretary
expected J&J âto cease implementation ofâ its âunapproved
rebate proposal.â HRSA warned J&J that if it âproceed[ed]
8
with implementing its rebate proposal without Secretarial
approval,â the Secretary would âterminateâ J&Jâs 340B
Pharmaceutical Pricing Agreement, which would make
Medicaid and Medicare Part B payment unavailable for J&Jâs
drugs.
C
The four manufacturers each sued the Secretary in district
court under the Administrative Procedure Act, seeking to
vacate the letters they had received. So did Kalderos, Inc., a
technology company with which Lilly contracted to develop a
digital platform to implement Lillyâs proposed model. A 340B
advocacy organization and two hospitals that purchase 340B
drugs intervened in the manufacturersâ cases as defendants. In
each case, the district court entered summary judgment in favor
of the Secretary. This court consolidated the cases on appeal.
We now affirm.
II
âWhen a district court reviews agency action under the
APA, we in turn review the district courtâs decision de novo.â
Cigar Assân of Am. v. FDA, 964 F.3d 56, 61 (D.C. Cir. 2020).
The APA âinstructs a reviewing court to set aside agency
action found to be âarbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.ââ Id. (quoting 5
U.S.C. § 706(2)(A)).
The parties raise several distinct issues concerning the
Secretaryâs position that the manufacturers may not implement
their proposed rebate mechanisms without his approval. The
intervenors argue that Section 340B does not permit any rebate
mechanism and instead always requires a time-of-purchase
discount. The manufacturers argue that rebate mechanisms are
permitted, but that the Secretary lacks the authority to require
preapproval of their proposals. They also argue that even if the
9
Secretary has such authority, he was required to exercise it
through the manufacturersâ Pharmaceutical Pricing
Agreements, which he failed to do. And they argue that he
failed to adequately explain his decision to exercise that
authority here and failed to consider key benefits of the
manufacturersâ proposals beforeâin the manufacturersâ
viewâdenying them.
We reject both the intervenorsâ and the manufacturersâ
arguments and affirm the district courtâs judgments in favor of
the Secretary.
A
To start, the intervenorsâan advocacy organization and
two hospitalsâargue that Section 340B does not permit any
form of rebate model at all. Given the plain language of the
statute, we disagree.
The statute begins: âThe Secretary shall enter into an
agreement with each manufacturer . . . under which the amount
required to be paid (taking into account any rebate or discount,
as provided by the Secretary) to the manufacturer for [certain]
covered outpatient drugs . . . does not exceed . . . the ceiling
price.â 42 U.S.C. § 256b(a)(1) (emphasis added). This
provision explicitly envisions that although the âamount
required to be paidâ may not exceed the âceiling price,â that
amount can âtak[e] into accountâ a ârebate.â Id.
Because the statute does not define the word ârebate,â we
interpret the word âas taking [its] ordinary, contemporary,
common meaning.â Perrin v. United States, 444 U.S. 37, 42
(1979). That is, a âdeduction or refund of money in
consideration of prompt payment.â Rebate, Blackâs Law
Dictionary 1266 (6th ed. 1990); see also Rebate, Merriam-
Websterâs Collegiate Dictionary 974 (10th ed. 1993) (defining
ârebateâ as âa return of a part of a paymentâ). Translated into
10
the statuteâs terms, if a manufacturer charges $200 up front but
issues a $100 rebate, the âamount required to be paid,â âtaking
into accountâ the rebate, is $100, not $200. 42 U.S.C.
§ 256b(a)(1).
The use of rebates is also consistent with the statuteâs
reference to a âceiling price.â Id. (emphasis added). It is
common to regard the âpriceâ charged for an item as
accounting for a rebate. See Price, Blackâs Law Dictionary
1188 (6th ed. 1990) (defining âpriceâ as â[t]he cost at which
something is obtainedâ); Price, Websterâs II New Riverside
University Dictionary 933 (1994) (same). Judicial opinions
reflect the same understanding: Drug manufacturers have long
âoffered lower prices . . . through rebates or discounts.â Cash
& Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202,
206 (2d Cir. 2015) (emphases added); see also Pharm. Rsch. &
Mfrs. of Am. v. Walsh, 538 U.S. 644, 681 (2003) (Thomas, J.,
concurring) (Medicaid Act âdoes not preclude States from
negotiating prices, including manufacturer discounts and
rebates for non-Medicaid drug purchasesâ (citation omitted));
Pharm. Rsch. & Mfrs. of Am. v. David, 510 F. Supp. 3d 891,
898 (E.D. Cal. 2021) (âThe transaction price of a prescription
drug . . . includes discounts and rebates.â).
Moreover, the key committee report supporting Section
340B explained that the bill âdoes not specify whether âcovered
entitiesâ would receive these favorable prices through a point-
of-purchase discount, through a manufacturer rebate, or
through some other mechanism.â H.R. Rep. No. 102-384,
pt. 2, at 16. â[T]o the extent [legislative history] plays any
roleâ in our analysis, here it only âundercutsâ the intervenorsâ
argument that manufacturers can charge the ceiling price
exclusively through a point-of-purchase discount. United
States v. Miller, 604 U.S. 518, 535 (2025).
11
The intervenors do not dispute that the ordinary meaning
of a ârebateâ encompasses the manufacturersâ proposed pricing
models. But they raise two arguments that the term as used in
Section 340B(a)(1) should not have that meaning. Neither
succeeds.
First, the intervenors argue that the second sentence of
Section 340B(a)(1)âthat each Pharmaceutical Pricing
Agreement âshall require that the manufacturer offer each
covered entity covered outpatient drugs for purchase at or
below the applicable ceiling price,â 42 U.S.C. § 256b(a)(1)
(emphases added)ârequires manufacturers to âofferâ a
discounted price upfront, not later issue a rebate. This âshall
offerâ provision requires manufacturers to offer covered drugs
to covered entities at or below the ceiling price, thus preventing
manufacturers from refusing to offer their drugs to covered
entities at all. But the provision does not speak to how
manufacturers may âofferâ drugs at the ceiling price. And as
explained, as a matter of common usage and industry practice,
an offered âpriceâ can incorporate a later-received rebate.
Moreover, this argument relies on statutory language
introduced in 2010 to suggest that Congress implicitly repealed
a reference to ârebatesâ that has existed since 1992. Yet the
proposition that Congress repeals statutory language by mere
implication is strongly disfavored. See Fogg v. Gonzales, 492
F.3d 447, 453 (D.C. Cir. 2007).
Second, the intervenors argue that rebate models are
inconsistent with Section 340Bâs auditing provision, under
which â[a] covered entity shall permit the Secretary and the
manufacturer . . . to audit at the Secretaryâs or the
manufacturerâs expense the records of the entity that directly
pertain to the entityâs compliance withâ the 340B Program. 42
U.S.C. § 256b(a)(5)(C). They say that rebate modelsâwhich
require covered entities or contract pharmacies to submit
claim-level data to manufacturers before receiving 340B
12
benefitsârender the audit provision unnecessary. But
although rebate models might reduce the need to audit covered
entities, they do not necessarily eliminate it. For example, as
the manufacturers explain, and the intervenors do not dispute,
manufacturers may seek different data when implementing
rebate models than they would in an audit.
The implausibility of the intervenorsâ construction of the
parenthetical phrase âany rebate or discountâ confirms our
conclusion. They posit that those words refer only to the
Secretaryâs authority to set a drugâs ceiling price when the
statutory formula for doing so cannot practicably be used. That
can occur, for example, when a drug is new to market, and the
statutory formulaâwhich relies on data from âthe preceding
calendar quarter,â 42 U.S.C. § 256b(a)(1), (a)(2)(A)(i)â
cannot yet be applied. In those circumstances, the intervenors
say, the Secretary may provide for a ârebate or discountâ to set
the ceiling price. But nothing in the statutory text supports that
theory. The statute broadly states that the âamount required to
be paid (taking into account any rebate or discount, as provided
by the Secretary) to the manufacturerâ shall not exceed the
ceiling price. Id. § 256b(a)(1). We see no basis to read that
language as referring to a narrow gap-filling authority triggered
only when the ordinary ceiling-price formula cannot
practicably be used.
To reject the intervenorsâ argument, it is enough to hold
that rebate models can be consistent with Section 340Bâs
auditing scheme. We do not decide whether some rebate
modelsâincluding the appellantsââmight operate in a manner
that runs afoul of the statute in some way.
B
Having concluded that Section 340B permits rebate
models, we now address the primary dispute between the
manufacturers and the Secretary: Whether the statute requires
13
the Secretary to affirmatively approve rebate models before the
manufacturers may implement them. We hold that it does.
Recall the key statutory provision: âThe Secretary shall
enter into an agreement withâ the manufacturers âunder which
the amount required to be paid (taking into account any rebate
or discount, as provided by the Secretary) to the
manufacturer[s] for [certain] covered outpatient drugs . . . does
not exceedâ the âceiling price.â 42 U.S.C. § 256b(a)(1). The
phrase âthe amount required to be paid (taking into account any
rebate or discount, as provided by the Secretary)â envisions
that the Secretary will âprovideâ for permissible mechanisms
of implementing the âceiling price.â Id. (emphasis added).
That is, the Secretary will âsupplyâ or âmake . . . availableâ the
relevant mechanisms. Provide, Blackâs Law Dictionary 1224
(6th ed. 1990); Provide, Merriam-Websterâs Collegiate
Dictionary 940 (10th ed. 1993). This amounts to a preapproval
requirement: Manufacturers may not unilaterally impose a
rebate or discount mechanism unless the Secretary has
âprovidedâ for it.
Indeed, Congress often uses the phrase âas provided by the
Secretaryâ to give cabinet Secretaries control over the details
of statutory programs. See, e.g., 7 U.S.C. § 1309(a) (annual
crop acreage limits âshall be determined as provided by the
Secretaryâ); 26 U.S.C. § 5000B(c)(2) (certain taxes to be
collected âat such time and in such manner as provided by the
Secretaryâ). This reading also comports with the key
committee report we have already referenced: Congress âd[id]
not specify whether âcovered entitiesâ would receive
[Section 340Bâs] favorable prices through a point-of-purchase
discount, through a manufacturer rebate, or through some other
mechanismâ because it âexpect[ed] that the Secretary of HHS,
in developing these agreements, w[ould] use the mechanism
that is the most effective and most efficient from the standpoint
14
of each type of âcovered entity.ââ H.R. Rep. No. 102-384,
pt. 2, at 16 (1992) (emphasis added).
The contrary readingâthat manufacturers can unilaterally
impose on covered entities any pricing mechanism of their own
design even if the Secretary has not âprovidedâ for such a
mechanismâconflicts with Section 340Bâs text. The statute
says that the amount required to be paid may take into account
a rebate âas provided by the Secretary.â 42 U.S.C.
§ 256b(a)(1). It does not say, for example, that the amount
required to be paid may take into account any rebate or
discount âunless otherwise provided by the Secretary.â Such a
provision would have been easy to write, but Congress chose
not to do so. See, e.g., 21 U.S.C. § 356c(a), (h)(1)(B)
(manufacturers need not ânotify the Secretary . . . of a
permanent discontinuance in the manufacture of . . . biological
products . . . unless otherwise provided by the Secretaryâ); 26
U.S.C. § 1473(1)(A) (the term âwithholdable paymentâ has
specific definitions â[e]xcept as otherwise provided by the
Secretaryâ).
The manufacturersâ reading would also counterintuitively
let manufacturers, rather than the Secretary, take the lead in
administering the 340B Program, rendering the Secretaryâs
role largely reactive. HRSAâs correspondence with the
manufacturers illustrates the stakes. In response to the
manufacturersâ proposals, HRSA asked numerous questions
about the proposalsâ likely impact on 340B providers and
patients and how they would operate in practiceâincluding
how covered entities would demonstrate rebate eligibility, how
disputes would be resolved, and how privacy concerns would
be addressed. See J.A. 450â52 (J&J); 460â62 (Lilly); 466â68
(BMS); 473â75 (Novartis). Yet on the manufacturersâ telling,
any one of them could experiment on all 340B hospitals and
patients with whatever rebate model best suits its own interests,
no matter how many complex issues arise, unless and until the
15
Secretary intervenes. As the Supreme Court has explained,
âCongress placed the Secretary (acting through her designate,
HRSA) in control of § 340Bâs drug-price prescriptions,â and
Section 340B should be read to âmaintain[]â that Secretarial
control. Astra, 563 U.S. at 114 (emphasis added). Put simply,
the statute places the Secretary, not the manufacturers, in the
driverâs seat of this important program.
C
The manufacturersâ primary response is that any
restriction on their ability to adopt the rebate model must be
explicit in the 340B Pharmaceutical Pricing Agreements
between the Secretary and the manufacturers. Because the
Secretary has not placed any limits on the use of rebate models
in those Agreements, they say, the Secretary has no authority
to prohibit their proposals. We find this response
unpersuasive.
To start, where the Secretary must âprovideâ for the rebate
modelâwhether through guidance, individual adjudications,
or Pharmaceutical Pricing Agreementsâis mostly beside the
point here. As just explained, manufacturers may not
unilaterally impose rebate models without Secretarial
approval. And again, it is undisputed that the Secretary has not
provided for a rebate mechanism that encompasses the
manufacturersâ proposed models anywhere.
Regardless, we disagree with the manufacturers that the
Secretary may âprovideâ for the relevant pricing mechanisms
only in the Pharmaceutical Pricing Agreements.
The manufacturers emphasize that the parenthetical
â(taking into account any rebate or discount, as provided by the
Secretary)â appears after the clause, â[t]he Secretary shall
enter into an agreement with each manufacturer of covered
outpatient drugs under which the amount required to be paid.â
16
42 U.S.C. § 256b(a)(1) (emphases added). But that
parenthetical speaks to the immediately preceding phrase, âthe
amount required to be paid,â and is not obviously tethered to
the more distant noun âagreement.â Id. Moreover, if âany
rebate or discountâ must be provided by the terms of an
Agreement, then the phrase that immediately follows ârebate
or discountâââas provided by the Secretaryââwould
seemingly have no effect: The Secretary is the one preparing
the Agreement in the first place. As the Supreme Court has
explained, the Agreements âare not transactional, bargained-
for contracts.â Astra, 563 U.S. at 113. They are âform
agreements, composed by HHS,â and âcontain no negotiable
terms.â Id. at 118.
The manufacturers also emphasize that Subsection (a) of
Section 340B has the heading âRequirements for agreement
with Secretary.â 42 U.S.C. § 256b(a) (emphasis added). True,
âthe heading of a sectionâ is a âtool[] availableâ in discerning
statutory meaning. Dubin v. United States, 599 U.S. 110, 121
(2023). But âwhere, as here, the statutory text is complicated
and prolific, headingsâ can âdo no more than indicate the
provisions in a most general manner.â Lawson v. FMR LLC,
571 U.S. 429, 446 (2014) (cleaned up). And here,
Subsection (a) contains numerous requirements that no one
argues must be penciled into the manufacturersâ
Pharmaceutical Pricing Agreements to have any effect. See,
e.g., 42 U.S.C. § 256b(a)(5)(A) (âProhibiting duplicate
discounts or rebatesâ); id. § 256b(a)(5)(C) (âAuditingâ).
If Congress intended to make Pharmaceutical Pricing
Agreements the exclusive vehicle for instituting and modifying
price-reduction mechanisms, it could have stipulated that âthe
amount required to be paidâ would âtake into account any
rebate or discount, as provided by the Agreement.â Or it could
have used language found elsewhere in Subsection (a)(1)âfor
example, specifying that â[e]ach such agreement shall require
17
thatâ the Secretary specify the appropriate price-reduction
mechanism. 42 U.S.C. § 256b(a)(1). Congress did not do so.
D
Applying that understanding of the statute, HRSA was
correct to say that the manufacturers may not unilaterally
implement their proposed rebate models at this time.
HRSA has taken the position that â[i]nitially, HRSA
guidance for the section 340B program described only a
discount process.â 62 Fed. Reg. at 45,824 (emphasis added).
Then, in 1998, the Secretary finalized guidance providing for a
rebate mechanism in the âuniqueâ context of ADAPs so that
those entities may choose rebates âas an optional alternate
means of accessing section 340B discount pricing.â 63 Fed.
Reg. at 35,239â42; see also 62 Fed. Reg. at 45,823â24
(proposal). In so providing, the Secretary âagree[d]â with
commenters that âthe rebate mechanism [would] be an option
only for meeting the unique needs of the State ADAP
programs.â 63 Fed. Reg. at 35,241â42 (emphasis added). The
Secretary thus made clear that the 1998 ânotice only
recognize[d] a rebate option for the State AIDS Drug
Assistance Programs.â Id. at 35,241â42 (emphasis added).1
Although one could quibble with how clearly the
Secretary âprovidedâ for the product-replenishment models
that have prevailed to date, that issue is not squarely presented
in these cases. It is undisputed here that the Secretary has not
1
As the ADAP example illustrates, the Secretary is free to
broadly approve a type of pricing mechanism for certain contexts
without providing âin-depth implementation strategiesâ; the
Secretary may leave the details to the regulated entities âso as to
allow maximum flexibility.â 63 Fed. Reg. at 35,240â41. But the
Secretary must âprovide[]â for a type of mechanism in some form
before the manufacturers may implement it. 42 U.S.C. § 256b(a)(1).
18
âprovidedâ for the manufacturersâ preferred rebate models.
Thus, when the manufacturers proposed to unilaterally
implement their rebate models on a short timeframe in 2024,
the Secretary appropriately explained that they could not do so
immediately because â[t]o date, the Secretary has not provided
for such a rebate model.â J.A. 473 (Novartis); accord J.A. 450
(J&J); J.A. 460 (Lilly); J.A. 466 (BMS). At the same time, the
Secretary made clear that the proposals were still under review.
See, e.g., J.A. 473 (âThe Secretary has neither approved [n]or
disapproved Novartisâ rebate model.â); J.A. 471 (â[T]o date,
the Secretary has neither approved [n]or disapproved BMSâs
rebate model.â). The Secretary said, in effect, ânot yet,â and
requested more information from the manufacturers about their
proposals. See J.A. 450â52 (J&J); J.A. 460â62 (Lilly); J.A.
466â68, 471 (BMS); J.A. 473â75 (Novartis). And the
Secretary has since tried to implement a pilot program to
further study the many important issues that the proposals
raised.2
E
The manufacturers next argue that, even if the Secretary
has authority to require preapproval of their rebate plans, his
2
In July 2025, HRSA issued a program notice inviting
manufacturers to participate in a voluntary rebate model pilot
program. See Press Release, HRSA, HRSA Announces Application
Process for the 340B Rebate Model Pilot Program and Request for
Public Comment (July 31, 2025), https://perma.cc/8DXQ-2BA5. In
February 2026, the agency withdrew that notice in response to
litigation. See Am. Hosp. Assân v. Kennedy, 2026 WL 372131, at *1
(D. Me. Feb. 10, 2026). In June 2026, HRSA announced that it
âintends to introduce a revised 340B Rebate Model Pilot Programâ
and âplans to publish a Federal Register Notice to notify 340B
stakeholders of criteria and standards for implementation of the
Pilot.â 91 Fed. Reg. 35,989, 35,989 (June 15, 2026) (cleaned up).
19
invocation of that authority at this time was arbitrary and
capricious. They argue, for example, that the Secretary has
never before invoked this authority and did not sufficiently
explain his decision to do so here.
This argument fails given our conclusion that Section
340B requires the Secretary to âprovideâ for rebates before
manufacturers can permissibly implement them. The statute
does not âdelegate[] discretionary authorityâ to the agency in
this respect. Loper Bright Enters. v. Raimondo, 603 U.S. 369,
395 (2024). As a result, âthere is no reason to seek an agencyâs
explanation as to why it may have changed its view on the
meaning of the statute.â Centro de Trabajadores Unidos v.
Bessent, 167 F.4th 1218, 1237 (D.C. Cir. 2026).
F
In closing, we again observe that the Secretaryâs
consideration of the manufacturersâ proposals remains
ongoing. Accordingly, we do not address whether the
Secretary should âprovide[]â for the manufacturersâ proposed
rebate models or with what limitations. 42 U.S.C.
§ 256b(a)(1). We hold only that the Secretary properly
concluded that the manufacturers may not implement their
proposed rebate models without Secretarial approval.
For the same reason, the manufacturersâ claim that the
Secretary failed to consider key aspects of the problem when
supposedly rejecting their proposals is unripe for review. See
Ohio Forestry Assân v. Sierra Club, 523 U.S. 726, 733 (1998).
III
The district courtâs judgments are affirmed.
So ordered.