Source: http://mondaq.com/unitedstates/x/779476/Healthcare/HHS+OIGs+Proposed+Rule+Removal+Of+Safe+Harbor+Protection+For+Rebates+Involving+Prescription+Pharmaceuticals+And+Creation+Of+New+Safe+Harbor+Protection+For+Certain+PointOfSale+Reductions+In+Price+On+Prescription+Pharmaceuticals+And+Certain+Pharmac
Timestamp: 2019-04-21 18:15:37+00:00

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Exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a prescription pharmaceutical product manufacturer to Part D plan sponsors, Medicaid managed care organizations (MCOs), or pharmacy benefit managers (PBMs) under contract with either.
Adopt a new safe harbor that would protect point-of-sale price reductions offered by manufacturers on certain prescription pharmaceutical products payable under Medicare Part D or by Medicaid MCOs.
Adopt a new safe harbor that would protect fixed fees that manufacturers pay to PBMs for services rendered to manufacturers that meet specified criteria.
Below we describe these three proposals, and HHS's requests for comment on the proposals, in more detail.
HHS acknowledges that the Anti-Kickback Statute and the regulatory discount safe harbor were promulgated long before the enactment of the Medicare prescription drug benefit and the evolution of Medicaid MCOs,10 suggesting that the current rebate system related to these programs necessitates the changes set forth in the Proposed Rule.
Whether excluding from safe harbor protection price reductions from manufacturers to plan sponsors under Medicare Part D or Medicaid MCOs (either directly or through PBMs) would affect beneficiary access to prescription pharmaceuticals, either due to cost or formulary placement.
Whether supplemental rebates paid to state Medicaid programs would be affected by the proposal.
Whether there are price reductions from manufacturers to entities other than Part D sponsors, Medicaid MCOs, and their PBMs that pose fraud and abuse risks.
Whether there are safeguards already in place or that could be included to protect beneficial price reductions while preventing potential abuses.
Whether the proposed definitions of "manufacturer," "wholesaler," "prescription pharmaceutical product," and the other new definitions are sufficient.
The price reduction must be set in advance between the manufacturer and the Part D plan sponsor, the Medicaid MCO, or its PBM.
The price reduction cannot involve a rebate as defined in 42 C.F.R. § 1001.952(h) (i.e., "any discount the terms of which are fixed and disclosed in writing to the buyer at the time of the initial purchase to which the discount applies, but which is not given at the time of sale"27) unless the full value of the price reduction is provided to the dispensing pharmacy through a chargeback or series of chargebacks (or unless the rebate is required by law).
With respect to the first condition, HHS would define "set in advance" as "fixed and disclosed in writing to the plan sponsor under Medicare Part D or the Medicaid MCO by the time of initial purchase,"29 meaning the first purchase of the product by the Part D plan or Medicaid MCO on behalf of the beneficiary at the reduced price.
Whether the proposed safe harbor could result in negative or positive effects on pricing or competition due to an increase in transparency.36 Similarly, HHS asks whether allowing price reductions to be processed at the POS may provide pharmacies with sufficient data to reverse engineer manufacturers' or PBMs' discount structures and (if so) how this might occur, how it might affect competition, and how (if at all) this should be addressed in the proposed safe harbor.
Whether the proposed definitions, including the proposed definition of "chargeback," are appropriate.
In its third and final proposal, HHS proposes a new safe harbor (proposed 42 C.F.R. § 1001.952(dd)) that would protect certain fixed fee service arrangements between PBMs and manufacturers (PBM Service Fees).41 HHS states that some PBM fees may not implicate the Anti-Kickback Statute, or may be protected under existing safe harbors, but nevertheless proposes this new safe harbor specific to PBMs to protect certain low risk service fees. HHS explains that if service fees paid by manufacturers are tied to the list price, based on sales volume, or far exceed the fair market value of the services performed, the fees could function as disguised kickbacks.
Its proposed approach to "pharmacy benefit management services" and whether additional services should be considered PBM services.
Whether the safe harbor should be limited to fees that relate to the PBM's arrangements to provide "pharmacy benefit management services" to health plans.
Whether the safe harbor should specify the format of the fee agreement (e.g., whether there should be one agreement covering all services, or whether there should be separate agreements for services that relate to each health plan).
Requiring fees to be consistent with fair market value, including comments on avoiding risks of gaming with respect to valuation or other conditions in the proposed safe harbor.
The fixed fee approach, including HHS's concern that service fees based on a percentage of price could influence PBMs to include higher-priced drugs in favorable tiers on its formulary to increase its own profits.
The "volume or value criterion," including examples of low risk, beneficial service arrangements that take the volume or value of referrals into account.
Whether, and if so under what conditions, PBMs should be required to disclose the fee arrangements to health plans.
Whether PBMs also should be required to disclose additional information, such as information about valuation and valuation methodology; information demonstrating that arrangements are not duplicative; and information demonstrating that arrangements meet the "volume or value" criterion, and whether this transparency requirement raises any competitive concerns.
Whether fee arrangements could be attributed to services provided to particular health plans.
In addition to the requests for comment describe above, HHS discusses the lack of transparency in the system and the complexity of many arrangements. In this regard, HHS solicits comment on issues of transparency and compliance with program rules, particularly as related to bundled rebates, price protection or rebate guarantees, and other information not readily apparent when rebates are reported.
*Alana Reid contributed to this Advisory. Ms. Reid is a graduate of the University of Virginia School of Law and is employed at Arnold & Porter's Washington, DC office. Ms. Reid is admitted only in Texas. She is not admitted to the practice of law in Washington, DC.
1 Proposed Rule, Department of Health and Human Services Office of Inspector General, Fraud and Abuse: Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees.
2 Sixty days after February 6 is Sunday, April 7; therefore, we presume that comments will be due on Monday, April 8, 2019.
3 Proposed Rule, at 4.
4 42 U.S.C. § 1320a–7b(b)(3)(A).
5 42 C.F.R. § 1001.952(h).
6 Proposed Rule, at 5–17.
8 Proposed Rule, at 4, n. 1.
9 Proposed Rule, at 19, n.36.
10 Proposed Rule, at 25–37.
11 Proposed Rule, at 118–19 (stating proposed 42 C.F.R § 1001.952(h)(5)(viii)). See also Proposed Rule, at 38 (preamble discussion of proposal to narrow discount safe harbor protection). Note that HHS does not propose to delete or amend the discount safe harbor provision that protects certain discounts to Medicaid MCOs under Social Security Act § 1903(m)(42 C.F.R. § 952.1001(h)(2)(i)), but does not discuss this issue.
12 Proposed Rule, at 40. Rebates under the Medicaid Drug Rebate Program are paid to state Medicaid programs (not Part D plans, Medicaid MCOs, or their PBMs), so it is unclear why they need to be excluded from proposed 42 C.F.R. § 1001.952(h)(5)(viii).
13 Proposed Rule, at 38.
14 Proposed Rule, at 38–39.
15 Proposed 42 C.F.R. § 1001.952(h)(8).
16 Proposed Rule, at 42–43.
17 Proposed Rule, at 41.
18 Proposed Rule, at 43.
19 Proposed Rule, at 41.
20 Proposed Rule, at 42.
21 Proposed Rule, at 43.
22 Proposed Rule, at 43.
23 Proposed Rule, at 39.
24 Proposed Rule at 39–40.
25 Proposed Rule, at 44.
26 Proposed Rule, at 44–49, 119–21.
27 42 C.F.R. § 1001.952(h)(4) (emphasis added).
28 Proposed Rule, at 120.
29 Proposed Rule, at 46.
30 Proposed Rule, at 47. The apparent requirement that the total payment to the pharmacy (i.e., the beneficiary cost-sharing, plan payment, plus manufacturer chargeback) equals a price agreed on by the manufacturer and the Part D plan sponsor/Medicaid MCO (or its PBM) is puzzling as it does not require that the total payment to the pharmacy make the pharmacy whole. Later in the Proposed Rule on page 48, HHS refers to "the use of chargebacks to make pharmacies whole for the difference between acquisition cost, plan payment, and beneficiary out-of-pocket payment," which suggests that the chargeback would equal the pharmacy's acquisition cost minus the plan payment minus the beneficiary out-of-pocket payment.
31 Proposed Rule, at 109.
32 Proposed Rule, at 48.
33 Proposed Rule, at 45.
34 Proposed Rule, at 45.
35 Proposed Rule, at 44–45.
36 Proposed Rule, at 21.
37 Proposed Rule, at 45.
38 Proposed Rule, at 46–47.
39 Proposed Rule, at 49.
40 Proposed Rule, at 49.
41 Proposed Rule, at 49–56, 121–22.
42 Proposed Rule, at 50.
43 Proposed Rule, at 50–51.
44 Proposed Rule, at 51.
45 Proposed Rule, at 52.
46 Proposed Rule, at 52–53.
47 Proposed Rule, at 54–55.

References: § 1001
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 § 1903
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