We have been pounding the table since January on President Trump’s drug price policy because we don’t buy the North Korea argument – that it is all for show and nothing significant will happen. We are skeptics the status quo can be preserved because – notwithstanding all the nuttiness of the White House – the Trump administration is engaged in genuine, purposeful policy-making with people like Scott Gottlieb, Alex Azar and Seema Verma, who know what they are doing.
Our view got a boost last night when Alex Azar’s office and the Office of the Inspector General sent to the White House for approval a proposed rule on safe harbors for pharmacy benefit managers.
The current safe harbor regulation for discounts can be found at 42 CFR 1001.952(h) if you are inclined to read it. The short version is that discounts between health insurers and providers of items and services – in this case prescription drugs – do not constitute remuneration under Federal Anti-kickback Statutes.
The most benign reading of the proposed rule is that HHS wants to eliminate the discount safe harbor and replace it with something that promotes the administration’s policies. In other words, a safe harbor would remain but in a different form while possibly retaining many of the current safe harbor features.
Possible changes to the new safe harbor regulations include:
- Prohibit a service provider to a health plan like a PBM to accept a fee that is connected to the list price of the drug.
- Define the rebate or discount to include any administrative or service fees with the purpose of preventing shifting of fees from one category to another
- Permit discounts tied to value-based contracting arrangements
- Add point of sale rebates to definition of discount in the new safe harbor
- Make safe harbor only available if PBMs assume a fiduciary role
What is clear is that a discount safe harbor will remain. The original intent of the safe harbor was to allow health plans to negotiate with providers to get the best price for Medicare Advantage and Medicaid. Eliminating the safe harbor altogether would cause significant problems for the entire health system which relies on differential pricing to encourage certain behaviors such as narrow networks to lower costs.
The discount safe harbor was applied to the pharmaceutical purchases when court decisions in the late 1990s made other discounting methods untenable. Like the rest of the health care system, drug manufacturers and the Trump administration are not arguing for an end to rebates. What they are demanding is an end to the linkage between the rebate, discount, fee, etc., paid a PBM and the list price of the drug.
What is also clear is that this policy will not go into effect immediately. The Federal Anti-kickback statute is a criminal law and safe harbor implementation will need to be such that no one is placed in jeopardy.
We should note that the proposed rule was not classified as “economically significant" when it was released last night. Economic significance is determined by an impact of over $100 million. That has been changed and it is now classified as "economically significant" which, of course, makes more sense..
As we noted in our June call on the emerging drug policy, changing the supply chain’s incentives to drive up list prices is the top of the “honey do” list at the White House. It appears that talk is turning to some action at least.
Call with questions. We know you got ‘em.
