AMERICAN HOSPITAL ASSOCIATION et al v. KENNEDY et al

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
AMERICAN HOSPITAL 	)
ASSOCIATION, et al., 	)
)
Plaintiffs, 	)
)
v. 	) 	No. 2:25-cv-00600-LEW
)
ROBERT F. KENNEDY, JR., 	)
SECRETARY OF THE 	)
UNITED STATES DEPARTMENT 	)
OF HEALTH AND HUMAN 	)
SERVICES, et al., 	)
)
Defendants. 	)
ORDER ON MOTION FOR PRELIMINARY INJUNCTION
Like the old adage, “crawl, walk, run,” the Administrative Procedure Act’s (APA)
arbitrary and capricious standard imposes vanishingly minimal requirements that a federal
agency 	must 	satisfy 	before 	launching 	a 	new 	program 	or 	policy. 	Those 	minimal
requirements are simply that the agency action be reasonable and reasonably explained.
Thus, before a new program that affects the rights and privileges of the public can be up
and running, the agency must undertake the basic task of developing a contemporaneous
record of the relevant factors it considered and provide a reasoned explanation for its course
of action.
This axiomatic principle of administrative law is no less applicable in the context of
administering complex federal drug pricing laws. 	With the laudable goal of resolving
competing congressional directives to offer price concessions to certain “covered entities”
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under both the longstanding 340B Program and the nascent Inflation Reduction Act’s Drug
Price Negotiation Program, the Health Resources and Services Administration (HRSA)
plans to launch a hastily assembled 340B Rebate Model Pilot Program (the Rebate
Program) on January 1, 2026, to “deduplicate” these price concessions. 	Although the
HRSA is empowered by statute to achieve the de-duplication objective through a rebate
model, and although it applies to only a subset of drugs sold to 340B covered entities, it
marks a departure from the Agency’s decades-long practice of requiring upfront discounts
on 340B eligible drugs, and the Agency’s roll out has involved a rather threadbare
administrative record that likely fails to consider and reasonably explain the impact of a
rebate model on 340B hospitals, who rely on upfront price concessions to stretch few
resources as far as possible to serve rural and poor communities. The APA likely requires
more from Defendants. 	For the reasons explained below, Defendants are preliminarily
enjoined from implementing the Rebate Program pending further order.
BACKGROUND
In 1990, Congress created the Medicaid drug pricing rebate program to lower the
cost of pharmaceuticals reimbursed by the States under Medicaid. The program conditions
Medicaid and Medicare Part B coverage for a pharmaceutical companies’ (hereafter
“manufacturers”) products on the manufacturer’s participation in rebate agreements with
the Secretary of Health and Human Services (HHS). By participating, manufacturers are
contractually bound to pay rebates to state Medicaid programs at the statutorily determined
price for certain drugs.
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In 1992, Congress separately enacted Section 340B of the Public Health Service Act
to assist “covered entities” (i.e., safety-net healthcare providers serving the most vulnerable
populations) with their drug-acquisition costs. Pub. L. No. 102-585 § 602 (1992). Under
Section 340B, manufacturers enter into pricing agreements with the Secretary in exchange
for having their drugs covered by Medicaid and Medicare Part B. 	42 U.S.C. § 1396r-
8(a)(1); id. § 256b(a). In these 340B agreements, manufacturers agree to provide upfront
discounts to 340B covered entities, such as Plaintiffs. 	Critical to understanding this
unfolding narrative is the fact that Medicaid and the 340B Program are different programs
imposing different pricing constraints on participating manufacturers.
Since the inception of the 340B drug pricing program, HRSA has required drug
manufacturers to provide 340B discounts at the time of sale, colloquially called “upfront
discounts,” id. § 256b(a)(1); Section 602 Guidance, 58 Fed. Reg. 27289, 27291-92 (May
7, 1993), in order to “to stretch scarce federal resources as far as possible, reaching more
eligible patients and providing more comprehensive resources.” H.R. Rep. No. 102-384(II)
at 12 (1992). As recently as last year, HRSA rejected several manufacturers’ proposal to
switch to a rebate model, taking the position that an upfront discount model is superior and
the switch would be disruptive to the operation of the 340B program. See Compl. ¶¶ 43–
46, 48; Ex. 1 at -66; Ex. 4 at -292; Ex. 5 at -342.
However, in the state-administered Medicaid context, a rebate model is standard.
In the Inflation Reduction Act of 2022 (IRA), Congress established the Medicare Drug
Price Negotiation Program, which authorizes the Secretary to negotiate a “Maximum Fair
Price” (MFP) that Medicare pays for certain eligible drugs. 	Inflation Reduction Act of
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2022, Pub. L. No. 117-169, 136 Stat. 1818; U.S.C. §§ 1320f(a), 1320f-1(b), (d), (e). State
Medicaid programs generally pay more than the MFP when administering Medicaid but
receive a rebate from manufacturers to ensure that they pay only the MFP on behalf of
qualifying patients.
Because several drugs are subject to both the Medicaid MFP and the 340B price
concession, there is the potential (commonly realized) that manufacturers are mistakenly
subjected to duplicative price concessions when a MFP rebate is claimed for a drug that a
covered entity purchased at the 340B price.1 	Where MFP and 340B price concessions
overlap, the IRA’s “nonduplication” provision requires drug manufacturers to provide the
lower of the 340B ceiling price and the MFP to covered entities, but not both. 42 U.S.C.
§ 1320f-2(d). There does not appear to be any dispute that a well-designed program would
avoid duplication, and the parties generally refer to this objective as the “de-duplication”
objective.
On July 31, 2025, HRSA announced the 340B Rebate Program, which would allow
certain drug manufacturers to charge their drug’s wholesale price to 340B covered entities
and later issue a rebate to reflect the statutorily required discount price and achieve the de-
duplication objective. See Press Release, HRSA, HRSA Announces Application Process
for the 340B Rebate Model Pilot Program and Request for Public Comment (July 31,
1 Section 340B covered entities also serve Medicaid participants and may dispense drugs to Medicaid
participants that they purchased at the 340B discount price. When a Medicaid program seeks and receives
the MFP rebate on these prescriptions, manufacturers will have provided a duplicative discount. Such loses
spread across the entire 340B network add up to substantial sums of money that should have been realized
by the manufacturers rather than the 340B entities or state Medicaid programs.
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2025), https://www.hrsa.gov/about/news/press-releases/rebate-model-pilot-program (last
visited Dec. 29, 2025). The next day, August 1, 2025, HRSA published notice of the new
program in the Federal Register, inviting drug manufacturers to submit applications to
participate. 	Rebate Program Application Notice, 90 Fed. Reg. 36163 (Aug. 1, 2025).
HRSA’s Notice explained the purpose of the Rebate Program was to address concerns over
duplicate discounting by drug manufacturers attempting to ensure that covered entities
receive only the 340B upfront discount or the IRA’s Medicaid MFP, but not both. 	Corr.
Rebate Program Application Notice, 90 Fed. Reg. 38165 (August 7, 2025). 	Between
October 30 and November 14, 2025, HRSA approved rebate applications from nine eligible
drug manufacturers for ten covered drugs. 	Although the applications concern only ten
covered drugs, the anticipated program will be implemented across the entire population
of 340B covered entities, all of whom will need to free up money to pay the much higher
wholesale drug prices and implement new internal processes to pursue the rebates.2
On December 1, 2025, the American Hospital Association (AHA) and the Maine
Hospital Association (MHA), along with several of AHA’s and MHA’s members,
(collectively, “Plaintiffs”) filed their Complaint (ECF No. 1) and Motion for Temporary
Restraining Order (ECF No. 3), seeking to enjoin implementation of the Rebate Program.
2 In addition to the preceding background concerning the legislative landscape and the deduplication effort,
Plaintiffs’ claims rely on a collection of facts associated with the nature and quality of the administrative
record and the nature and quality of the harms that will be visited upon them by the Rebate Program. I
relate those particularized facts in the preliminary injunction discussion that follows.
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Plaintiffs allege that Federal Defendants’3 establishment and implementation of the 340B
Rebate Program violates the Administrative Procedure Act (APA) and ask this Court to
declare the program unlawful under § 706 of the APA. 	Compl. ¶¶ 52-62, 130-175.
Because the parties have all been heard on the propriety of emergency injunctive relief,
including at a December 19, 2025 hearing, I construe Plaintiffs’ Motion as a request for a
preliminary injunction rather than a temporary restraining order. 	The parties have
conferred and agree to proceed on this basis. Opp’n at n.1 (ECF No. 75).
DISCUSSION
The parties’ briefs raise the issues of justiciability as well as the question of whether
Plaintiffs can meet all four of the preliminary injunction factors. 	I therefore begin this
discussion with the issue of whether Plaintiffs’ claims present a justiciable controversy
(they do) before turning to whether preliminary injunctive relief is warranted. Because I
conclude that relief is warranted on the record presently before me, I necessarily conclude
with a discussion of the appropriate nature and scope of relief.
A. JUSTICIABILITY
Before reaching the merits, I first briefly address Defendants’ two arguments against
judicial review: 	HRSA’s promulgation of the Rebate Program is not final agency action
and the decision to effectuate 340B prices through rebates is committed to agency
3 Robert F. Kennedy, Jr. in his official capacity as Secretary of the U.S. Department of Health and Human
Services; Thomas J. Engels, in his official capacity as Administrator of Health Resources and Services
Administration (HRSA); the U.S. Department of Health and Human Services (HHS); and the United States
of America. Compl. ¶¶ 19-23.
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discretion by law. 	I reject both arguments because they mischaracterize the nature of
Plaintiffs’ claims. 	First, Defendants pettifog on the distinction between their general
authority to administer a rebate model program and the approved applications that
comprise the Rebate Program itself. 	As Defendants concede, however, the application
approvals do constitute final agency action, which by their nature are reviewable under the
APA. 	See 5 U.S.C. § 704. Second, Defendants maintain that because the Public Health
Service Act provides the Secretary with the discretion to effectuate the 340B ceiling prices
through either rebates or discounts, without a benchmark against which to judge the
Secretary’s choice, Congress committed that decision to the Secretary alone and the
judicial branch must avert its gaze, judicial review being unavailable. 	Opp’n at 11-13.
According to Defendants, that unreviewable discretion extends to the Agency’s decision
to approve the nine drug manufacturers’ applications to participate in the Rebate Program.
Id.
Assuming 	without 	questioning 	the 	Secretary’s 	discretion 	to 	choose 	between
discounts and rebates to effectuate 340B price concessions, see Webster v. Doe, 486 U.S.
592 (1988), the Agency’s approval of the drug manufacturers’ individual applications is
reviewable under the APA. 	Judicial review of the approvals, including the scope of the
resulting program and the expedited pace of its implementation, is entirely consistent with
the APA’s strong presumption of judicial review, and the longstanding practice of narrowly
reading the agency discretion exception “to those rare administrative decisions traditionally
left to agency discretion.” Dept. of Homeland Security v. Regents of the Univ. of Cal., 591
U.S. 1, 17 (2020) (citations omitted). 	Accordingly, judicial review of the Agency’s
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approval of the nine applications to participate in the “Rebate Program,” is appropriate
under the APA.
B. THE P RELIMINARY INJUNCTION FACTORS
The extraordinary and drastic remedy of a preliminary injunction requires a showing
of four elements: (1) substantial likelihood of success on the merits; (2) a high likelihood
of irreparable harm if injunctive relief is not granted; (3) a balance of equities tips in the
movant’s favor; and (4) the injunctive relief is in the public interest. See Voice of the Arab
World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 32 (1st Cir. 2011) (citing Winter
v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). 	The last two factors “merge
when the Government is the party opposing the preliminary injunction.” Nken v. Holder,
556 U.S. 418, 435 (2009). 	The most important of the four elements is the likelihood of
success on the merits—which is considered the “sine qua non” of the inquiry. Ryan v. U.S.
Immigr. & Customs Enf’t, 974 F.3d 9, 18 (1st Cir. 2020) (quoting New Comm Wireless
Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 9 (1st Cir. 2002)).
As explained below, the anemic administrative record alone supports a conclusion
that Plaintiffs have made a strong showing of likelihood of success, at least as matters stand
today. Additionally, Plaintiffs’ showing of economic impact and disruption to services is
substantial and, paired with such a strong showing on the merits, sufficient to demonstrate
irreparable injury. 	With these initial factors tilting the board decisively in Plaintiffs’
direction, the remaining factors easily slide in Plaintiff’s favor.
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1. 	Likelihood of Success on the Merits
The APA’s arbitrary-and-capricious standard requires that agency action be both
reasonable and reasonably explained. “An agency’s decision is arbitrary and capricious if
the agency relied on improper factors, disregarded ‘an important aspect of the problem,
offered an explanation that runs counter to the evidence,’ or when a reasonable explanation
for the agency’s decision cannot be discerned.” Gulluni v. Levy, 85 F.4th 76, 82 (1st Cir.
2023) (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983)); accord Melone v. Coit, 100 F.4th 21, 29-30 (1st Cir. 2024). 	Judicial review
under this standard is deferential, and a court may not substitute its own policy judgment
for that of the agency. State Farm, 463 U.S. at 43. “A court simply ensures that the agency
has acted within a zone of reasonableness and, in particular, has reasonably considered the
relevant issues and reasonably explained the decision.” Federal Communications Comm’n
v. Prometheus Radio Project, 592 U.S. 414, 423 (2021); accord Fam. Plan. Assoc. of Me.
v. U.S. Dept. of Health and Human Srvs., 466 F. Supp. 3d 259, 266-67, 269 (D. Me. 2020).
a. 	The administrative record
A significant flaw with Defendants’ institution of the Rebate Program relates to the
paucity of the administrative record. Defendants present for review a July 31, 2025 press
release, an August 1, 2025 Federal Register Notice (correction issued August 7), the
Agency website’s FAQs, a letter to the Office of Management and Budget (OMB), and a
few documents and correspondence related to HRSA’s approval of AbbVie Inc.’s and
Janssen Pharmaceuticals, Inc. and Janssen Biotech, Inc.’s applications to participate in the
Rebate Program. To fill the yawning void in this administrative “record,” Defendants also
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offer as a load-bearing beam to carry the weight of their argument the Declaration of
Chantelle Britton (ECF No. 75-1), Director of the Agency’s Office of Pharmacy Affairs,
which Defendants aver is permissible for the court to consider to “illuminate reasons
obscured but implicit in the administrative record.” 	Opp’n at 14 n.5 (quoting Clifford v.
Pena, 77 F.3d 1414, 1418 (D.C. Cir. 1996)).
“It is a ‘foundational principle of administrative law’ that judicial review of agency
action is limited to ‘the grounds that the agency invoked when it took the action.’” Regents
of the Univ. of Cal., 591 U.S. at 20 (quoting Michigan v. EPA, 576 U.S. 743, 758 (2015)).
And while an agency may later “elaborate” on those grounds, it “may not provide new
ones.” Id. at 21 (citing Camp v. Pitts, 411 U.S. 138, 143 (1973) (per curiam)). “In other
words, an 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.” In re
Fin. Oversight and Mgmt. Bd. for P.R., 37 F.4th 746, 761 (1st Cir. 2022); see also Citizens
to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 419 (1971); State Farm, 463 U.S. at
50.
Despite Defendants’ representations to the contrary, the Britton Declaration largely
presents post hoc rationalizations absent from the administrative record, precisely the non-
cotemporaneous explanations excluded from consideration in APA challenges. 	See
Regents of the Univ. of Cal., 591 U.S. at 23; Am. Textile Mfrs. Inst., Inc. v. Donovan, 452
U.S. 490, 539 (1981) (“the post hoc rationalizations of the agency . . . cannot serve as a
sufficient predicate for agency action”); Overton Park, 401 U.S. at 419 (rejecting
“litigation affidavits” from agency officials as “merely ‘post hoc’ rationalizations”); Cal.
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v. U.S. Dept. of Educ., 132 F.4th 92, 99 (1st Cir. 2025) (rejecting litigation affidavit’s
“newfound claim of clarity” as post hoc rationalization). 	To the extent that this tatty
administrative record is ambiguous, I consider the Britton Declaration for clarity, but
because the record is mostly silent on salient considerations that would guide any rational
policy-making process, Director Britton’s representations are, for the most part, of no use.
Clifford, 77 F.3d at 1418.
Finally, 	amicus 	AstraZeneca 	Pharmaceuticals 	LP 	offered 	documents 	and
correspondence related to HRSA’s approval of its Rebate Program application. 	See Sky
Adams Decl. (ECF No. 88-1). 	The vast majority of these documents are AstraZeneca’s
own, and though I appreciate that AstraZeneca is a beneficiary of the Rebate Program, its
contributions do not constitute the administrative agency record. To the extent they include
HRSA’s own documents, it is curious why the Agency did not incorporate them into the
administrative record, let alone submit them for consideration. In any event, information
presented in this filing is at best circumstantial evidence of what the Agency might have
considered, not evidence that it did. 	Moreover, the animating principle behind the
prohibition of post hoc rationalization in APA cases is that democratically unaccountable
federal agencies wielding executive power to carry out congressional objectives must do
their own homework, build an administrative record, and then demonstrate the application
of something resembling a thought process in regard to what the record contains (more on
that to follow).
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b. 	Failure to provide a reasonable explanation or address significant reliance
interests
Plaintiffs allege Defendants’ failure to address significant reliance interests is fatal
to the Rebate Program. Specifically, Plaintiffs’ point to Defendants’ failure to even state
how 340B entities’ more than thirty-year reliance interests in a discount model weighs
against the Rebate Program’s de-duplication goal. 	Mot. at 11. 	Plaintiffs further assert
Defendants have failed to meet the APA’s requirement of a reasoned explanation for their
policy shift because they fail to offer genuine justifications for why the Rebate Program as
designed was necessary to achieve its de-duplication goal, what costs and benefits might
be relevant, or how patients could be affected. Id. at 10.
Defendants counter that they did reasonably explain the policy change and consider
reliance interests. In its August 7, 2025 Federal Register Notice, HRSA explained that the
purpose and nature of the Rebate Program is based on feedback from drug manufacturers
and covered entities about addressing the de-duplication problem and to test the merits and
shortcomings of a rebate model. 	Opp’n at 14-15; Corr. Rebate Program Application
Notice, 90 Fed. Reg. 38165 (Aug. 7, 2025). 	Defendants also maintain that they did
consider these reliance interests, pointing to a Federal Register Notice acknowledging the
“fundamental[ ] shift” a rebate model offers, and explaining that the Agency has limited
the scope of the Rebate Program to a pilot covering only 2% of total drug sales in the 340B
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program.4 	Opp’n at 15; Corr. Rebate Program Application Notice, 90 Fed. Reg. 38165
(Aug. 7, 2025); Britton Decl. ¶¶ 5, 22-25.
When an agency changes position on prior policy that has engendered serious
reliance interests, it is arbitrary and capricious to ignore the facts and circumstances
engendered by that prior policy. FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-
16 	(2009); 	Smiley 	v. 	Citibank 	(S.D.) 	N.A., 	517 	U.S. 	735, 	742 	(1996). 	In 	these
circumstances, “agencies are free to change their existing policies as long as they provide
a reasoned explanation for the change, display awareness that they are changing position,
and consider serious reliance interests.” 	Food and Drug Admin. v. Wages & White Lion
Invs., LLC, 604 U.S. 542, 568 (2025) (citations and quotations marks omitted). 	In
considering reliance interests the agency must “assess whether there were reliance
interests, determine whether they were significant, and weigh any such interests against
competing policy concerns.” Regents of the Univ. of Cal., 591 U.S. at 33.
At the threshold, Defendants concede Plaintiffs’ “decades of industry reliance” in
the 340B discount model is significant. Encino Motorcars, LLC v. Navarro, 579 U.S. 211,
222 (2016). What matters then is simply whether the Agency (1) reasonably explained its
change in position, (2) displayed awareness of its change, and (3) considered Plaintiffs’
serious reliance interests. It is clear the Agency has displayed awareness that the Rebate
4 Plaintiffs dispute Defendants’ characterization of the Rebate Program as “limited” or a “pilot.” According
to Plaintiffs, at least in its current iteration, the Rebate Program is a “pilot” in name only because it applies
nationwide, mandating approximately 14,600 340B entities to participate in the Rebate Program for ten of
the most commonly used drugs. See Compl. ¶¶ 7, 56; Reply at 9.
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Program constitutes a shift in policy, and Plaintiffs do not contest this factor. 	On the
remaining two factors, I find Plaintiffs are likely to succeed on the merits of their reliance
interest claim but that their reasoned explanation claim is a closer call that I need not wade
into at the preliminary injunction stage because Defendants’ failure to address reliance
interests is fatal to a January 1, 2026 rollout of the Rebate Program.
First, there is no evidence in the administrative record that Defendants considered
Plaintiffs significant reliance interests. Defendants rely on a single sentence in their August
7, 2025 Federal Register Notice acknowledging “rebate models could fundamentally shift
how the 340B Program has operated for over 30 years.” Opp’n at 15 (quoting Corr. Rebate
Program Application Notice, Fed. Reg. 38165 (August 7, 2025)). This is problematic for
several reasons. 	First, the sentence does not support Defendants’ contention that they
considered 340B entities’ reliance interests. Noting a change in a program’s operation is
not the same as recognizing that the change will impact 340B entities in detrimental ways.
Furthermore, it does not evidence that HRSA weighed any reliance interest against the
competing de-duplication policy concern or the proposed de-duplication approach favored
by the participating manufacturers. Regents of the Univ. of Calif., 591 U.S. at 33. Indeed,
the record’s silence on reliance interests reverberates throughout HRSA’s approval of all
nine 	Rebate 	Program 	applications. 	Defendants 	are 	left 	only 	to 	rely 	on 	post-hoc
rationalizations 	in 	the 	Britton 	Declaration, 	which 	cannot 	substitute 	for 	the
contemporaneous record. 	Accordingly, without anything more from the administrative
record, the Britton Declaration does not “merely illuminate” the reasons “implicit in the
administrative record,” but rather offers impermissible non-contemporaneous explanations
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precluded from consideration. 	See U.S. Dept. of Educ., 132 F.4th at 99 (“this newfound
claim of clarity approaches the sort of ‘post hoc rationalization’ that we cannot allow”).
Although a closer call, it stands to reason Defendants have also failed to provide a
reasoned explanation for the Rebate Program, at least in regard to design components.
Arbitrary and capricious review is a minimal standard, and a reviewing court is only to
assess “whether the [agency’s] decision was based on a consideration of the relevant factors
and whether there has been a clear error of judgment.” 	Overton Park, 401 U.S. at 416.
Plaintiffs’ allegations that the Rebate Program lacks “genuine justifications,” Mot. at 10,
seem to invite me to make a policy judgment in place of the Agency, something I cannot
do. State Farm, 463 U.S. at 43. Defendants explain that the Rebate Program is based on
resolving the deduplication problem, and it is not the provenance of the courts to second
guess 	that 	determination, 	only 	to 	probe 	whether 	the 	Agency’s 	consideration 	and
explanation remained “within a zone of reasonableness.” Prometheus Radio Project, 592
U.S. at 423. I agree with Defendants’ explanation of my limited role regarding review of
agency action, but exercising deference would be manifestly easier if there was any
meaningful administrative record for me to review. It seems impossible to conclude that
HRSA reasonably explained its policy change when the administrative record is entirely
silent on a relevant factor—the 340B hospitals’ reliance interests. And given the Agency’s
failure to consider significant reliance interests, I cannot say that the administrative record
necessarily offers a reasonable explanation for the Defendants’ establishment of the Rebate
Program, though I need not wade into this at the preliminary injunction stage because
Defendants’ failure to address reliance interests is alone fatal to the Rebate Program.
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c. 	Failure to consider relevant costs
Plaintiffs argue that Defendants ignored the costs associated with the Rebate
Program, including administrative costs, the costs of paying full price for covered drugs
and awaiting a rebate (sometimes referred to as “floating” costs), and other non-monetary
costs. 	Pls.’ Mot. at 12-15. 	Defendants counter they did consider these costs, citing the
August 7, 2025 Federal Register Notice, their Emergency Letter to OMB, and the Britton
Declaration. Opp’n at 17-18. Defendants aver the Agency’s determination that the benefits
of the Pilot Program outweigh those costs is entitled to substantial deference. Id. at 18.
A regulation is arbitrary and capricious “if the agency ‘failed to consider an
important aspect of the problem,’” which “includes, of course, considering the costs and
benefits associated with the regulation.” Mexican Gulf Fishing Co. v. U.S. Dept. of Com.,
60 F.4th 956, 973 (5th Cir. 2023) (quoting State Farm, 463 U.S. at 43). 	As part of its
analysis, the agency must identify benefits that “bear a rational relationship to the . . . costs
imposed.” Id. “Consideration of cost reflects the understanding that reasonable regulation
ordinarily requires paying attention to the advantages and the disadvantages of agency
decisions.” Michigan, 576 U.S. at 753.
Fatal to Defendants’ counterargument is their own admission that the Agency is
“currently examining” administrative costs. Opp’n at 17 n.7. In other words, Defendants
have not yet considered an important aspect of the problem, rather they are still evaluating
administrative costs. Specifically, while in its letter to OMB, the agency initially estimated
$200 million in compliance costs to 340B entities, the agency is still reviewing public
“comments alleging an under-estimation of administrative costs . . . and will [later] address
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those concerns.” Britton Decl. ¶ 35 (citing Paperwork Reduction Act Notice, 90 Fed. Reg.
44197 (Sep. 12, 2025)). This failure to consider administrative costs before approving the
manufacturers’ applications under the Rebate Program is fatal under the APA. Michigan,
576 U.S. at 759-60.
The administrative record is also silent on the cost of floating the full price of
covered drugs until 340B entities receive their rebate. Defendants only response is more
post hoc rationalization in the Britton Declaration that the Agency’s decision to limit the
scope of the Rebate Program to ten drugs and require drug manufacturers to pay rebates
within ten calendar days demonstrate their consideration of the burden that will be placed
on 340B entities to float upfront costs. 	Britton Decl. ¶¶ 5, 27-30, 34, 38, 41. 	Similarly,
the non-monetary costs to 340B entities, including the impact these additional prices might
have on their long-term viability represents another unaddressed “important aspect of the
problem.” State Farm, 463 U.S. at 43.
Defendants’ call for judicial deference on this determination rings hollow. 	Their
bald assertion that the benefits of the Rebate Program outweigh any negative impact
associated with floating the full price of covered drugs, Britton Decl. ¶¶ 34, 41, smacks of
“clairvoyance” rather than the kind of “exercise in logic” deserving of judicial deference.
Fox Television Stations, 556 U.S. at 521. 	Particularly as here where financial forecasts
about what costs the 340B entities can bear for a certain period is not predicated on any
specialized or expert knowledge of the Agency. FCC v. Nat’l Citizens Comm. for Broad.,
436 U.S. 775, 815 (1978). 	Even supposing it were, Defendants make no argument that
such a determination is within their expertise aside from the naked claim that we should
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simply take their word for it. Furthermore, any colorable argument to that effect is belied
by the absence of any evidence in the administrative record about upfront costs, particularly
considering the numerous public comments estimating hundreds of millions of dollars in
additional costs to 340B hospitals they might struggle to pay under a rebate model.5 See,
e.g., Austin Decl. ¶¶ 13-14 (ECF No. 4); Brown Decl. ¶¶ 14, 20 (ECF No. 5); Fadale Decl.
¶¶ 14-15, 21 (ECF No. 6).
For the foregoing reasons, the administrative record’s silence on Defendants’ efforts
to consider and reasonably explain the relevant costs associated with the Rebate Program
offer independent grounds to conclude that Plaintiffs have demonstrated a likelihood of
success on the merits.
d. 	Other relevant factors and pertinent aspects
Plaintiffs also assert that Defendants’ failure to address public comments, less costly
alternatives, and issues with the electronic database used to collect and store rebate claims
data and the rebate dispute resolution mechanism also invalidate the Rebate Program.
Defendants maintain they are not required to respond to public comments and that they did
consider these aspects of the problem.
In establishing and implementing the Rebate Program, Defendants were not
required to respond to public comments. Cf. 5 U.S.C. § 553; Perez v. Mortgage Bankers
Assoc., 575 U.S. 92, 96 (2015). 	To the extent the public comments highlighted an
5 I do not mean to suggest that Defendants must weigh the burdens imposed on each and every entity that
makes up the Public Health Service. However, the fact that the “pilot” program impacts them all calls for
something more than casual indifference to localized impacts.
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important aspect of the problem, they may be evidence of an agency’s failure to reasonably
explain its position, which I already addressed in relation to reliance interests and costs.
State Farm, 463 U.S. at 43. Plaintiffs’ arguments concerning less costly alternatives, the
dispute resolution mechanism, and the rebate database all venture into the territory of
asking for a policy judgment against the Agency. 	Id. 	In other words, digging into these
arguments likely requires policy considerations about the nature and scope of the Rebate
Program and the effectiveness of some of its component parts. Considering that Plaintiffs
are likely to succeed on the merits without wading into these trickier issues, my analysis
of the merits stops here.
2. 	Irreparable Harm
Plaintiffs allege irreparable harm for the costs they will incur from the Rebate
Program between floating the upfront costs of covered drugs (far in excess of the costs they
will ultimately be responsible for), hiring additional staff to process and track rebate claims,
and cutting back or altogether abandoning certain programs and services. Mot. at 16-19.
Defendants contend Plaintiffs’ costs associated with the Rebate Program are not irreparable
because they are speculative, mitigated by the benefits they will receive from the Rebate
Program, and impermissibly rely on alleged harm to third parties. Opp’n at 19-22.
Irreparable harm is “a cognizable threat” of “a substantial injury that is not
accurately measurable or adequately compensable by money damages” to the movant.
Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 19 (1st Cir. 1996). 	Although
it need not “be fatal to [the movant’s] business,” id. at 18, it “must be grounded on
something more than conjecture, surmise, or a party’s unsubstantiated fears of what the
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future may have in store.” Charlesbank Equity Fund II v. Blinds to Go, Inc., 370 F.3d 151,
162 (1st Cir. 2004). 	“The costs of complying with challenged regulations have been
recognized as irreparable given the obstacles faced when suing for monetary damages.”
Cal. v. Kennedy, No. 25-12019-NMG, 2025 WL 2807729, at *6 (D. Mass. Oct. 1, 2025)
(citing Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219, 222 (1st Cir. 2003)).
Plaintiffs demonstrate irreparable harm. 	AHA members alone estimate $400
million in compliance costs, the downstream effect causing them to cut back services and
suspend partnerships with drug distributors. Mot. at 16-19; Reply at 11-12; Golder Suppl.
Decl. ¶¶ 2-4; Austin Decl. ¶¶ 10-13; Brown Decl. ¶ 18; Fadale Decl. ¶ 18. These claims
are not unsubstantiated fears of what the future might hold. Nor do Plaintiffs’ speculative
concerns 	about 	delayed 	receipt 	and 	inappropriate 	denial 	of 	rebates 	from 	drug
manufacturers defeat the meritorious aspects of their irreparable harm claim. Furthermore,
because Plaintiffs raise an APA challenge, they cannot recover any damages for the costs
incurred from the Rebate Program should it later be invalidated—a claim on which they
are likely to succeed. 	Accordingly, their inability to recoup those costs in this context
demonstrates irreparable harm. Kennedy, 2025 WL 2807729, at *6.
3. Balance of Equities and Public Interest
Plaintiffs maintain that the balance of equities and public interest weigh in their
favor for several reasons, including the public’s interest in preserving the reach of the
Public Health Service to provide critical medical services, particularly when weighed
against the lack of public interest in an agency carrying out a likely unlawful action. Mot.
19-20. 	Defendants assert that there is strong public interest in implementing the Rebate
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Program to address the de-duplication problem and assess the benefits of a rebate model.
Opp’n at 22.
The balance of equities and public interest weigh in Plaintiffs’ favor. 	Most
importantly, a preliminary injunction would preserve the status quo and preserve the reach
of 340B entities to continue serving the public’s significant interest in receiving critical
medical services. See Starbucks Corp. v. McKinney, 602 U.S. 339, 344 (2024); Rio Grande
Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56 (1st Cir. 2005). Moreover, considering that
Plaintiffs are likely to succeed on the merits of their APA claims, Defendants’ arguments
concerning equities and public interest in the Rebate Program are necessarily diminished.
To be clear, Defendants’ authority to administer a rebate model program is not in question,
only the quality of the Rebate Program’s current rollout effort in light of the APA.
4. 	Summation
As complicated as certain aspects of this case might seem, it boils down to a simple
principle. 	Defendants cannot fly the plane before they build it. 	The Agency’s failure to
abide basic requirements of the APA, Plaintiffs’ irreparable injury should the program go
into effect, as well as the balance of equities weighing in Plaintiffs favor, all counsel against
permitting the Rebate Program to take flight on January 1, 2026.6 That, of course, is not
to say that a rebate model is impermissible. Congress clearly gave Defendants that option.
The problem is that the Defendants’ failed to follow the APA’s basic blueprint in
6 April 1, 2026, for the application approved for Novartis Pharmaceuticals Corporation. See Opp’n at 7.
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assembling the Rebate Program. For these reasons, Defendants are preliminarily enjoined
from implementing this iteration of the Rebate Program pending further order.
C. SCOPE OF PRELIMINARY R ELIEF
1. 	Preliminary Injunction
Defendants’ cite Trump v. CASA, Inc., 606 U.S. 831 (2025), for the proposition that
the breadth of this preliminary injunction is limited to the specific identified association
members of AHA and MHA or that the remedy should be tailored only to address the
irreparable harm shown by specific members of these associations. Opp’n at 23-25. First,
Casa declined to “resolve[ ] the distinct question whether the [APA] authorizes federal
courts to vacate federal agency action.” 	CASA, 606 U.S. at 847 n.10. 	Second, the First
Circuit has already rejected Defendants argument that the remedy here must be limited to
the “members whom the organizations identified in seeking associational standing.” Doe
v. Trump, 157 F.4th 36, 80 (1st Cir. 2025).
The APA authorizes federal courts to “hold unlawful and set aside agency action,”
5 U.S.C. § 706(2), including by “issu[ing] all necessary and appropriate process to
postpone the effective date of an agency action or to preserve status or rights pending
conclusion 	of 	the 	review 	proceedings,” 	id. 	§ 	705. 	Defendants 	fundamentally
misunderstand the nature of this ‘set aside’ authority, which “‘empower[s] the judiciary to
act directly against the challenged agency action.’” Corner Post, Inc. v. Bd. of Governors
of Fed. Rsrv. Sys., 603 U.S. 799, 838 (2024) (K AVANAUGH , J., concurring) (quoting J.
Mitchell, The Writ-of-Erasure Fallacy, 104 VA . L. REV . 933, 1012 (2018)). 	Moreover,
courts have long understood the APA to authorize vacatur and the Supreme Court has yet
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to dictate otherwise. Id. at 839; see also Assoc. of Am. Univ. v. Dept. of Defense, No. 25-
11740-BEM, 2025 WL 2899765, at *29 (D. Mass. Oct. 10, 2025) (citing cases); Doe v.
Trump, 796 F. Supp. 3d 599, 603 (N.D. Cal. 2025) (citing cases). 	As a result, the
preliminary injunction in this case—based in part on a finding that the government’s
application approvals likely violated the APA—need not be limited to Plaintiffs. Instead,
the Court has authority to preliminarily set aside those agency actions comprising the
Rebate Program. 	See CASA, 606 U.S. at 873 (KAVANAUGH , J., concurring) (noting that
even after CASA, district courts may “grant or deny the functional equivalent of a universal
injunction—for example, by . . . preliminarily setting aside or declining to set aside an
agency rule under the APA”); 5 U.S.C. § 705.7
2. 	Bond Requirement
In this case, a nominal bond is appropriate. 	Although the APA has no bond
requirement, id. § 705, “the district courts in this circuit have generally required a bond,”
Maine v. U.S. Dept. of Agric., 778 F. Supp. 3d 200, 237 (D. Me. 2025). Defendants face
no material loss from enjoining the implementation of the Rebate Program, Plaintiffs’
lawsuit concerns the public interest, and Plaintiffs are likely to succeed on the merits of
their claim. See Crowley v. Local No. 82, Furniture & Piano Moving, 679 F.2d 978, 999-
1000 (1st Cir. 1982). Accordingly, Plaintiffs must post a bond of $1,000.8
7 Of course, the broad latitude the APA affords courts to fashion relief does not necessarily preclude more
limited remedies, including remand for further consideration by the agency consistent with a court order.
See, e.g., State Farm, 463 U.S. at 59.
8 This District and other district courts within the First Circuit have similarly required a nominal bond in
this amount. See Maine, 778 F. Supp. 3d at 238; Nationwide Payment Sols., LLC v. Plunkett, 697 F. Supp.
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CONCLUSION
For 	the 	foregoing 	reasons, 	Plaintiffs’ 	Motion 	(ECF 	No. 	3) 	is 	GRANTED.
Defendants are enjoined from implementing the nine individual applications that comprise
the 340B Model Rebate Pilot Program pending further order. Furthermore, within seven
days of the date of this order, Plaintiffs are ORDERED to provide security in the amount
of $1,000.
SO ORDERED.
/s/ Lance E. Walker
Chief U.S. District Judge
Dated this 29th day of December, 2025.
2d 165, 173 (D. Me. 2010); Nw. Selecta, Inc. v. Sec’y of the Dep’t Agric. of P.R., No. 22-1092-RAM, 2022
WL 17985926, at *7 (D.P.R. Dec. 29, 2022). I see no reason to depart from this precedent.
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