Drug Rebate ‘Safe Harbor’ Axed in Highly-Anticipated Proposal
The legal status now protecting controversial drug rebates would be flipped upside down under a highly-anticipated proposal released Jan. 31.
Drug rebates paid by drugmakers to middlemen and insurance plans providing coverage through Medicare’s Part D drug program or Medicaid would no longer be protected from federal anti-kickback laws under proposed regulation from the Health and Human Services Department.
The anti-kickback statute prevents transactions “intended to induce or reward referrals for items or services reimbursed by federal health care programs.” However, drug rebates are currently exempted from that statute and those exemptions are often referred to as “safe harbors.”
The proposed change also would create a new safe harbor to protect direct discounts to patients at the pharmacy counter, the HHS said. It also would create a new safe harbor protection for fixed-fee service arrangements between manufactures and drug middlemen called pharmacy benefit managers.
The current drug rebate system has been criticized for incentivizing higher list prices for drugs. Drug companies charge more for the drug initially, but then offer refunds or “rebates” to pharmacy benefit managers and plans. Drug companies say the process forces them to raise the original price.
Changing the system is part of the Trump administration’s plan to lower drug prices, and many have said changing the rebate structure could be a massive step toward that goal
The trade-off would be higher premiums in Medicare, but the government counters that this change would “lead to lower Part D spending for Medicare beneficiaries as a whole, because the projected reductions in out-of-pocket costs are larger than potential increases in premiums.” The pharmaceutical lobbying group said in a statement pharma companies support the plan. It will “fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers (PBMs) favoring medicines with high list prices.”
“What the safe harbor has allowed [pharmacy benefit managers] to do is act as a non-regulated invisible hand in the drug pricing ecosystem,” Peter Pitts, president of the Center for Medicine in the Public Interest, told Bloomberg Law.
The center is a nonprofit research and education organization focused on patient-centered health care. “By removing the safe harbor, it’s forcing PBMs to play by the rules like everyone else and be transparent about it,” he said.
The HHS is also asking the public to weigh in on potential transparency requirements that would require drug middlemen to disclose details of fee arrangements with drugmakers and plans.
But would the change lead to directly lower prices for consumers? Pitts thinks so. “One of the many important things it would do is to reduce the price for patients at point of sale at the pharmacy,” he said. “That’s what this is designed to do.”