Health Law Daily HHS proposes amend anti-kickback safe harbor for drug discounts
Monday, February 4, 2019

HHS proposes amend anti-kickback safe harbor for drug discounts

By Jeffrey H. Brochin, J.D.

The amendment would explicitly exclude certain manufacturer price reductions from safe harbor provisions in order to combat inducement in government-funded programs and rising drug costs.

HHS has issued a proposed rule calling for the removal of safe harbor protection for rebates involving prescription pharmaceuticals, and the creation of new safe harbor protection for certain point-of-sale reductionsin price on prescription pharmaceuticals and certain pharmacy benefit manager (PBM) service fees.

Safe harbor discounts. Safe harbor discounts are discounts offered by a pharmaceutical manufacturer that are protected from liability under the federal anti-kickback statute (AKS) (42 U.S.C. §1320a-7b). Congress required HHS to promulgate regulations setting forth various "safe harbors" to the AKS, intended to be evolving rules that would be periodically updated to reflect changing business practices and technologies in the health care industry. In accordance with that authority, the HHS Office of Inspector General (OIG) published a safe harbor to protect certain discounts and reductions in price. The purpose of the proposed rule is to update the discount safe harbor in order to address the modern prescription drug distribution model, and ensure that safe harbor protections extend only to arrangements that present a low risk of harm to the federal health care programs and beneficiaries.

Lack of objective economic criteria. Since 2010, the prices of existing drugs have been rising in the United States much more rapidly than warranted either by inflation or costs. Since 2016, the prescription drug component of the consumer price index grew 2 percent less than inflation, and one official measure of drug price inflation was actually negative in 2018, for the first time in almost 50 years. Nevertheless, this January, drug companies once again announced large price increases—averaging around 6 percent per drug, according to one analysis. HHS’s research shows that these price increases are largely unsupported by objective economic criteria (e.g., inflation, increased costs of goods sold, increased demand) and reflect significant distortions in the distribution chain.

How rebate system works. Prescription drug manufacturers prospectively set the list price of the drugs they sell to wholesalers and other large purchasers. Manufacturers also retrospectively pay PBMs or other entities in the drug supply chain rebates under rebate arrangements that meet certain volume-based or market-share criteria. The "net price" of a drug is the drug’s list price, minus the rebate amount.

Impact of AKS. Since the passage of the AKS and the establishment of the various safe harbors, the list prices of branded prescription drugs, and the "rebate" payments by manufacturers to PBMs, have grown substantially. The phenomenon of list prices rising faster than "net prices" has been referred to as the "gross to net bubble," and it is these rebate arrangements in the prescription drug supply chain that have been cited as a potential barrier to lowering drug costs.

Proposed amendment. The 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 (MCOs), or PBMs under contract with them. Across-the-board price reductions offered to all buyers that do not appear intended to encourage a particular buyer to order a particular item would not need the protection of the discount safe harbor.

The amendment also calls for the creation of two new safe harbors. The first one would protect certain point-of-sale reductions in price on prescription pharmaceutical products, as HHS believes that point-of-sale reductions pose less risk to Part D, MCOs, and beneficiaries than the current rebate system. The second new safe harbor protect certain PBM service fees. This safe harbor would apply to flat fee service fees that are considered at low risk of inducement.

MainStory: TopStory ReimbursementNews ComplianceNews DrugNews CMSNews DrugBiologicNews ManagedCareNews MedicaidNews PartDNews PrescriptionDrugNews

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