Trying to Lower List Prices for Drugs, Trump Administration Removes Rebate ‘Safe Harbor’
The Trump Administration has released a long-anticipated final rule that will change the way manufacturers and Part D plan sponsors negotiate rebates. In short, the rule will remove the existing regulatory “safe harbor” that protects the rebates negotiated between pharmaceutical manufacturers and plan sponsors from enforcement under the Anti-Kickback Statute (AKS).
In its place, the Department of Health and Human Services’ Office of the Inspector General (OIG) is establishing two new safe harbors:
Negotiated rebates between pharmaceutical manufacturers and Part D plan sponsors, as long as those rebates are passed-through to beneficiaries at the point-of-sale; and
Fixed service fees negotiated between pharmaceutical manufacturers and Part D plan sponsors.
The Administration defends this move by arguing that beneficiary cost-sharing is calculated based on the “negotiated price” that does not include any rebates currently negotiated between plan sponsors and manufacturers. Because the higher “negotiated price” is also used to calculate a beneficiary’s progression through the benefit phases, including when the beneficiary enters the “catastrophic coverage” phase and the Medicare program becomes responsible for 80% of the drug’s costs, higher negotiated prices also increase federal spending.
The removal of the “safe harbor” for existing rebate negotiations will expire January 1, 2022 and will only impact agreements in place after that point in time. The new safe harbors protecting point-of-sale rebates and fixed fees will become effective on Friday, January 29, 2021. The rule will not impact rebates negotiated between Medicaid managed care organizations and pharmaceutical manufacturers.
Because the effective date of the rule will not have taken effect before the Trump Administration leaves office, a Biden Administration could theoretically postpone the effective date of the rule. However, because the rule will be published in the Federal Register prior to the end of the Trump Administration, the Biden Administration could not revoke the rule until it went through the formal notice and comment rulemaking process. The rule could be subject to the Congressional Review Act, but would require a joint resolution of disapproval on the rule to pass both houses of Congress.
