February 6, 2019

HHS Proposes Replacing Rx Rebates with Point-of-Sale Discounts for Medicare Part D and Medicaid Managed Care Organizations

On February 6, 2019, the Department of Health and Human Services (HHS) Office of Inspector General published a proposed rule to amend the safe harbor regulations concerning discounts that are protected from liability under the federal anti-kickback statute.

It would apply to payments from drug manufacturers to sponsors of Medicare Part D plans and Medicaid managed care organizations (MCOs) as well as to the pharmacy benefit managers (PBMs) that contract with those plans.

The Proposal

HHS is proposing to eliminate prescription drug rebates and permit discounts to participants at the point-of-sale. HHS states that manufacturers will have an incentive to lower list prices, and PBMs will have more incentive to negotiate greater discounts from manufacturers.

There are three parts to this proposal:

1. Amending the discount safe harbor to remove rebates and other price reductions;
2. Creating a new safe harbor to protect price certain reductions reflected at the point of sale; and
3. Creating a second new safe harbor to protect certain fixed fees paid by drug manufacturers to PBMs for services rendered to the manufacturers.

The first is proposed to take effect on January 1, 2020. The second is proposed to take effect 60 days after the publication of a final rule. The proposal does not include an effective date for the third part.

The Direct Implications

If the rule is adopted as proposed, it would require sponsors of health plans that cover retirees to review their contracts with Medicare Part D plans, Medicare Advantage plans and PBMs. Contracts that refer to rebates will need to be revised.

Those plan sponsors would also need to evaluate their benefit design in light of potential new pricing arrangements that reflect the elimination of rebates on Part D drugs and may include higher premiums and new fixed fees for services performed by PBMs for manufacturers.

Possible Broader Implications

Although the proposal does not apply to either group health plans or commercial insurers, but HHS Secretary Azar has noted that Congress has the power to prohibit rebates for these plans.

Moreover, as manufacturers and PBMs adjust to the new Medicare reality. Segal Consulting expects the prescription drug market would shift.

Comments Welcome

HHS welcomes comments on the proposed rule. The comment deadline is April 8, 2019.

Stakeholders who are interested in commenting will be interested in reviewing the HHS fact sheet.

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