OIG Looks to Remove a Safe Harbor for Certain Drug Rebates; Proposes Two New Ones

In a newly proposed rule the Office of the Inspector General (“OIG”) is proposing to exclude from the discount safe harbor certain types of remuneration offered by drug manufacturers to Part D plan sponsors and Medicaid MCOs that may pose a risk to the Federal health care programs and beneficiaries. The OIG is also proposing to add two new safe harbors. The first would protect certain manufacturer point-of-sale reductions, and the second would protect certain fixed service fees that manufactures pay to pharmacy benefits managers for services rendered to the manufacturer that meet specific criteria.

Citing various ways that the current rebate system works to the disadvantage of beneficiaries, and the Federal health care programs, the OIG proposed amending the rebates safe harbor. Under the proposal the safe harbor regulation would be amended so that it would not protect price reductions paid by manufacturers to plan sponsors under Medicare Part D or Medicaid MCOs, either directly or through pharmacy benefits manager (“PBMs”) acting under contract with either, unless the reduction in price is required by law (e.g., rebates under the Medicaid Drug Rebate
Program). The proposed rule would define “plan sponsor under Medicare Part D” to include the sponsor of a prescription drug plan and a Medicare Advantage organization offering a Medicare Advantage prescription drug plan.

OIG is also proposing a new safe harbor that would protect a manufacturer point-of-sale reductions in price on prescription pharmaceutical products to a plan sponsor under Medicare Part D, a Medicaid MCO, or a PBM acting under contract with either. Under the proposal, the reduction in price would have to be set in advance with the plan sponsor under Medicare Part D, a Medicaid MCO, or a PBM. According to the proposed rule, the “set in advance” would mean that the terms of the reduction in price would be fixed and disclosed in writing to the plan sponsor under Medicare Part D or the Medicaid MCO by the time of the initial purchase. OIG has indicated that it intends for this new safe harbor to protect reductions in price for prescription pharmaceutical products without regard to what phase of the benefit the beneficiary is in. Like the current discount safe harbor, OIG proposes for this new safe harbor to exclude from protection price reductions offered to one payor but not to Medicare or Medicaid.

Additionally, the OIG is proposing a new safe harbor to protect certain fixed service fees that pharmaceutical manufacturers pay to PBMs for services rendered to the manufacturers that “relate to PBMs’ arrangements to provide pharmacy benefit management services to health plans.” This safe harbor would protect only a pharmaceutical manufacturer’s payment for those services that a PBM furnishes to the pharmaceutical manufacturer, and not for any services that the PBM may be providing to a health plan. OIG is interpreting the phrase “services that relate to” as those services rendered to manufacturers that depend on or use data gathered by PBMs from their health plan customers (whether claims or other types of data). One example of that would be PBMs that provide services for pharmaceutical manufacturers to prevent duplicate discounts on 340B claims. While the OIG is not proposing to define “pharmacy benefit management services,” it is interpreting the phrase to refer to “services such as contracting with a network of pharmacies; establishing payment levels for network pharmacies; negotiating rebate arrangements; developing and managing formularies, preferred drug lists, and prior authorization programs; performing drug utilization review; and operating disease management programs.”

OIG is soliciting comments on its proposed changes which are due on April 8, 2019.

If you have any questions regarding the proposed rule or have other health law related questions, please contact us.