In February, the Office of the Inspector General of the U.S. Department of Health and Human Services (HHS) released proposed modifications to safe harbor regulations in 42 CFR 100.952 (h) that protect pharmacy rebates from the federal anti-kickback statute.
The proposed update eliminates safe harbor protection for rebates provided by pharmaceutical manufacturers to Medicare Part D plan sponsors, Medicaid managed care organizations (MCOs), and pharmacy benefit managers (PBMs) acting under contract with either.
The proposed regulations do not explicitly affect the commercial market. The regulations also do not change the safe harbor with respect to drugs purchased through Medicare Part B fee-for-service plans, federal rebates collected for Medicaid MCO claims, or federal or supplemental rebates received directly by Medicaid state agencies.
As a potential replacement for removing the safe harbors, the regulation proposed new safe harbors for reductions in price reflected at the point of sale to the beneficiary. The proposed rule also outlines a protected structure for fixed service fees paid by manufacturers to PBMs.
In this paper, Milliman’s Christine Mytelka focuses on the potential implications of the proposal for state Medicaid agencies and the Children’s Health Insurance Program.
Milliman consultant Troy Filipek, who has published previously on the topic of pharmacy benefit manager (PBM) transparency, offers some perspective to the Wall Street Journal. PBMs may find they no longer have a choice in disclosing certain pricing negotiations. Quoting the article:
Typically, pharmacy-benefit managers have carried out pricing negotiations behind closed doors, leaving insurers and other outsiders little idea of the actual prices PBMs negotiate for drugs or their profit margin.
The PBMs argue such secrecy is necessary to negotiate lower prices, but critics say it only helps PBMs pocket more money at the expense of others.
The president of the pharmacy-benefit managers’ trade group called the provisions a bad idea. “One of the great services PBMs provide is to play drug companies off one another and get big discounts on drugs,” said Mark Merritt of the Pharmaceutical Care Management Association. “The thing that drives prices down is competition, not this kind of transparency which tends to help suppliers keep prices higher.”
Greater transparency could result in drug makers giving smaller discounts to PBMs, which could lead to higher drug costs for insurers and consumers, according to analyses by the Congressional Budget Office of previous legislative proposals.
The Weiner provisions aren’t in versions of the health-care bill passed by other House committees. In the Senate, Maria Cantwell (D., Wash.), a member of the Finance Committee, said she wanted her committee’s health-care bill to include similar disclosure requirements for PBMs.
Some companies that offer drug benefits to employees are taking action on their own. Nearly 60 large employers accounting for more than $4.9 billion in annual drug spending, including McDonald’s Corp. and International Business Machines Corp., have banded together to demand greater transparency from pharmacy-benefit managers.
They have signed on 15 PBMs, including industry leaders Medco Health Solutions Inc. and CVS Caremark Corp., that are willing to disclose to the companies their acquisition costs for drugs and pass along any additional discounts they get.
One of the companies, Caterpillar Co., also negotiated prices for the drugs its employees buy from Wal-Mart Stores Inc., although it still uses a PBM to handle claims.
Troy Filipek, an actuary at consulting firm Milliman Inc., predicted that more companies will seek alternatives to traditional PBMs. “I think in general, plans just want to have an understanding of where PBMs are making their money,” he said.