Summary
The First Circuit denied the federal government's motion for a stay pending appeal of a preliminary injunction barring implementation of the 340B Rebate Model Pilot Program. The court concluded that the government had not made a strong showing of likely success on the merits because the administrative record did not demonstrate consideration of hospitals' reliance interests and increased costs, and because a supporting declaration appeared to present impermissible post hoc rationalizations. The court also held that the government had not shown irreparable injury absent a stay and directed the parties to propose an expedited briefing schedule.
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Practice areas
Questions Presented
- Whether the federal government was entitled to a stay pending appeal of the district court's preliminary injunction against implementation of the 340B Rebate Model Pilot Program.
- Whether the government made a strong showing that it was likely to succeed on its appeal of the district court's determination that the agency failed to consider significant reliance interests and other important aspects of the problem under the APA.
- Whether the district court likely erred by declining to supplement the administrative record with the Britton declaration as an explanation for the agency's action.
- Whether the government's arguments that the APA did not require an explanation for an informal adjudication and that an experimental program required less justification were waived or forfeited because they were not developed below.
- Whether the government demonstrated irreparable injury absent a stay.
Holdings
- The government was not entitled to a stay because it failed to make the required strong showing of likely success on the merits and failed to demonstrate irreparable injury absent a stay.
- The government failed to show that the district court likely erred in concluding that the agency had violated the APA by failing to consider the hospitals' significant reliance interests and the substantial costs of the new rebate program.
- The government failed to show that the district court likely erred by declining to rely on the Britton declaration because the declaration appeared to present new information and post hoc rationalizations rather than elaborate reasons the agency had contemporaneously given.
- The arguments were waived or forfeited because the government did not develop them in the district court and, in relevant respects, took the contrary position below.
Key quotations
“The federal government has failed to carry its burden of "ma[king] a strong showing that [it is] likely to succeed on the merits" in this appeal and thus deny its stay request.”
“The agency must "assess whether there were reliance interests, determine whether they were significant, and weigh any such interests against competing policy concerns."”
“"Judicial review of agency action is limited to the grounds that the agency invoked when it took the action."”
“"[A]n agency must stand by the reasons it provided at the time of its decision and cannot rely on post-hoc rationalizations developed and presented during litigation."”
Factual background
Section 340B historically required drug manufacturers to provide safety-net hospitals with upfront prescription-drug discounts. In 2025, HRSA instituted a pilot rebate program allowing nine manufacturers to charge participating hospitals substantially higher upfront prices and provide rebates later, apparently to address potential duplicate pricing concessions under federal drug-pricing programs. The administrative-record preview contained little explanation for the policy change and did not show consideration of hospitals' reliance interests or increased administrative and financing costs. The hospitals presented unrebutted evidence that many operated with fewer than eleven days of cash on hand and that the program could impose hundreds of millions of dollars in annual costs and threaten hospital services or closure.
Procedural history
The hospitals and hospital organizations sued HHS officials and federal agencies in the District of Maine under the Administrative Procedure Act, challenging the 340B Rebate Model Pilot Program and seeking injunctive and declaratory relief. The district court granted a preliminary injunction preserving the long-standing upfront-discount model and barring implementation of the rebate program during the litigation, then denied the government's request for a stay pending appeal. The government sought an emergency stay in the First Circuit, which denied both its requested administrative stay and its stay pending appeal.
Remand instructions
No remand was ordered. The parties were directed to jointly propose an expedited briefing schedule by January 12, 2026, at 1:00 p.m., so the court could resolve the appeal without undue delay.