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HHS OIG Proposes Major Changes to AKS Discount Safe Harbor

The Department of Health and Human Services Office of Inspector General has released a proposed rule (the Proposed Rule) that would make significant changes to an often relied upon Anti-Kickback Statute regulatory “safe harbor” – the Discount Safe Harbor – pursuant to which pharmaceutical manufacturers have been able to make pricing discounts available to certain parties in the pharmaceutical supply chain. Comments on the Proposed Rule are due to the OIG by April 6, 2019.

The Proposed Rule would make three major changes to the existing regulatory safe harbors contained in 42 C.F.R. § 1001.952:

  • First, the Proposed Rule would revise the Discount Safe Harbor to explicitly exclude discounts and rebates on drug purchases made available to Medicare Part D plan sponsors, Medicaid Managed Care Organizations (MCO), and Pharmacy Benefit Managers (PBMs) acting on behalf of a Part D plan or Medicaid MCO, from the definition of “discounts” which may receive protection from allegations of violation of the Anti-Kickback Statute.
  • The Proposed Rule would then add a brand new exception to the definition of otherwise prohibited remuneration to permit certain reductions in prices charged to Medicare Part D plan sponsors and Medicaid MCOs (and PBMs acting under contract with either type of organization), so long as: (i) the reduced price is set in advance; (ii) the discount is provided to the dispensing pharmacy via chargeback; and (iii) the discount is fully applied to the price of the drug as charged to the beneficiary at the point of sale. The Proposed Rule refers to this new exception as the “point-of-sale reductions in price for prescription pharmaceutical products” safe harbor (the point-of-sale safe harbor).
  • Finally, the Proposed Rule would add another new exception to exclude certain service fees that pharmaceutical manufacturers may pay to PBMs from the definition of otherwise prohibited remuneration, as long as certain conditions are met. In order to meet the new exception, (i) the PBM must have a written agreement with the pharmaceutical manufacturer that specifies all of the services to be provided by the PBM; (ii) the fees paid by the manufacturer to the PBM must be consistent with fair market value and must be a fixed amount (not based on a percentage of sales); and (iii) the fees must not take into account the volume or value of any referrals or business generated between the parties that could be paid for by Medicare, Medicaid, or other Federal health care programs. In addition, the PBM must disclose the services that it provides to every pharmaceutical manufacturer to each health plan with which it contracts on an annual basis, and to HHS upon request. The Proposed Rule refers to this as the “PBM service fees” safe harbor.

The OIG is seeking general and specific comments on the Proposed Rule, and we encourage all interested parties to take this opportunity to pass along feedback to the agency.

Among other issues, OIG is specifically seeking comment on the following:

  • The effect that the proposed revision to the discount safe harbor and the proposed establishment of the new point-of-sale safe harbor may have on (i) beneficiary out-of-pocket spending for existing prescription pharmaceutical products, (ii) manufacturers’ setting of list prices for newly launched products, (iii) the Federal Government, and (iv) commercial markets;
  • The extent to which rebates deter plans or their PBMs from placing lower cost, therapeutically equivalent drugs on their formularies or incentivizes plans or their PBMs to give preferred formulary placement to a higher-cost drug that carries a higher associated rebate, and how these practices might change if HHS were to eliminate safe harbor protection for rebates and protect only point-of-sale discounts for prescription pharmaceutical products;
  • Possible negative or positive effects on pricing or competition that could result from an increase in transparency under the proposed point-of-sale safe harbor;
  • Any anticompetitive or other issues that may arise from providing health plans with transparency into interactions between pharmaceutical manufacturers and PBMs via the proposed PBM service fees safe harbor;
  • Whether amendments to the safe harbor regulations should be limited to prescription pharmaceutical products payable by Medicare Part D and Medicaid MCOs, or whether the amendment also should apply to prescription pharmaceutical products payable under other HHS programs (e.g., Medicare Part B fee-for-service, or a Medicaid managed care program operated using waiver authority under section 1915(b) of the Act);
  • The extent to which the point-of-sale safe harbor, if finalized, would incentivize manufacturers to provide point-of-sale discounts, including how the proposed point-of-sale safe harbor conditions should be modified to encourage point-of-sale price reductions without posing any undue risk to programs or patients;
  • Whether the proposed PBM service fees safe harbor should specify the format of agreement setting forth the services to be provided (e.g., whether it would be sufficient for a PBM to have one agreement with a manufacturer that covers all of the services the PBM provides to that manufacturer, or whether separate agreements for services that relate to each health plan would be necessary);
  • Whether there are services arrangements between pharmaceutical manufacturers and PBMs that take into account the volume or value of referrals or business otherwise generated between the parties, or the manufacturer and the PBM’s health plans, but otherwise would be low risk or appropriate so that they may be protected under the proposed PBM service fees safe harbor if all other criteria are met; and
  • Whether, and, if so, under what conditions, PBMs should also be required as an additional condition of the proposed PBM service fees safe harbor to disclose the fee arrangements to health plans and whether PBMs should be required to disclose the fee arrangements to the Secretary upon request.

It should be noted that nothing in the Proposed Rule would prohibit a pharmaceutical manufacturer from conditioning payment of the point-of-sale reductions in price on formulary placement of a product or a group of a products (i.e. a bundle). In addition, it appears that in the event a manufacturer offered upfront discounts on products purchased by PBM-owned mail order pharmacies, those discounts would also need to be recognized at the point-of-sale in order to meet the new safe harbor requirements. As such, the reach of the Proposed Rule could have wider implications for Medicare Part D and Medicaid MCO reimbursement related to products dispensed to beneficiaries from plan and PBM-owned mail order facilities.

The Proposed Rule is void of any detail as to how the point-of-sale reductions would be operationalized other than a requirement that the point-of-sale reductions should be processed through a chargeback or series of chargebacks. A chargeback typically is a credit taken by a wholesaler or distributor when the wholesaler or distributor purchases a product at a manufacturer’s list price and sells it to a downstream customer (such as a dispensing pharmacy) at a lower price. One key to the chargeback process is that the wholesaler not only has an agreement with the manufacturer from whom it purchased the drug, but the wholesaler also has a contractual agreement with its downstream customer (i.e., the dispensing pharmacy). In order to meet the point-of-sale safe harbor, however, payments would be required to flow from the manufacturer to the dispensing pharmacy directly or through a wholesaler/distributor. However, the party contracting with the manufacturer in a rebate agreement forming the basis for the point-of-sale discount would not be the dispensing pharmacy, but rather the Medicare Part D plan sponsor, Medicaid MCO, or their PBM agents—a player outside of the direct purchasing supply chain. As such, how and when the point-of-sale reductions would be operationalized is another area ripe for comment and could affect the regulatory impact analysis contained in the Proposed Rule.

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