HHS OIG Issues Proposed Rule Altering AKS Safe Harbor for Pharmacy Benefit Manager Rebates

March 12, 2019

The federal Anti-Kickback Statute (AKS) prohibits the knowing and willful solicitation, receipt, offer or payment of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce the referral, arrangement, or recommendation of federal health care program business, like Medicare or Medicaid business. However, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) has developed safe harbors, such as the “discounts” safe harbor codified at 42 CFR § 1001.952(h), which excludes from the concept of improper “remuneration” drug manufacturers’ provision of rebates to pharmacy benefit managers (PBMs), including on behalf of Medicare Part D plans and Medicaid managed care plans.

PBMs are third-party administrators of prescription drug coverage for various payors, including commercial insurance companies, Medicare Part D plans, self-insured employer plans, and other state and federal employee coverage. According to their trade association, the Pharmaceutical Care Management Association, PBMs negotiate rebates from drug manufacturers and negotiate discounts from pharmacies, among other activities. By negotiating and providing discounts to PBMs on drugs, drug manufacturers can gain access to consumers who purchased insurance (commercial, Medicare or Medicaid) from the payor associated with a given PBM. PBMs then retain some of the rebate from the manufacturer as a de facto administrative fee, which allows PBMs to lower consumers’ out-of-pocket cost for drugs.

On February 6, 2019, the OIG issued a proposed rule that would add “an explicit exception to the definition of ‘discount’ such that certain price reductions on prescription pharmaceutical products from manufacturers to plan sponsors under Medicare Part D, and Medicaid MCOs would not be protected under the safe harbor.” (82 Fed. Reg. 2340, 2344) However, for manufacturers that still want to grant rebates, the proposed rule instead would create two new safe harbors.

First, the rule would create a safe harbor for drug discounts provided by manufacturers directly to consumers at the point of sale, theoretically providing the full benefit of the discount to the consumers. Second, the rule would create a safe harbor for bona fide fixed-fee administrative arrangements between PBMs and drug manufacturers, which could not take into account the volume of drugs purchased by PBMs on behalf of their associated payors. This arguably would allow PBMs to continue to operate in the marketplace while eliminating potential incentives to push drug sticker prices and rebate amounts higher.

Critics of the proposed rule may claim the current system works and new rules will result in increased premiums. HHS acknowledges that premiums will likely rise if the rule is implemented, but that any potential increases in premiums will be more than offset by reductions in out-of-pocket drug prices paid by consumers.

Comments on the proposed rule will be accepted by the OIG until late March; currently, if the rule is approved, the OIG’s proposal is to implement the revised discount safe harbor for the 2020 plan year.