HHS Proposes to Revise Anti-Kickback Statute Safe Harbor Protections for Drug Rebates and Fees to Pharmacy Benefit Managers

OIG’s Views on the Purpose of the Proposal and Call for Information. OIG spends a considerable portion of the preamble to the proposed rule articulating its concern that the current rebate system disadvantages patients and the federal healthcare programs and is a potential barrier to lowering increasing drug costs. OIG states its hope that the proposed rule will result in pharmaceutical manufacturers lowering their drug list prices and replacing rebates historically paid to health plans and PBMs with discounts to patients while achieving greater transparency in the pharmaceutical supply chain. However, OIG admits that the full magnitude of potential savings from the proposal is difficult to quantify and solicits stakeholders to provide feedback on whether the proposal would advance its goals, specifically requesting comments on the potential impact on beneficiary spending, manufacturer list prices, the federal government and commercial markets. 

Proposed Revisions to the Discount Safe Harbor. The proposal would revise the discount safe harbor, 42 C.F.R. § 1001.952(h), “so that it would no longer protect price reductions from manufacturers to plan sponsors under Medicare Part D or Medicaid MCOs, either directly or through PBMs acting under contract with plan sponsors under Medicare Part D or Medicaid MCOs, in connection with the sale or purchase of prescription pharmaceutical products, unless the reduction in price is required by law.” OIG has proposed that the term “plan sponsor under Medicare Part D” will include both sponsors of Medicare prescription drug plans and sponsors of Medicare Advantage prescription drug plans. 

OIG takes the novel position in two footnotes that rebates currently paid by drug manufacturers to or through a PBM, such as those to buy formulary position, are not price concessions that are protected by the discount safe harbor, unless they are passed through to a buyer. However, elsewhere in the preamble, OIG suggests that the discount safe harbor currently protects such rebates.

OIG states its intent that the proposal not disrupt pharmaceutical manufacturer discounts on products offered to other customers, such as wholesalers, hospitals and providers. OIG also explains that it does not intend for the proposal to have any effect on existing protections for value-based arrangements between manufactures and plan sponsors, though it does not confront the question of whether such arrangements are workable in the absence of a safe harbor protection for rebates. 

OIG proposes the foregoing revisions to take effect on January 1, 2020. 

Proposed New Safe Harbor for Discounts Offered at the Point-of-Sale. OIG states that the new safe harbor is intended to protect point-of-sale price reductions offered by manufacturers on certain pharmaceutical products that are payable under Medicare Part D or by Medicaid MCOs that satisfy certain conditions. Under the proposal, manufacturers can offer a reduction in price on a pharmaceutical product to a plan sponsor or through a PBM acting under contract with a plan sponsor where (1) the reduction in price is set in advance with the plan sponsor or PBM (2) the price reduction is not a rebate “unless the full value of the reduction in price is provided to the dispensing pharmacy through a chargeback or a series of chargebacks, or the rebate is required by law”; and (3) the reduction in price is “completely applied” to the price the pharmacy charges the beneficiary at the point of sale. There is a dearth of detail in the proposed rule as to even the most basic mechanics of how the new pharmacy chargeback model would work in practice and what changes would be required to current operations to move efficiently from a PBM rebate model to a pharmacy chargeback model.

OIG proposes the foregoing revisions to take effect 60 days after publication of the final rule. 

Proposed New Safe Harbor for PBM Service Fees. The proposed rule includes a new safe harbor, specific to PBMs, that protects fixed fees from pharmaceutical manufacturers to PBMs for services provided to the manufacturer that meet specified criteria (i.e., subject to a written agreement, fair market value compensation, and disclosed in writing to each applicable health plan, among others) and where the services at issue “relate in some way” to the PBM’s arrangements to provide pharmacy benefit management services to health plans. 

Importantly, HHS does not foreclose the ability of manufacturers or PBMs to rely on other safe harbors and acknowledges that some existing safe harbors could protect remuneration between the parties. The proposed definition of “pharmacy benefit manager” is particularly vague: “any entity that provides pharmacy benefits management on behalf of a health benefits plan that manages prescription drug coverage.”
OIG does not provide a proposed effective date for this safe harbor.

* * *

The proposal includes sweeping changes for industry and leaves many critical questions unanswered for a variety of stakeholders in the drug supply chain. Moreover, OIG’s proposed timeline for changes is quite aggressive, a strong signal that such changes will be a centerpiece of the 2020 presidential election cycle. OIG is soliciting comments from stakeholders on a variety of topics raised by the proposed rule. Affected stakeholders should consider whether to submit comments on key issues of interest as part of a larger business strategy to assess pitfalls and opportunities that may arise if the proposed rule is finalized.

For more on other breaking drug pricing related news, visit Sidley’s Global Drug Pricing page.