On February 6, 2019, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) published a proposed rule (Proposed Rule) that would amend the safe harbor regulations under the Federal Anti-Kickback Statute. The Proposed Rule is intended to “address the modern prescription drug distribution model” and make sure that the safe harbors “extend only to arrangements that present a low risk of harm to the Federal health care programs and beneficiaries.” Specifically, in the Proposed Rule OIG proposes to alter the definition of  “discounts” under the so-called “discounts safe harbor” at 42 C.F.R. § 1001.952(h) to exclude from protection any reductions in price or other remuneration offered by pharmaceutical drug manufacturers to pharmacy benefit managers (PBMs), Part D plan sponsors, or Medicaid managed care organizations. Additionally, the Proposed Rule proposes and solicits comment on two new safe harbor provisions: one aimed at reducing the price of pharmaceuticals where reductions in price are reflected at the point of sale to a beneficiary, and a second that would protect certain fixed fee services arrangements between manufacturers and PBMs.

The OIG introduces the Proposed Rule by noting that the prices of drugs have been rapidly increasing in recent years. In support, the OIG references studies to support the conclusion that rebate payments by drug manufacturers to PBMs “have grown substantially” in a manner that is disproportionate to objective economic criteria. Moreover, the OIG suggests that rebate arrangements may be a barrier to lowering drug costs, and may increase financial burdens for beneficiaries while resulting in higher profits for PBMs and higher costs to federal health care programs. The Proposed Rule provides a number of examples in which the existence of a rebate arrangement prevents beneficiaries and federal health care programs from receiving the benefits of reduced drug prices. In the Proposed Rule, the OIG explains its position that the statutory discounts exception to the AKS does not apply to most rebates paid by manufacturers to Part D plans or Medicaid managed care organizations.  See42 U.S.C. § 1320-7b(b)(3)(A).  The OIG therefore proposes to revise the discounts safe harbor such that the term “discount” would not include a “reduction in price or other remuneration from a manufacturer in connection with the sale or purchase of a prescription pharmaceutical product to a plan sponsor under Medicare Part D, a Medicaid Managed Care Organization as defined in section 1903(m) of the Act, or to a pharmacy benefit manager acting under contract with a plan sponsor under Medicare Part D, or Medicaid Managed Care Organization, unless it is a price reduction or rebate that is required by law.”

The OIG also proposes a new safe harbor provision that would protect certain reductions in price offered by manufacturers to Part D plans and Medicaid managed care organizations that are reflected at the point of sale to a federal health care program beneficiary. This new safe harbor is intended to align incentives between manufacturers and consumers in a manner that could stem list price increases, reduce the financial impacts on beneficiaries and federal health care programs, improve transparency, and reduce the likelihood that rebates may be used to induce federal health care program business. The safe harbor specifically covers reductions in price for pharmaceuticals that are set in advance, as long as the sale doesn’t involve a rebate unless the full value of the reduction in price is provided back to the dispensing pharmacy via a chargeback, and the price reduction is applied completely to the price of the pharmaceutical charged to the beneficiary at the point of sale.

Finally, the Proposed Rule would create a second new safe harbor that protects payments by pharmaceutical manufacturers to PBMs for services that a PBM provides to the pharmaceutical manufacturer related to pharmacy benefit manager services furnished by the PBM to health plans. In order to qualify for protection under this proposed safe harbor, the following conditions would need to be met:

• The PBM and the pharmaceutical manufacturer must have a written agreement covering all services to be provided by the PBM to the manufacturer in connection with the PBM’s health plan arrangements, including the compensation for such services.
• Compensation paid to the PBM must: (a) be consistent with fair market value; (b) be a fixed payment not based on a percentage of sales; and (c) not be determined in a manner that takes into account the volume or value of referrals or business otherwise generated between the parties, or between the manufacturer and the PBM’s health plans, that may be payable by federal health care programs.
• The PBM must disclose in writing to each of its contracted health plans, at least annually, the services rendered to each pharmaceutical manufacturer that relate to the PBM’s arrangement with the health plan, and the PBM must make such information available to HHS upon request.

The OIG is soliciting comments on the Proposed Rule and will accept all comments received by 5:00 p.m. EST on April 8, 2019.

This post was co-authored by Alyssa Ferreone, legal intern at Robinson+Cole. Alyssa is not yet admitted to practice law.