A federal judge has, at least temporarily, nixed a longstanding restriction on whether some 340B hospitals could use group purchasing organizations to make initial purchases of covered outpatient drugs.
The decision, handed down March 31 in a case brought by provider supply chain and purchaser Premier, centers on a 2013 policy of the Health Resources and Services Administration (HRSA), which oversees the drug discount program.
That policy is built on a statutory participation requirement for disproportionate share hospitals that bars them from obtaining “covered outpatient drugs through a group purchasing organization [GPO] or other group purchasing arrangement.”
The 2013 update from HRSA (PDF) looked to restrict 340B hospitals from a “replenishment model” approach intermingling contract pharmacy inventories with GPO-purchased and program-discounted drugs. Such hospitals, HRSA said in the policy, were “either (1) ‘replenishing’ through accounting by ‘replacing’ the GPO-purchased drug with a drug purchased under 340B; or (2) otherwise reclassifying the method of purchase after dispensing.”
Premier, according to court documents, had reached out to HRSA in 2023 regarding a plan for its GPO to begin “offering its 340B hospital clients lower negotiated rates for drugs to stock their initial inventories.” It asked for an exemption from the 2013 policy or other confirmation that its approach was lawful, to which HRSA responded later that year, saying it did not intend to do either.
Premier filed its lawsuit in November 2024, alleging that the policy was arbitrary and capricious under the Administrative Procedure Act. It argued that the policy change was substantial—compliance could cost its member hospitals “anywhere from $500,000 to $1.6 million” per hospital, Premier said—and that the administrator had not properly justified it.
The judge agreed with Premier that HRSA had implemented its 2013 policy without a proper explanation of its decision-making and ordered the policy vacated. However, the judge stressed that the ruling does not address any underlying legal questions regarding the policy, which could potentially be reimplemented if HRSA follows proper administrative procedure.
“HRSA is free to issue an interpretive rule on the GPO prohibition that complies with the [Administrative Procedure Act],” U.S. District Judge Loren Alikhan wrote in the decision.
The policy rollback is the latest in a string of lawsuits and lobbying battles surrounding the controversial discount program. Amid several back-and-forth rulings on state-level restrictions regarding contract pharmacy use, the biggest headlines of recent months involved a hospital industry victory in which an experimental, drugmaker-directed rebate program pilot was halted on administrative grounds and eventually restarted.