The U.S. Court of Appeals for the First Circuit denied an emergency stay request by the federal government in *American Hospital Association v. Kennedy*, a case challenging a 2025 federal drug pricing program that eliminated decades-old discount practices for safety-net hospitals.
The dispute centers on a program instituted in 2025 by the Department of Health and Human Services under Secretary Robert F. Kennedy Jr. The program benefits drug manufacturers by ending a longstanding practice of providing safety-net hospitals with upfront discounts to purchase prescription drugs. These hospitals primarily serve rural and low-income communities that often lack alternative healthcare options.
The American Hospital Association, along with St. Mary's Regional Medical Center, Maine Hospital Association, Nathan Littauer Hospital and Nursing Home, Unity Medical Center, and Dallas County Medical Center, filed suit in the U.S. District Court for the District of Maine. The hospitals challenged the new program under the Administrative Procedure Act and sought a preliminary injunction to halt its implementation.
In what the First Circuit described as "a careful and thorough decision," the Maine district court granted the preliminary injunction. The trial court found that the federal government failed to consider the hospitals' reliance interests and other important aspects of the problem when enacting the new program.
The district court determined that the hospitals would face irreparable harm without an injunction during the litigation. This harm potentially included hospital closures, which would devastate the rural and low-income communities these facilities serve. Safety-net hospitals often operate on thin margins and rely heavily on various discount programs to maintain financial viability while serving vulnerable populations.
After the district court denied the government's request for a stay pending appeal, federal attorneys moved for an emergency stay from the First Circuit. The appeals court, in an order entered Jan. 7, 2026, rejected this request.
The three-judge panel, consisting of Circuit Judges Gelpí, Montecalvo, and Rikelman, applied the standard established in *Nken v. Holder*, which requires the government to make "a strong showing that [it is] likely to succeed on the merits" to obtain a stay pending appeal. The court concluded that the federal government failed to meet this burden.
This procedural ruling suggests the appeals court views the hospitals' legal challenge as having substantial merit. While the First Circuit did not rule on the underlying case, its denial of the stay indicates skepticism about the government's position that it will ultimately prevail on appeal.
The case highlights ongoing tensions between federal healthcare policy and the financial stability of safety-net hospitals. These facilities serve as crucial healthcare providers in underserved areas, often functioning as the only hospital within reasonable distance for rural residents. The elimination of traditional drug discount programs could force these hospitals to choose between reducing services or facing potential closure.
The 2025 program represents a shift in federal policy that appears to prioritize pharmaceutical manufacturers' interests over hospital cost containment. The Administrative Procedure Act challenge suggests the hospitals believe the government failed to follow proper rulemaking procedures, including adequate consideration of stakeholder impacts.
The district court's finding that the government failed to consider hospitals' "reliance interests" indicates a potential procedural flaw in how the program was implemented. Federal agencies must typically consider how regulatory changes affect parties who have structured their operations around existing rules.
The case also involves the Health Resources and Services Administration, led by Administrator Thomas J. Engels, which oversees various programs supporting safety-net healthcare providers. HRSA's role in the challenged program suggests the policy change affects multiple federal healthcare initiatives.
With the preliminary injunction in place, safety-net hospitals can continue receiving the traditional upfront drug discounts while the litigation proceeds. This temporary relief prevents immediate financial disruption to these essential healthcare providers.
The First Circuit's denial of the stay means the case will proceed through the appeals process with the injunction remaining in effect. The government must now prepare to argue the merits of its appeal while hospitals continue operating under the previous discount structure.
This decision comes at a time when rural hospitals face increasing financial pressures and closure rates. Any policy changes that affect their revenue streams receive heightened scrutiny from courts, particularly when implemented without adequate consideration of stakeholder impacts.
The case will likely proceed to full briefing and oral arguments before the First Circuit. The appeals court's ultimate decision could have national implications for how federal agencies balance pharmaceutical industry interests against healthcare access in underserved communities. Other circuits may face similar challenges to the 2025 program, making this case potentially significant for healthcare policy nationwide.