HHS OIG Releases Proposed Rule on Safe Harbor Regulations Under AKS

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On January 31, 2018, United States Health and Human Services (HHS) Secretary Alex Azar and Inspector General Daniel Levinson announced a proposed rule to lower prescription drug prices and out-of-pocket costs for consumers by encouraging medication manufacturers to pass discounts directly to patients and bringing new transparency to prescription drug markets.

The HHS proposal would exclude rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Part D plans and Medicaid managed care organizations from safe harbor protection under the Anti-Kickback Statute (AKS).

The proposal would create a new safe harbor for prescription drug discounts offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs. In addition, the proposal would also provide a new level of transparency to a system that has long been considered to be somewhat secretive and misunderstood.

Under the proposed rule, prescription drug rebates may be passed on directly to patients and reflected in what they pay at the pharmacy counter. By encouraging negotiated discounts that are reflected in cost-sharing methods like co-insurance, used for many expensive drugs in Medicare Part D, the proposal is projected to provide the greatest benefits to seniors with high drug costs. The typical drug rebates are estimated to average between 26 to 30 percent of the drug’s list price.

According to a fact sheet released by HHS, “replacing safe harbor protections for opaque rebates with transparent discounts is expected to lead to lower Part D spending for Medicare beneficiaries as a whole, because the projected reductions in out-of-pocket costs are larger than potential increases in premiums.”

HHS went on to note that nearly one quarter of all Part D plans require the beneficiary to pay coinsurance for preferred brand drugs and almost all use coinsurance for non-preferred brand drugs. Further, roughly one-third of Part D beneficiaries have drug costs high enough that their out-of-pocket savings are likely to exceed any premium changes. However, if Part D plans choose to cover more generics, improve negotiation with drug companies, or reduce overhead costs, premiums could be held constant and therefore, savings could be even greater.

It is quite apparent that this proposed rule has the ability to cause disruption to the status quo of the drug supply chain as PBMs interact with all stakeholders throughout the prescription drug supply chain.

HHS Secretary Alex Azar stated, “[t]his proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need.”

The proposed rule also works to advance President Donald Trump’s promise outlined in his Administration’s blueprint for lowering drug prices and putting American patients first – specifically the intent to investigate “measures to restrict the use of rebates, including revisiting the safe harbor under the anti-kickback statute for drug rebates.” Following its publication in the Federal Register (anticipated February 6, 2019), the proposed rule will be open for public comment for sixty days.

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