Reliance-Interest Review and the Limits of Post Hoc Declarations in APA Stay Motions: 340B Rebate Pilot Enjoined Pending Appeal

Introduction

This First Circuit order arises from a high-stakes challenge to the federal government’s 340B Rebate Model Pilot Program (the “Rebate Program”), announced by the Health Resources and Services Administration (HRSA) on July 31, 2025. For more than three decades, Section 340B has operated through an upfront-discount model—drug manufacturers provide covered “safety-net” hospitals discounts at the time of purchase. The Rebate Program would instead permit nine manufacturers, for certain drugs, to charge hospitals wholesale prices upfront and then later issue rebates to reach the statutorily required 340B price.

The plaintiffs—American Hospital Association and multiple hospitals and hospital associations—sued the Secretary of HHS and related federal defendants under the Administrative Procedure Act (APA), alleging the shift was arbitrary and capricious for, among other things, failing to account for hospitals’ substantial reliance interests and for the severe cash-flow and administrative burdens the rebate approach would impose. The District of Maine granted a preliminary injunction and denied the government’s stay request. The government then sought an emergency stay from the First Circuit.

The First Circuit denied the stay, concluding the government failed to satisfy the governing stay standard—especially the required “strong showing” of likely success on the merits and irreparable injury.

Summary of the Opinion

Applying the four-factor stay test, the court held the government had not met its burden. Most importantly:

The court agreed with the district court that the previewed administrative record was “threadbare” and did not show the agency considered hospitals’ significant reliance interests or the costs the Rebate Program would impose—an “important aspect of the problem” under arbitrary-and-capricious review.
The court rejected the government’s attempt to rely on a litigation-filed declaration (the “Britton declaration”) to supply missing reasoning, characterizing it as an impermissible post hoc rationalization rather than a permissible elaboration of contemporaneous agency reasoning.
The court found waived/forfeited the government’s appellate arguments that (a) the APA does not require explanation for informal adjudications and (b) “experimental” or “pilot” programs require less justification.
The court concluded the government failed to show irreparable harm absent a stay; the injunction largely preserved a decades-long status quo, and any primary delay costs appeared to fall on manufacturers rather than the government.

The stay pending appeal was therefore denied, and the court ordered the parties to propose an expedited briefing schedule.

Analysis

Precedents Cited

1) The stay-pending-appeal framework

Nken v. Holder, 556 U.S. 418 (2009): The court treated Nken as the controlling articulation of the stay standard, emphasizing (i) a stay is “not a matter of right,” (ii) the movant bears the burden, and (iii) the “most critical” factors are likelihood of success and irreparable injury. The order largely turns on the government’s inability to make the “strong showing” required by Nken.
Virginian R. Co. v. United States, 272 U.S. 658 (1926): Cited via Nken to reinforce that stays are discretionary and exceptional.
Hilton v. Braunskill, 481 U.S. 770 (1987): The source of the familiar four-factor balancing test quoted in Nken.

2) Arbitrary-and-capricious review, “important aspects,” and reliance interests

Gulluni v. Levy, 85 F.4th 76 (1st Cir. 2023): Used to restate the First Circuit’s formulation of arbitrary-and-capricious review, including that an agency acts unlawfully if it disregards “an important aspect of the problem.”
Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 (1983): The foundational “reasoned decisionmaking” case supporting the “important aspect” requirement the court applied to the thin record supporting the Rebate Program.
FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009): Cited for the heightened explanatory obligation when an agency changes policy after serious reliance interests have formed—requiring “a more detailed justification” in such circumstances.
DHS v. Regents of the Univ. of Cal., 591 U.S. 1 (2020): Central to the order’s reliance-interest analysis and record-review limits. The court used Regents to require agencies to assess, determine significance, and weigh reliance interests, and also to insist that judicial review is limited to the reasons the agency invoked at the time of action.

3) Administrative record limits and post hoc rationalizations

In re Fin. Oversight & Mgmt. Bd. for P.R., 37 F.4th 746 (1st Cir. 2022): Cited for the rule that agencies cannot rely on post hoc rationalizations developed during litigation and must stand on contemporaneous reasons.
Sierra Club v. Marsh, 976 F.2d 763 (1st Cir. 1992): Distinguished. The court explained that the supplemental affidavits accepted there did not add new facts beyond the administrative record—unlike the Britton declaration, which appeared to introduce new justifications to fill an otherwise “yawning void.”
Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) and Camp v. Pitts, 411 U.S. 138 (1973): Both cited to show the limited circumstances under which courts may seek additional explanation, typically where the full record is missing or the contemporaneous explanation is inadequate, and even then within constraints tethered to the agency’s original reasoning. The First Circuit used these cases to undermine the government’s attempt to substitute litigation declarations for contemporaneous agency decisionmaking.

4) Waiver/forfeiture principles on appeal from preliminary-injunction proceedings

New Jersey v. Trump, 131 F.4th 27 (1st Cir. 2025) and Rhode Island v. Trump, 155 F.4th 35 (1st Cir. 2025): These cases anchor the court’s refusal to entertain new or materially different arguments not developed in the district court (including at the stay stage).
Carrozza v. CVS Pharmacy, Inc., 992 F.3d 44 (1st Cir. 2021) and Thomas v. Rhode Island, 542 F.3d 944 (1st Cir. 2008): Cited for the general rule that parties may not raise arguments on appeal that were not “squarely and timely” presented below.
United States v. Chen, 998 F.3d 1 (1st Cir. 2021): Used for the specific waiver principle that taking a contrary position below can waive a later appellate argument—here, the government’s below-the-line concessions that agencies must “articulate a satisfactory explanation.”

5) Informal adjudication references

Izaak Walton League of Am. v. Marsh, 655 F.2d 346 (D.C. Cir. 1981): Mentioned in the government’s below briefing; the First Circuit treated it as irrelevant to the government’s new appellate claim that informal adjudications need no explanation.
Royal Siam Corp. v. Chertoff, 484 F.3d 139 (1st Cir. 2007): Cited to refute the notion that informal adjudications can be unexplained; the court highlighted that Royal Siam involved a record revealing a “closely reasoned judgment.”

6) Amicus-brief consideration

Ryan v. U.S. Immigr. & Customs Enf't, 974 F.3d 9 (1st Cir. 2020): Cited for the limited use of amicus submissions to address issues raised by the parties, reinforcing a disciplined approach to the record and arguments properly before the court.

Legal Reasoning

1) Likelihood of success: reliance interests must appear in the agency’s contemporaneous reasoning

The order treats hospitals’ reliance interests as both obvious and legally consequential: after thirty-plus years of an upfront-discount model, safety-net hospitals plausibly structured budgets, service lines, and cash-flow practices around prompt access to 340B pricing. Under FCC v. Fox Television Stations, Inc. and DHS v. Regents of the Univ. of Cal., an agency changing course must do more than announce a new program—it must show, in its reasoning, that it identified reliance interests, evaluated their significance, and weighed them against the policy objectives.

Here, the court found the record preview did not do that. A statement acknowledging that rebate models could “fundamentally shift” the program was not enough; the court demanded evidence of consideration of the hospitals’ reliance and of the program’s financial and administrative burdens. That absence supported the district court’s conclusion—under Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mut. Auto Ins. Co. and Gulluni v. Levy—that the agency disregarded an “important aspect of the problem.”

2) The Britton declaration: impermissible “new reasons” rather than permissible elaboration

The court’s treatment of the Britton declaration is a practical application of the APA record-review principle: courts review what the agency decided and why, as reflected in the contemporaneous administrative record. Under DHS v. Regents of the Univ. of Cal. and In re Fin. Oversight & Mgmt. Bd. for P.R., an agency may not cure the absence of contemporaneous reasoning by submitting litigation declarations that supply new justifications.

Critically, the court emphasized that “elaboration” is only possible if there is something to elaborate upon. Where the record contains “almost no contemporaneous explanation,” a declaration that supplies the missing rationale looks less like clarification and more like replacement—precisely what post hoc rationalization doctrine forbids. The court then narrowed the government’s cited authorities (Sierra Club v. Marsh, Citizens to Pres. Overton Park, Inc. v. Volpe, Camp v. Pitts) to their procedural contexts and to circumstances where supplementation does not introduce new rationales.

3) Waiver/forfeiture: “informal adjudication needs no explanation” and “pilot programs need less justification”

The order also functions as an appellate practice decision. The government tried to pivot on appeal to a categorical claim that the APA does not “specifically require” explanations for informal adjudications. The First Circuit treated the argument as waived because it was not developed below and was inconsistent with the government’s own statements in the district court that agencies must “articulate a satisfactory explanation.” This reasoning, grounded in New Jersey v. Trump, Rhode Island v. Trump, and United States v. Chen, reinforces a stringent rule in emergency posture: parties cannot reframe the legal standard on appeal after losing in the district court.

Similarly, the government’s “pilot programs require less justification” claim was forfeited because the government had not made that argument below. The court treated “pilot” status as potentially relevant to the scope of harms, but not as a late-raised exemption from reasoned decisionmaking.

4) Irreparable injury: preserving the status quo weakens the movant’s showing

On irreparable harm, the court credited the district court’s finding that hospitals faced unrebutted evidence of serious cash constraints and potential closures absent an injunction. By contrast, the government’s claimed harms were thin: the injunction preserved a decades-long status quo; the government did not show unrecoverable expenditures; and any principal delay costs appeared to fall on manufacturers, with alternative methods available to address the asserted “duplication” problem. Under the Nken v. Holder framework, this asymmetry further doomed the stay request.

Impact

Hardening of reliance-interest scrutiny for abrupt policy shifts affecting regulated entities’ cash flow. Even at the stay stage, the First Circuit treated reliance interests as a “critical factor” that must appear in the agency’s contemporaneous reasoning, especially where a program has operated for decades and regulated entities plausibly built their financial models around it.
Record discipline in APA litigation: declarations cannot replace missing administrative reasoning. The order underscores that agencies cannot announce major operational changes and then attempt to justify them through litigation declarations; courts will ask whether there is any contemporaneous rationale to “elaborate” upon.
Emergency appellate review will enforce waiver rules strictly. The court’s refusal to entertain newly framed theories (informal adjudication “needs no explanation,” pilots “need less justification”) signals that agencies must litigate their best theories early—especially when seeking extraordinary relief like a stay.
Practical implications for 340B administration. Although not a final merits decision, the order increases litigation risk for efforts to convert 340B discounts into rebates without a robust, contemporaneous administrative record addressing hospital cash-flow realities, administrative burdens, reliance interests, and alternatives. It also suggests that “duplication” concerns—without a documented balancing against hospital reliance and viability—may not suffice to sustain abrupt structural changes.

Complex Concepts Simplified

Section 340B upfront discounts vs. rebate model: Under the traditional model, hospitals pay a discounted price at purchase. Under a rebate model, hospitals pay more upfront and wait to be reimbursed later—creating cash-flow strain and administrative work.
Arbitrary and capricious (APA): A court can set aside agency action if the agency failed to consider key issues, ignored evidence, or failed to give a coherent, record-based explanation.
Reliance interests: When a longstanding policy causes parties to plan and invest around it (budgets, services, staffing), an agency changing that policy must take those expectations seriously and explain why change is justified despite the reliance.
Administrative record: The set of materials the agency actually considered when it made its decision. Courts generally evaluate legality based on this record—not new explanations created later for litigation.
Post hoc rationalization: A “because we say so now” justification offered after the fact (often by declaration in court) that was not part of the agency’s original reasoning.
Waiver/forfeiture on appeal: A party generally cannot raise new legal arguments on appeal that were not properly presented to the district court—especially in expedited, preliminary-injunction and stay contexts.

Conclusion

The First Circuit’s denial of a stay in American Hospital Association v. Kennedy is an APA process decision with substantial practical bite: agencies undertaking disruptive policy shifts—particularly after decades of settled practice—must build a contemporaneous record that meaningfully addresses reliance interests and real-world costs. Attempting to supply missing justification through litigation declarations risks dismissal as impermissible post hoc rationalization. And in emergency appellate posture, the court will strictly enforce waiver rules against newly minted theories.