United States: HHS Proposed Rule Would Remove Safe Harbor Protection For Certain Discounts

Last Updated: February 7 2019
Article by Sarah DiFrancesca

On January 31, 2019, the U.S. Department of Health and Human Services ("HHS") Office of Inspector General ("OIG") published a proposed rule designed to combat rising drug costs ("Proposed Rule"). The Proposed Rule seeks to eliminate rebates paid by pharmaceutical manufacturers to plan sponsors or their pharmacy benefit managers ("PBMs") under Medicare Part D and Medicaid managed care organizations ("MCOs") by excluding the rebates from the federal Anti-Kickback Statute ("AKS") discount safe harbor. The Proposed Rule will be open for public comment for sixty (60) days after the publication date, which is currently scheduled for February 6, 2019. If implemented, the Proposed Rule will take effect on January 1, 2020.

The Proposed Rule seeks to reduce drug costs by, among other things, ensuring that beneficiaries receive the benefit of the discount directly at the pharmacy. It also seeks to eliminate financial incentives to PBMs and MCOs to make formulary decisions based on a drug's rebate potential. Specifically, the Proposed Rule amends the current safe harbor and creates two (2) new safe harbors as described below.

Point-of-Sale Reductions in Price for Prescription Pharmaceutical Products Safe Harbor

First, the Proposed Rule seeks to amend the current AKS discount safe harbor by excluding from the definition of "discount" any pharmaceutical manufacturer reductions in price on prescription pharmaceutical products in connection with their sale to, or purchase by, health plan sponsors under Medicare Part D or Medicaid MCOs, directly or through PBMs, unless the price reduction is required by law.

Further, a new safe harbor included in the Proposed Rule would protect certain price reductions offered by pharmaceutical manufacturers to consumers at the point-of-sale on certain pharmaceutical products covered under Medicare Part D or by Medicaid MCOs, provided that the following conditions are met:

  1. The reduction in price must be set in advance with the plan sponsor under Medicare Part D, a Medicaid MCO or a PBM. HHS proposes that "'set in advance' would mean that the terms of the reduction in price would be fixed and disclosed in writing to the plan sponsor under Medicare Part D or the Medicaid MCO by the time of the initial purchase."
  2. The reduction in price cannot involve a rebate, as defined in 42 C.F.R. § 1001.952(h), 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. HHS proposes to define a "chargeback" as a "payment made directly or indirectly by a manufacturer to a dispensing pharmacy so that the total payment to the pharmacy for the prescription pharmaceutical product is at least equal to the price agreed upon in writing between the Plan Sponsor under Part D, the Medicaid MCO, or a PBM acting under contract with either, and the manufacturer of the prescription pharmaceutical product."
  3. The reduction in price must be completely reflected in the price the pharmacy charges to the beneficiary at the point-of-sale.

HHS intends that the Proposed Rule captures any conduct that "mimics" rebates, but is described differently in the contracts between the parties. The Proposed Rule solicits comments on a number of specific topics including, by way of example, this approach to address the range of fees that exist between the parties.

The discount safe harbor would continue to protect pharmaceutical rebates that satisfy its requirements and that are offered to entities other than health plan sponsors under Medicare Part D and Medicaid MCOs. These entities include wholesalers, hospitals, physicians, pharmacies and third party payors in other Federal health care programs. Notably, the current discount safe harbor excludes from the definition of "discount" any reduction in price applicable to one payor but not to Medicare, Medicaid or other Federal health care programs.

PBM Service Fees Safe Harbor

In addition, the Proposed Rule promulgated a second new safe harbor to protect certain flat fee payments from pharmaceutical manufacturers to PBMs for bona fide services that PBMs provide to pharmaceutical manufacturers in connection with the pharmacy benefit management services it provides to health plans. The Proposed Rule includes examples of services that a manufacturer provides to a PBM to prevent duplicate discounts for 340B claims. The proposed safe harbor does not protect any payment for services that a PBM provides to a health plan; the only services protected are those that benefit the manufacturer.

In order to qualify for the safe harbor, the following conditions must be met:

  1. The PBM and the pharmaceutical manufacturer must have a written agreement that: (i) covers all of the services the PBM provides to the manufacturer in connection with the PBM's arrangements with health plans for the term of the agreement and (ii) specifies each of the services to be provided by the PBM and the compensation for such services. The proposed rule notes that compliance with the first condition is necessary to demonstrate compliance with the second condition.
  2. The compensation paid to the PBM must: (i) be consistent with fair market value in an arm's-length transaction; (ii) be a fixed payment, not based on a percentage of sales; and (iii) not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties, or between the manufacturer and the PBM's health plans, for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.
  3. The PBM must disclose in writing to each health plan with which it contracts at least annually, and to the HHS Secretary upon request, the services it rendered to each pharmaceutical manufacturer that are related to the PBM's arrangements with that health plan and the associated costs for such services.

If implemented, the Proposed Rule will transform drug pricing beyond the Medicare Part D and Medicaid programs. All stakeholders in the drug supply chain, consumers and customers will be impacted. We encourage interested parties to review the Proposed Rule and consider submitting comments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions