In November 2020, four months after the Trump Administration issued a series of Executive Orders reiterating its policy goals on reducing the costs to consumers for prescription drugs and directing the Department of Health and Human Services, Office of Inspector General (“HHS-OIG”) to implement those policy objectives, HHS-OIG issued a Final Rule to amend certain provisions in the safe harbor regulations under the Federal Anti-Kickback Statute (“AKS”). The Final Rule included three key provisions:

  1. Elimination of discount safe harbor protection for manufacturer rebates paid directly, or indirectly through a pharmacy benefit manager (“PBM”) to Medicare Part D or Medicare Advantage plans (the “Rebate Rule”);
  2. Creation of a new safe harbor to protect point-of-sale (“POS”) price reductions paid by manufacturers to Medicare Part D plans, Medicare Advantage plans, and Medicaid managed care organizations (“MCOs”); and
  3. Creation of a new safe harbor to protect fair-market-value (FMV) service fees paid to PBMs by manufacturers.

The Final Rule imposed a January 1, 2022, effective date for the Rebate Rule. However, in January 2021, two months after issuance of the Final Rule and in connection to a lawsuit brought by the Pharmaceutical Care Management Association challenging the Rebate Rule, the Biden Administration agreed to delay the Rebate Rule’s effective date to January 1, 2023, as reflected in an Order by the United States District Court for the District of Columbia.

In the intervening time though, Congress passed the Infrastructure Investment and Jobs Act (the “Infrastructure Act”). That law, signed by President Biden on November 15, 2021, further delayed implementation of the Rebate Rule to January 2026. Thus the rule, which many thought would be eliminated as part of paying for the cost of the infrastructure bill, was still alive, if only delayed until the middle of the next presidential term.

Then, on November 19, 2021,the House of Representatives passed the Build Back Better Act (“BBBA”), which included the final nail in the coffin for the rule. Section 139301 of that bill stated that HHS-OIG “shall not implement, administer, or enforce” any of the provisions of the rule. This was the full repeal that had been expected in the earlier law.

The bill went to the Senate before Thanksgiving and was set to pass through a reconciliation process that is exempt from Senate filibuster rules and would have only required the 50 Democratic and Independent senators to vote for it, with Vice President Kamala Harris casting the tie-breaking 51st vote in the bill’s favor. However, Senator Joe Manchin (D – W. Va.) recently announced his opposition to the bill, and his vote may prevent the bill from passing. If the BBBA fails to pass the Senate, its prohibition on implementation of the Final Rule will fail with it, and, barring any further action, the Rebate Rule will take effect in January 2026.

As a result, it is unclear until after the Senate actually takes up the measure in January whether or not PBMs, MCOs, Part D plans and Medicare Advantage plans will have to worry about these changes to the anti-kickback provisions. If the Senate doesn’t vote the bill through, then all of those entities should begin to examine their policies and procedures over the next four years in preparation for the rule taking effect.

Reed Smith will continue to track developments related to the Rebate Rule and its impact on the industry.