HHS Rule: Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals, Certain Pharmacy Benefit Manager Service Fees

WASHINGTON, Dec. 1 -- The Department of Health and Human Service's Office of Inspector General has issued a rule (42 CFR 1001), published in the Federal Register on Nov. 30, entitled: "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".

The rule was issued by Christi A. Grimm, Principal Deputy Inspector General and Alex M. Azar II, Secretary.

DATES: This final rule is effective on January 29, 2021, except for the amendments to 42 CFR 1001.952(h)(5), which are effective on January 1, 2022.

FOR FURTHER INFORMATION CONTACT: Aaron Zajic, (202) 619-0335.

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Discounts for prescription pharmaceutical products are central to this final rule, in which the Department of Health and Human Services (Department or HHS) amends the safe harbor regulation concerning discounts.

Amending this regulation changes the definition of certain conduct that is protected from liability under the Federal anti-kickback statute of the Social Security Act (the Act).

New regulatory text in the amendment revises the discount safe harbor. By excluding from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D or pharmacy benefit managers (PBMs) under contract with them, the Department modifies the existing discount safe harbor in particular contexts.

Existing safe harbors otherwise remain unchanged.

Safe harbors are also created for two additional types of arrangements. The first protects certain point-of-sale reductions in price on prescription pharmaceutical products, and the second protects certain PBM service fees.

SUPPLEMENTARY INFORMATION:

Social Security Act citation ... United States Code citation 1128B ... 42 U.S.C. 1320a-7b

1128D ... 42 U.S.C. 1320a-7d

1102 ... 42 U.S.C. 1302

Table of Contents

I. Executive Summary

A. Purpose and Need for Regulatory Action as Determined by the Secretary

B. Summary of the Major Provisions

i. Discount Safe Harbor

ii. Point-of-Sale Reductions in Price for Prescription Pharmaceutical Products Safe Harbor

iii. PBM Service Fees Safe Harbor

II. Background

A. The Anti-Kickback Statute and Safe Harbors

B. Summary of the Notice of Proposed Rulemaking

III. Summary of Public Comments and Responses

A. General

i. Antitrust

ii. Transparency

iii. Relationship to Part D

(a) Non-Interference

(b) Impact on Part D Program

iv. Medicaid

v. Commercial Market

vi. Value-Based Arrangements

vii. Enforcement Issues

viii. State Law Issues

ix. Other Legal Issues

x. Formularies

(a) Formulary Placement

(b) Impact on Formulary

xi. Impact on List Price

xii. Definitions

xiii. Comments Outside the Scope of Rulemaking

B. Discount Safe Harbor Amendment

i. Statutory Exception

ii. Effective Dates

iii. Expand to other Federal Health Care Programs

iv. Scope of Amendment

v. Impact on Volume or Prompt Pay Discounts

vi. Impact on Beneficiary Access

vii. Additional Safeguards

viii. Alternative Recommendations

C. Safe Harbor for Certain Price Reductions on Prescription Pharmaceutical Products

i. Point-of-Sale Chargebacks

ii. Reverse Engineering

iii. Common Ownership

iv. Incentives for Point-of-Sale Reduction in Price

v. During 100 Percent Cost Sharing

vi. Additional Safeguards

D. Safe Harbor for Certain PBM Service Fees

i. Scope of Protected Fees

ii. Fair Market Value

iii. Take Into Account Volume or Value

iv. Fixed Fees

v. Disclosure Requirement

vi. Scope of Agreement

vii. Statutory Exception and Safe Harbor for Group Purchasing Organizations

viii. Additional Recommendations

E. Technical Comments

IV. Provisions of the Final Regulation

A. Revision to the Discount Safe Harbor

B. New Safe Harbors

C. Technical Corrections

V. Regulatory Impact Statement

A. Need for Regulation

B. Background on Costs, Benefits, and Transfers

C. Affected Entities

D. Costs

E. Benefits

F. Transfers

G. Accounting Statement

H. Regulatory Alternatives

I. Regulatory Flexibilities Analysis

VI. Paperwork Reduction Act

I. Executive Summary

A. Purpose and Need for Regulatory Action as Determined by the Secretary

On February 6, 2019, the Department published a Notice of Proposed Rulemaking in the Federal Register (84 FR 2340) (Proposed Rule). In that Proposed Rule, the Secretary set forth his concerns with the modern prescription drug distribution model and, in particular, how the current rebate-based system may be increasing financial burdens for beneficiaries. We refer readers to and incorporate by reference Section I of the Proposed Rule, which sets forth in detail the Secretary's determination of the purpose and need for this rulemaking.

The Trump Administration's American Patients First blueprint described a new, more transparent drug pricing system that would lower high prescription drug prices and bring down out-of-pocket costs.[1] The blueprint described four strategies: Boosting competition, enhancing negotiation, creating incentives for lower list prices, and reducing out-of-pocket spending.

On July 24, 2020 the President signed an Executive Order[2] directing the Secretary of Health and Human Services to complete the rulemaking process that was commenced with the Proposed Rule. Section 4 of this Executive Order directs the Secretary of the Department of Health and Human Services to confirm--and make public such confirmation--that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients' total out-of-pocket costs. The Secretary's confirmation is available at: https://www.hhs.gov/about/leadership/secretary/priorities/drug-prices/index.html.

This final rule is an important element to achieving the goals of the blueprint and the Executive Order and also works in concert with other regulatory provisions finalized by the Department. For example, this final rule creates new safe harbor protection for point-of-sale reductions in price, which will directly reduce beneficiary out-of-pocket spending at the pharmacy counter. It also increases price transparency, which will enable Medicare beneficiaries to better choose a plan that best meets their needs. This final rule addresses a practice that has increased patient costs at the pharmacy counter and will create incentives for drug companies to lower the list prices of their drugs.

This final rule is also important to beneficiary and government spending in Medicare Part D. Part D rebates and other price concessions grew more than three times faster than gross drug expenditures from 2014-2016. Price concessions, including rebates, have the potential to reduce Part D costs for the Federal government, because Part D plan sponsors subtract their estimated rebates from their plan bids. Lower plan bids contribute to lower premiums, and lower premiums contribute to lower government spending on premium subsidies. However, the Proposed Rule described how rebates also may create a perverse incentive that rewards manufacturers for increasing their list price, while subjecting consumers to higher out-of-pocket costs. Since beneficiary out-of-pocket costs are often calculated based on the list price of the drug (i.e., before rebates are paid), beneficiaries pay higher cost-sharing than they would if discounts were reflected at the point of sale. Furthermore, high list prices may result in more beneficiaries more quickly reaching the catastrophic phase, where the Federal government bears 80 percent of the drug costs and the Part D plans only cover 15 percent of the drug costs.

The Department is issuing this final rule to create incentives for manufacturers to lower their list prices; reduce the incentives for Part D plans to choose high-cost, highly rebated drugs over comparable drugs with lower prices; lower beneficiary out-of-pocket spending; and increase transparency to improve plan choice and program integrity.

B. Summary of the Major Provisions

i. Discount Safe Harbor

In this final rule, we amend 42 CFR 1001.952(h) to remove safe harbor protection for reductions in price in connection with the sale or purchase of prescription pharmaceutical products from manufacturers to plan sponsors under Part D, either directly or through PBMs acting under contract with them, unless the reduction in price is required by law. We note that reductions in price negotiated between manufacturers and plan sponsors under Part D (or through PBMs under contract with the plan sponsors) in the form of upfront discounts, rather than after-sale rebates, are eligible for protection under the new safe harbor for point-of-sale reductions in price for prescription pharmaceutical products at Section 1001.952(cc).

ii. Point-of-Sale Reductions in Price for Prescription Pharmaceutical Products Safe Harbor

We are finalizing a new safe harbor at Section 1001.952(cc) for certain point-of-sale reductions in price offered by manufacturers on prescription pharmaceutical products that are payable under Medicare Part D or by Medicaid managed care organizations (MCOs) that meet certain criteria.

iii. PBM Service Fees Safe Harbor

In this final rule, we create a new safe harbor at Section Section 1001.952(dd) for fixed fees that manufacturers pay to PBMs for services rendered to the manufacturers that meet specified criteria.

II. Background

A. The Anti-Kickback Statute and Safe Harbors

Section 1128B(b) of the Act, the anti-kickback statute, provides for criminal penalties for whoever knowingly and willfully offers, pays, solicits, or receives remuneration to induce or reward the referral of business reimbursable under any of the Federal health care programs, as defined in section 1128B(f) of the Act. The offense is classified as a felony and is punishable by fines of up to $100,000 and imprisonment for up to 10 years. Violations of the anti-kickback statute may also result in the imposition of civil monetary penalties (CMPs) under section 1128A(a)(7) of the Act (42 U.S.C. 1320a-7a(a)(7)), program exclusion under section 1128(b)(7) of the Act (42 U.S.C. 1320a-7(b)(7)), and liability under the False Claims Act (31 U.S.C. 3729-33).

Congress's intent in placing the term "remuneration" in the statute in 1977 was to cover the transfer of anything of value in any form or manner whatsoever. The statute's language makes clear that illegal payments are prohibited beyond merely "bribes," "kickbacks," and "rebates," which were the three terms used in the original 1972 statute. The illegal payments are covered by the statute regardless of whether they are made directly or indirectly, overtly or covertly, in cash or in kind, and regardless of the label that parties may affix to the payment. In addition, prohibited conduct includes not only the payment of remuneration intended to induce or reward referrals of patients but also the payment of remuneration intended to induce or reward the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by any Federal health care program.

Because of the broad reach of the statute, concern was expressed that some relatively innocuous commercial arrangements were covered by the statute and, therefore, potentially subject to criminal prosecution.[3] In response, Congress enacted section 14 of the Medicare and Medicaid Patient and Program Protection Act of 1987, Public Law 100-93, which specifically requires the development and promulgation of regulations, the so-called safe harbor provisions, that would specify various payment and business practices that would not be subject to sanctions under the anti-kickback statute, even though they may potentially be capable of incenting referrals of business for which payment may be made under a Federal health care program.

Section 205 of the Health Insurance Portability and Accountability Act of 1996, Public Law 104-191, established section 1128D of the Act, which includes criteria for modifying and establishing safe harbors. Specifically, section 1128D(a)(2) of the Act provides that, in modifying and establishing safe harbors, the Secretary may consider whether a specified payment practice may result in:

An increase or decrease in access to health care services;

an increase or decrease in the quality of health care services;

an increase or decrease in patient freedom of choice among health care providers;

an increase or decrease in competition among health care providers;

an increase or decrease in the ability of health care facilities to provide services in medically underserved areas or to medically underserved populations;

an increase or decrease in the cost to Federal health care programs;

an increase or decrease in the potential overutilization of health care services;

the existence or nonexistence of any potential financial benefit to a health care professional or provider, which benefit may vary depending on whether the health care professional or provider decides to order a health care item or service or arrange for a referral of health care items or services to a particular practitioner or provider; or

any other factors the Secretary deems appropriate in the interest of preventing fraud and abuse in Federal health care programs.[4]

Since July 29, 1991, there have been a series of final regulations published in the Federal Register establishing safe harbors in various areas.[5] These safe harbor provisions have been developed "to limit the reach of the statute somewhat by permitting certain non-abusive arrangements, while encouraging beneficial or innocuous arrangements."[6]

Healthcare providers and others may voluntarily seek to comply with safe harbors so that they have the assurance that their business practices will not be subject to any anti-kickback enforcement action. In giving the Department the authority to protect certain arrangements and payment practices under the anti-kickback statute, Congress intended the safe harbor regulations to be updated periodically to reflect changing business practices and technologies in the healthcare industry.

B. Summary of the Notice of Proposed Rulemaking

On February 6, 2019, we published the Proposed Rule setting forth certain proposed amendments to the safe harbors under the anti-kickback statute. The Proposed Rule also provided substantial background information to explain why the Department believes these amendments are necessary.

With respect to the proposed amendment to the existing discount safe harbor, we explained that it was designed to address evolving business arrangements and align with the statutory exception's intent to encourage price competition that benefits the Medicare and Medicaid programs.[7] We also emphasized our longstanding position that a discount must be in the form of a reduction in the price of a good or service based on an arms-length transaction. With respect to rebates, we explained the regulatory history regarding our treatment of "rebates" under the discount safe harbor. Finally, we noted that the discount safe harbor was finalized in 1991 and has not been updated since 2002, and we highlighted that both the Medicare Part D program and comprehensive regulations governing Medicaid managed care delivery systems were enacted in the intervening years. For a more comprehensive discussion of why these amendments to the discount safe harbor are necessary, we incorporate by reference and refer readers to the discussion in the Proposed Rule.[8]

The Proposed Rule also identified certain specific harms that may be caused by the current rebate framework. First, some beneficiaries experience increased financial burdens. For example, if a beneficiary is paying coinsurance on a drug subject to a rebate, the beneficiary pays a percentage of a price that more closely resembles the list price than the net price. Second, the Proposed Rule explained that rebates may be harming Federal health care programs by increasing list prices, preventing competition to lower drug prices, discouraging the use of lower-cost brand or generic drugs, and skewing formulas used to determine pharmacy reimbursement or Medicaid rebates.[9] Finally, the Proposed Rule expressed concerns about a lack of transparency in the current system. With respect to rebates, we explained that OIG work showed that some Part D plan sponsors had limited information about rebate contracts and rebate amounts that their PBMs negotiated. A lack of transparency could create a potential program integrity vulnerability because compliance with program rules may be more difficult to verify. We also sought to address a lack of transparency to health plans when the health plans' PBMs are being paid by manufacturers for services that the PBMs render to manufacturers related to pharmacy benefit management services that the PBM furnishes to the health plans.[10]

To address the Department's concerns with the current rebate system, the Department proposed and solicited comments on three revisions to the safe harbors. First, the Department proposed to amend the discount safe harbor at 42 CFR 1001.952(h) to exclude from the definition of "discount" at Section 1001.952(h)(5) all price reductions from manufacturers on prescription pharmaceutical products in connection with their sale to or purchase by plan sponsors under Medicare Part D, Medicaid MCOs, or PBMs acting under contract with plan sponsors under Medicare Part D or Medicaid MCOs, unless the reduction in price is required by law (e.g., rebates under the Medicaid Drug Rebate Program). The Proposed Rule also proposed definitions at Section 1001.952(h)(6)-(10) of the terms "manufacturer," "wholesaler," "pharmacy benefit manager," "prescription pharmaceutical product," and "Medicaid Managed Care Organization."

Second, the Proposed Rule proposed to add a new safe harbor at Section 1001.952(cc) to protect reductions in price between the entities that would be removed from the discount safe harbor at Section 1001.952(h) if such reductions in price are given at the point of sale and meet certain other criteria. As proposed, this safe harbor would protect reductions in price on prescription pharmaceutical products offered to plan sponsors under Medicare Part D, Medicaid MCOs, or through a PBM acting under contract with either if: (1) The reduction in price is set in advance; (2) the reduction in price does not involve a rebate, unless the full value of the price reduction is accomplished through chargebacks or is a rebate required by law; and (3) the reduction in price is completely reflected in the price the pharmacy charges to the beneficiary at the point of sale.

Finally, the Proposed Rule proposed to add a second new safe harbor at Section 1001.952(dd) specifically designed to protect certain fees a pharmaceutical manufacturer pays to a PBM for services rendered to the manufacturer that relate to the PBM's arrangements to provide pharmacy benefit management services to health plans. As proposed, the safe harbor would protect a payment a pharmaceutical manufacturer makes to a PBM for services the PBM provides to the manufacturer, for the manufacturer's benefit, when those services relate to the PBM's arrangements to provide pharmacy benefit management services to health plans. To receive protection, the proposed safe harbor would require that: (1) The services and compensation be set out in a written agreement; (2) the compensation be consistent with fair market value in an arm's-length transaction; be a fixed payment, not based on a percentage of sales; and not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties, or between the manufacturer and the PBM's health plans, for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs; and (3) the PBM makes annual written disclosures to each health plan with which it contracts regarding the services rendered to each pharmaceutical manufacturer related to the PBM's arrangements to furnish pharmacy benefit management services to the health plan, and make such disclosures to the Secretary upon request.

The Department solicited comments on a range of topics in the course of describing the new proposed safe harbors. For instance, for the proposed safe harbor for point-of-sale reductions in price, the Proposed Rule solicited comments on the sufficiency of the proposed definitions as well as any effects of the proposed safe harbor on competition to the extent pharmacies have sufficient data to reverse engineer the manufacturer's or the PBM's discount structure. For the proposed safe harbor for certain PBM service fees, the Proposed Rule solicited comments on the interpretation of pharmacy benefit management services and the transparency-related requirements that would be a condition of the safe harbor.

III. Summary of Public Comments and Responses

We received responsive comments from approximately 26,000 distinct commenters, including, but not limited to, individuals, pharmaceutical manufacturers, pharmacies, PBMs, wholesalers, plan sponsors under Part D, Medicaid MCOs, and trade associations representing various individuals and entities. Many of these individuals and entities provided comments on multiple topics. Commenters generally agreed with the Department on the need to lower out-of-pocket costs for consumers on prescription drugs, but they diverged in terms of whether they supported or opposed the Proposed Rule. Comments from both those who opposed the rule and those who supported the rule recommended certain changes or requested certain clarifications. We appreciate the robust feedback from the commenters. We have divided the public comment summaries and our responses into discrete sections: The first section covers general comments and responses that may apply to more than one of our proposals, and the following sections summarize and respond to the comments specific to our proposed amendments to the discount safe harbor and our two new proposed safe harbors.

Dated: November 16, 2020.

Christi A. Grimm,

Principal Deputy Inspector General.

Dated: November 17, 2020.

Alex M. Azar II,

Secretary.

[FR Doc. 2020-25841 Filed 11-20-20; 4:15 pm]

BILLING CODE 4152-01-P

The document is published in the Federal Register: https://www.federalregister.gov/documents/2020/11/30/2020-25841/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals

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