CMS Issue Notice of Proposed Rule Making to Amend Safe Harbor Regulations

February 2019 ~

On January 31, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) published a proposed rule (Proposed Rule) designed to amend the safe harbor regulations under the Federal Anti-Kickback Statute (AKS).

The rule, entitled Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees, seeks to modify the safe harbor regulation concerning discounts, which are defined as certain conduct that is protected from liability under the Federal AKS, section 1128B(b) of the Social Security Act (the Act). This amendment would revise the discount safe harbor to explicitly exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D, Medicaid managed care organizations as defined under section 1903(m) of the Act (Medicaid MCOs), or pharmacy benefit managers (PBMs) under contract with them. In addition, HHS is proposing two new safe harbors. These changes are highlighted below.

Amendment to the Discount Safe Harbor

Under the proposed rule, the existing discount safe harbor would be amended to eliminate protection for prescription drug price reductions paid by manufacturers to plan sponsors under Medicare Part D or Medicaid MCOs, either directly or through PBMs, unless the reduction in price is required by law. The proposed effective date for the discount safe harbor amendment is January 1, 2020.

HHS notes that it intends for the discount safe harbor to continue to protect discounts on prescription pharmaceutical products offered to other entities, including, but not limited to, wholesalers, hospitals, physicians, pharmacies, and third party payors in other Federal health care programs. However, the Department is concerned about potential unintended loopholes, where price reductions could be channeled to parties as a substitute for rebates, which under the proposed rule, would no longer qualify for safe harbor protection. As such, HHS is soliciting comments regarding whether the proposed amendment should further exclude reductions in price that are not currently contemplated.

More than once in the proposed rule, HHS references its concern over arrangements that treat Federal health care programs differently and says that if a manufacturer offers a rebate to an insurer for its private pay plans conditioned (explicitly or implicitly) on a prescription pharmaceutical product’s favorable formulary placement for all of the insurer’s plans (including Federal), the rebate could be considered remuneration that would implicate the AKS and would not be protected by the discount safe harbor.

Safe Harbor for Point-of-Sale Rebates

The first proposed safe harbor would protect certain arrangements where a manufacturer offers a reduction in price on a prescription pharmaceutical product to a plan sponsor under Medicare Part D, to a Medicaid MCO, or through a PBM acting under contract with either, if three 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.
2. The reduction in price may not 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.
3. The reduction in price must be completely reflected in the price the pharmacy charges to the beneficiary at the point of sale.

HHS proposes to define “chargebacks” in a way that guarantees that a pharmacy is paid an amount that is at least equal to the price agreed upon in writing by the plan sponsor and the manufacturer.  HHS does not address how this would interact with the definition of “negotiated price” in the Part D program. The proposed effective date for this safe harbor is sixty days after the publication of the final rule.

Safe Harbor for Certain PBM Service Fees

The second proposed safe harbor would protect payments from pharmaceutical manufacturers to PBMs for services the PBMs provide to the pharmaceutical manufacturers when such services relate to the PBMs’ provision of pharmacy benefit management services to health plans. The proposed safe harbor would not protect payment for the services that the PBM may provide to a health plan. Under the proposed rule, the safe harbor would only protect such payments if the following conditions are 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.
2. Compensation paid to the PBM must: (i) be consistent with fair market value in an arms-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. Fees cannot be determined in a manner that takes into account the volume or value of any referrals or other business generated.
4. The PBM must disclose in writing to each health plan with which it contracts at least annually, and to the Secretary upon request, the services it rendered to each pharmaceutical manufacturer that is related to the PBM’s arrangements with that health plan and the associated costs for such services.

Source(s): Federal Register; Lexology; Alston & Bird; Modern Healthcare; Mintz; JD Supra; National Law Review; Policy & Medicine;