The End of the PBM Rebate Safe Harbor? The Stakeholders React

On January 31, the U.S. Department of Health and Human Services (HHS) proposed a rule to lower prescription drug prices and out-of-pocket costs for Medicare Part D beneficiaries by eliminating the Anti-Kickback safe harbor for rebates paid to Part D plans, Medicaid managed care organizations, and pharmacy benefit managers (PBMs). The rule instead creates two new safe harbors. The first allows manufacturers to pass cost-savings directly to patients with transparent drug pricing and rebates at the point of sale, and a second that creates a safe harbor for fixed fee service arrangements between manufacturers and PBMs.

Since the initial news release and the subsequent publication of the full text of the proposed rule in the Federal Register, reactions across the healthcare industry and by other interested parties has been decidedly mixed.

Pharmacy Benefit Managers

Not unexpectedly, PBMs have come out against the proposed change in the Safe Harbor rules. The loss of the Safe Harbor, in addition to potential impacts on PBMs’ financial situation and position in the drug supply chain, creates increased legal exposure under the Anti-Kickback statute. The Pharmaceutical Care Management Association (PCMA), a PBM trade group, issued a statement in which it cast the dire predication that eliminating PBM rebates could increase drug prices, Medicare premiums and out-of-pocket costs for patients. In what perhaps sums up the PBM position in a nutshell, the PCMA statement includes this sentence: “Drugmakers alone set and raise prices.” 

Drug Manufacturers

PhRMA is a trade group that represents the country’s leading biopharmaceutical research companies. In contrast to PCMA, PhRMA has come out strongly in favor of the proposed changes. In a statement, PhRMA’s President and CEO, Stephen J. Ubl remarked, “This proposal would also help to fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers (PBMs) favoring medicines with high list prices.”

Community and Independent Pharmacies

While retroactive pharmacy DIR fees are the top concern for independent community pharmacists nationwide, organizations like the National Community Pharmacists Association have largely welcomed the Administration’s plans to address the Safe Harbor rules as well. The Association has long held the position that rebates have led to higher drug costs and a lack of transparency in pricing. 

Government

Democrats in Congress seem to be aligning with PBMs over the proposed rule change, suggesting that the Trump Administration’s proposal will not protect seniors and the Medicare program and instead benefits drug manufacturers. Indicative of the reactions on the Democrat side of the aisle, Speaker Nancy Pelosi remarked in a statement, “The Trump Administration’s rebate proposal puts the majority of Medicare beneficiaries at risk of higher premiums and total out-of-pocket costs and puts the American taxpayer on the hook for hundreds of billions of dollars.” Speaker Pelosi called upon the President to instead, “… work with Congress to deliver the real, tough legislation needed to actually drive down the price of prescription drugs for seniors and families across America.” 

Healthcare Lawyers

Recent reporting in legal circles suggests that a number of lawyers with practices focusing on healthcare and pharmacy law expect legal challenges to the rule should it be implemented. Given the financial high stakes involved, and the potential for serious consequences under the Anti-Kickback statute with the end of the rebate Safe Harbor, lawyers do not expect PBMs to gracefully exit the field. Challenges could focus on the specific language of the AntiKickback statute’s explicit exemption for “discounts or other reductions in price,” unequal treatment of stakeholders in the health care industry, or the massive disruption to the industry with the complete revision of the prior regulatory framework regarding Safe Harbors.

Comments on the proposed rule are due by April 8, 2019. Assuming that the rule is finalized, implementation of the new Safe Harbors is expected within 60 days, with the end of the “old” Safe Harbors to take place by January 1, 2020. The FisherBroyles Pharmacy and Health Care Law team will continue to track the progress of the proposed rule as it makes its way through the administrative process.