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February 1, 2019

HHS proposes eliminating safe harbor protections for drug manufacturer rebates

Proposed rule would also create new safe harbor for prescription drug discounts offered to patients and fixed fee service arrangements between drug manufacturers and PBMs.

On January 31, Health and Human Services (HHS) issued a long-awaited proposed rule that would expressly exclude from safe harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Part D plans and Medicaid managed care organizations (MCOs). It would also create a new safe harbor for prescription drug discounts offered directly to patients at the point-of-sale, as well as fixed fee service arrangements between drug manufacturers and PBMs.

HHS Secretary Alex Azar said in a statement that eliminating the safe harbors would increase transparency in the pharmaceutical supply chain and ultimately result in lower prescription drug prices. "Every day, Americans — particularly our seniors — pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen. President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy," said Secretary Azar.

Critics of the current safe harbor protections say it creates an incentive for PBMs and insurers to demand big rebates that in turn incentivizes drug manufacturers to increase list prices, which are reflected in what patients pay at the counter. The Pharmaceutical Care Management Association, which represents PBMs, previously said HHS doesn't have the authority to change the rebate system without an act of Congress and that eliminating the safe harbor protection would "increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries." The drug industry lobby, PhRMA, expressed support for the proposed rule, saying in a statement that the rule would "fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers … favoring medicines with high list prices."

The proposed rule will be open for comments for 60 days, and, if implemented, would take effect on January 1, 2020.


Contact Information
For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
   • Heather Meade (202) 467-8414
   • Laura Dillon (202) 467-4308