Proposed rule may change prescription drug rebates

The Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) recently issued a proposed rule it believes “may curb list price increases, reduce financial burdens on beneficiaries, lower or increase Federal expenditures, improve transparency, and reduce the likelihood that rebates would serve to inappropriately induce business payable by Medicare Part D and Medicaid MCOs [managed care organizations].”

The HHS OIG proposes changes to the Anti-Kickback Statute (AKS) safe harbors to ban rebate arrangements it believes are harmful, while protecting discount and service arrangements it believes are beneficial. The proposal applies to both Medicare Advantage and Managed Medicaid.

The broad AKS prohibits payments to induce or reward the referral of business reimbursable under any of the federal healthcare programs. Since the inclusion of remuneration under the AKS in 1977, HHS OIG has established various safe harbors to protect what it deems certain non-abusive business arrangements, while encouraging beneficial or innocuous arrangements.

The discount safe harbor currently allows the payment of rebates by manufacturers to payers, which are often offered in exchange for favorable formulary status. In most cases, Current Manufacturer Rebates—rebates offered by prescription drug manufacturers to pharmacy benefit managers (PBMs) and health plans—are expressed as a percentage of list price, so as list prices increase, the dollar value of rebates also increases. Additionally, price protection rebates, which are a form of manufacturer rebates designed to limit the impact of list price increases on payers, have also become more common and represent an increasingly large share of Current Manufacturer Rebates.

Between 2010 and 2015, the amount of all forms of rebates received by Medicare Part D sponsors and their PBMs increased nearly 24% annually, much faster than the overall growth in gross drug costs in that same time period. The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary projects rebates of all forms to comprise nearly 27% of Medicare Part D gross drug costs in 2020.

Some of the proposed change to the AKS safe harbors include:

• Removing safe harbor protection for prescription drug manufacturer rebates to plan sponsors under Medicare Part D and Medicaid MCOs as well as PBMs under contract with them
• Adding safe harbor protection for certain price reductions offered by prescription drug manufacturers to Part D plans and Medicaid MCOs that are reflected at the point of sale to the beneficiary
• Adding safe harbor protection for fixed fees that prescription drug manufacturers pay to PBMs for services rendered to the manufacturers that meet specified criteria

Beyond Part D plan bids, the proposals, if finalized, are far-reaching and represent significant changes from the status quo. Health plans, PBMs, retail pharmacies, prescription drug wholesalers, and any number of entities that serve these organizations will, in some cases, need to reorient entire business models and restructure back-end operations to manage the new paradigm. For them, implementation on January 1, 2020, may appear an impossible task; however, given this administration’s focus on lowering prescription drug costs, the impossible may indeed become reality.

In this article, Milliman’s Maggie Alston, Carol Bazell, and David Mike write about how these proposed changes could affect Part D stakeholders.