Rebate Rule: Is it Finally Happening?

Krista Maier, JD Healthcare Policy

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Quick Summary:

  • In November 2020, the Trump Administration released the final rule related to the federal anti-kickback exemption for drug rebates
  • A new safe harbor for point-of-sale discounts was to be effective January 29, 2021
    • The Biden Administration pushed it back until March 22, 2021
    • New safe harbor applies to Medicaid managed care and Medicare Part D
  • The removal of the safe harbor for rebates was supposed to be effective January 1, 2022
    • A federal judge pushed back the effective date of this provision until January 1, 2023
    • The rebate prohibition would apply only to Medicare Part D plans
  • A new safe harbor for the service fees manufacturers pay to PBMs was to be effective January 1, 2022
    • This provision was also delayed by the court until January 2023

Deeper Dive:

On November 30, 2020, the U.S. Department of Health and Human Services Office of Inspector General (OIG) released final rules modifying how rebates for prescription drugs are treated as it relates to federal anti-kickback prohibitions. As discussed in our October 2020 blog post, under the current rules, rebates are considered discounts that are exempt from the anti-kickback rules. When this new rule goes into effect, the anti-kickback exemption will no longer apply to rebates in the Medicare Part D program. The final rule also creates two new anti-kickback exemptions (safe harbors) for point-of-sale discounts, and for certain fees paid to PBMs. The final rule included a major change from the original February 2019 proposal: it does not exclude rebates to Medicaid managed care plans from the anti-kickback safe harbor as originally proposed.

Insights:

Removal of Rebate Safe Harbor

The most significant portion of this final rule is the removal of a “safe harbor” for rebates in the anti-kickback regulations. Federal anti-kickback laws prohibit individuals or entities from offering or making payments (including kickbacks, bribes, and rebates) to induce businesses reimbursed by Medicare or state healthcare programs. The regulations spell out certain discounts that do not violate the anti-kickback laws, referred to as safe harbors. Before these changes, the regulations considered drug rebates to be discounts that did not violate the anti-kickback rules. Under this final rule, the regulations are changed to say that price reductions from a manufacturer to a Part D plan sponsor or PBM do not meet the safe harbor for discounts unless the discount is required by law. The two new safe harbors for point-of-sale discounts and PBM service fees are now the only drug discounts/payments that are spelled out as not violating anti-kickback rules.

Point-of-Sale Discounts

The portion of the final rule scheduled to go into effect first (pending the Biden Administration’s review) is a new safe harbor for point-of-sale discounts. To be exempt from the anti-kickback rules, the point-of-sale discount must be:

  • Set in advance;
  • Cannot involve a rebate, unless the full discount is accomplished through chargebacks or the rebate is required by law; and
  • The full price reduction is reflected in the price the pharmacy charges the beneficiary

The final rule defines point-of-sale chargeback as “a payment by a manufacturer made directly or indirectly (through a PBM or other entity) to a dispensing pharmacy equal to the reduction in 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.”

PBM Service Fee Safe Harbor

The final rule also creates a new safe harbor for certain service fees manufacturers pay to PBMs, which was initially supposed to be effective January 2022 but is currently on hold until 2023. Under the final rule, to be exempt from the anti-kickback rules, the service fees cannot be based on the volume or value of the business. The services must be performed for the manufacturers’ benefit, not for a health plan’s benefit. In addition, PBMs must annually disclose to each health plan the services it provides to manufacturers and the fees it receives for those services.

In the discussion section of the final rule, HHS notes the service fees must also be consistent with “fair market value.” HHS declined to list the types of services that would qualify for this exemption. However, HHS did clarify that fees paid per-unit-of-work may be allowable, so long as the payment is not based upon the volume or value of the Federal health care business or based on drug prices.

In addition, HHS clarified that to qualify for the safe harbor for a group purchasing organization (GPO), payments must be part of an agreement to furnish goods or services which specifies the fees will be three percent or less of the goods or services provided. In addition, to meet the definition of a GPO, the GPO cannot wholly own the entities for which it does the purchasing.

Timing:

As expected, there have already been delays in the implementation of this controversial regulation. President Biden has directed federal agencies to delay for 60 days implementation of all significant federal regulations that are not yet effective. During this period, agency staff will review the regulations and possibly open new 30-day public comment periods to collect input on the various rule changes.

Following the President’s directive, HHS announced it would impose a 60-day delay in the effective date of the new point-of-sale discount safe harbor which was scheduled to take effect in January 2021. At the same time, in response to a lawsuit brought by the Pharmaceutical Care Management Association (PCMA) on behalf of PBMs, a federal judge ordered a one-year delay in implementation of the new PBM service fee safe harbor and the removal of the safe harbor for rebates.

The Biden Administration is currently reviewing the final rule. As of this writing, President Biden’s nominee for HHS Secretary has not yet been confirmed, and a confirmation hearing has not been scheduled. It is possible HHS will delay making a final decision on this high-profile, highly controversial regulation until the agency has permanent leadership in place. In the meantime, the agency could open a new public comment period to solicit feedback to inform their analysis of the rule changes. Even if the Biden Administration does move forward with the idea as is, there is still a pending lawsuit with a court-ordered delay of the removal of the rebate safe harbor until 2023.

We will keep a close eye on this issue as it moves through HHS and the courts. Check Viking’s blog page for updates.

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