HHS Finalizes Revisions to AKS Safe Harbor for PBMs

On November 20, 2020, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a final rule implementing significant changes to the federal Anti-Kickback Statute (AKS) regulatory safe harbors affecting pharmacy benefit managers (PBMs) and their contract partners (the Rule). The Rule creates new safe harbor protection for (i) point-of-sale (POS) discounts in Medicare Part D and Medicaid managed care, and (ii) flat fees for the payment of certain services provided by PBMs to manufacturers. The Rule is effective 60 days after it is published in the Federal Register (publication is scheduled for November 30, 2020). These provisions are therefore expected to be final on or about January 29, 2021. In a corollary provision, the Rule also excludes rebates in Medicare Part D from protection under the discount safe harbor effective January 1, 2022. 

The Rule largely finalizes, with only minor revisions, OIG’s proposed rule released on January 31, 2019, which we described here. Stakeholders should evaluate the legal implications of the Rule on their current and future arrangements. 

The remainder of this Update summarizes the Rule and OIG’s key changes to the proposed rule. In summarizing the Rule, we are not endorsing the positions or interpretations OIG has taken.

The Rule: 

• revises the AKS discount safe harbor (42 C.F.R. § 1001.952(h)) to exclude from protection reductions in drug prices from manufacturers to Part D plans when made directly or indirectly through a PBM;
• creates a new safe harbor (42 C.F.R. § 1001.952(cc)) to protect certain POS price reductions payable by a Medicare Part D plan or a Medicaid managed care organization (MCO); and
• creates a new safe harbor (42 C.F.R. § 1001.952(dd)) to protect certain fixed-fee service arrangements for certain PBM services.

We address each of these changes in greater detail below. 

1. Revisions to the Discount Safe Harbor – 42 C.F.R. § 1001.952(h)

Effective January 1, 2022, the Rule revises the AKS discount safe harbor to exclude from protection: 

a reduction in price or other remuneration in connection with the sale or purchase of a prescription pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D either directly to the plan sponsor under Medicare Part D, or indirectly through a pharmacy benefit manager acting under contract with a plan sponsor under Medicare Part D, unless it is a price reduction that is required by law.

OIG states that the new POS reductions in price safe harbor “is not intended to mirror the discount exception or safe harbor” and that the Rule “has no impact on the statutory [discount] exception.” OIG also reminds stakeholders that other safe harbors may be available to protect arrangements. OIG further states that a case-by-case analysis applies to arrangements that fall outside a safe harbor and that the advisory opinion process remains available to seek review and protection of specific, proposed arrangements. 

Key Changes from the Proposed Rule. OIG extended the effective date of the above changes to the discount safe harbor to January 1, 2022 to provide affected parties more time to adjust their arrangements in response to the Rule. In addition, OIG decided not to move forward with its proposal to remove discount safe harbor protection for rebates to Medicaid MCOs or their contracted PBMs, citing nominal prescription drug cost-sharing obligations for Medicaid beneficiaries and concluding that the proposal would “have minimal, if any, effect on the amount a Medicaid beneficiary pays” for prescription drugs. Under the Rule, both the discount safe harbor and the new POS reductions in price safe harbor are available to protect reductions in price to Medicaid MCOs or their contracted PBMs. 

2. Creation of the POS Reductions in Price Safe Harbor – 42 C.F.R. § 1001.952(cc)

Effective 60 days after publication of the Rule in the Federal Register, the Rule creates a new safe harbor for: 

a reduction in price from a manufacturer to a plan sponsor under Medicare Part D or a Medicaid Managed Care Organization for a prescription pharmaceutical product that is payable, in whole or in part, by a plan sponsor under Medicare Part D or a Medicaid Managed Care Organization, provided [certain] conditions are met with regard to that reduction in price[.]

The new safe harbor sets forth the following conditions: 

(i) the manufacturer and the plan sponsor, Medicaid MCO, or a PBM acting under contract with either, set the reduction in price in advance, in writing, by the time of the first purchase of the drug at that reduced price by the plan sponsor or Medicaid MCO on behalf of an enrollee; 

(ii) the reduction in price does not involve a rebate, unless the full value of the reduction in price is provided to the dispensing pharmacy by the manufacturer, directly or indirectly, through a POS chargeback or series of POS chargebacks, or is required by law; and 

(iii) the reduction in price is completely reflected in the price of the drug at the time the pharmacy dispenses it to the beneficiary.

In discussing the scope of the safe harbor changes, OIG states that the Rule does not require POS discounts in the commercial insurance market and that there is “a range of potential behavioral responses as a result of” the Rule.

Key Changes from the Proposed Rule. In response to stakeholder concerns, OIG addresses statements in the proposed rule regarding manufacturer price reductions conditioned on formulary placement for a particular drug, stating that such price reductions can qualify for protection under the new POS price reductions safe harbor. OIG also noted that such price reductions could have been protected for Part D plans under the discount safe harbor and can continue to be protected under that safe harbor for Medicaid MCOs. 

However, OIG distinguishes between reductions in price conditioned on formulary placement and arrangements that include required “services,” such as marketing or switching. OIG states that whether other arrangements would be considered an unprotected “service” would be subject to a case-by-case analysis.

To address stakeholder concerns regarding chargeback payments to dispensing pharmacies, OIG states that a POS chargeback is a payment by a manufacturer made directly or indirectly (through a PBM or other entity) to a dispensing pharmacy that is equal to the reduction in price agreed upon between the plan sponsor, Medicaid MCO, or a PBM and the manufacturer. 

3. Creation of the PBM Service Fees Safe Harbor – 42 C.F.R. § 1001.952(dd)

Effective 60 days after publication of the Rule in the Federal Register, the Rule creates a new safe harbor for:

any payment by a pharmaceutical manufacturer to a pharmacy benefit manager (PBM) for services the PBM provides to the pharmaceutical manufacturer related to the pharmacy benefit management services that the PBM furnishes to one or more health plans as long as [certain] conditions are met[.]

The new safe harbor sets forth certain conditions, including, among others, that the compensation is a fixed payment and not based on a percentage of sales, is consistent with fair market value (FMV) in an arm’s-length transaction, and where certain disclosure requirements are met. Under the safe harbor, a PBM must disclose in writing to (i) each contracted health plan, at least annually, the services rendered to each manufacturer related to the PBM’s arrangements to furnish PBM services to the plan, and (ii) the Secretary of HHS, upon request, the services rendered to each manufacturer related to the plans and the fees paid for such services.

Key Changes from the Proposed Rule. Notably, OIG agreed with stakeholder comments that fixed, per-unit-of-service compensation that is not tiered based on increased volume or otherwise tied to drug prices is permissible under the new safe harbor, provided the compensation is fixed in advance at FMV for services actually provided and does not vary during the course of the arrangement in any manner that takes into account referrals or other federal business generated between the parties.

OIG declined requests from certain stakeholders to codify a functional definition of a PBM, opting instead to provide in the preamble a non-exhaustive list of services that PBMs provide on behalf of health plans. OIG also declined to foreclose reliance on the group purchasing organization (GPO) safe harbor at 42 C.F.R. § 1001.952(j) to protect PBM fee arrangements, noting that the GPO safe harbor, as well as the personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d), could protect PBM fee arrangements that fully comply with all safe harbor conditions and definitions.

The Rule presents sweeping changes for a variety of stakeholders in the drug supply chain. Affected stakeholders should evaluate the implications of the Rule on current and future arrangements.