Discount Safe Harbor Final Rule Released: OIG Seeks to Adopt Major Changes

*This is the first article in a series analyzing recent updates to the Stark Law and Anti-Kickback Statute and their effects on health care providers. To request a copy of the entire series, click here.

The Department of Health and Human Services Office of Inspector General (OIG) released a Final Rule (the Final Rule) adopting significant changes to the Discount Safe Harbor to the Federal Anti-Kickback Statute (AKS), related to rebates paid by pharmaceutical manufacturers to Medicare Part D plans and their agent pharmacy benefit managers (PBMs) for formulary placement as well as administrative fees paid to PBMs. While the Final Rule has not yet been published in the Federal Register, an advance copy can be found here. The revisions to the Discount Safe Harbor and additions of new safe harbors to the AKS become effective January 1, 2022.

Arent Fox previously analyzed the proposed rule upon which the Final Rule is based.

Without significant deviation from its original proposal, the OIG has adopted three major changes to the existing regulatory safe harbors contained in 42 C.F.R. § 1001.952.

First, the Final Rule revises the Discount Safe Harbor to explicitly exclude discounts and rebates on drug utilization made available to Medicare Part D plan sponsors and their PBM agents from the definition of “discounts” which may receive protection from AKS exposure under the Discount Safe Harbor.

The Final Rule adds a brand new exception to the definition of otherwise prohibited remuneration at 42 C.F.R. 1001.952(cc) to permit certain reductions in prices charged to Medicare Part D plan sponsors and Medicaid Managed Care Organizations (and PBMs acting under contract with either type of organization), so long as: (i) the reduced price is set in advance, in writing; (ii) the reduction in price does not involve a rebate unless its full value is provided to the dispensing pharmacy by the manufacturer, directly or indirectly, through a point-of-sale chargeback or series of point-of-sale chargebacks, or is required by law; and (iii) the reduction in price is completely reflected in the price of the prescription pharmaceutical product at the time the pharmacy dispenses it to the beneficiary. The Final Rule refers to this new exception as the “point-of-sale reductions in price for prescription pharmaceutical products” safe harbor (the point-of-sale safe harbor).

Finally, the Final Rule adds another new exception at 42 C.F.R. 1001.952(dd) to exclude certain service fees that pharmaceutical manufacturers may pay to PBMs from the definition of otherwise prohibited remuneration, as long as certain conditions are met. In order to meet the service fee exception, (i) the PBM must have a written agreement with the pharmaceutical manufacturer that specifies all of the services to be provided by the PBM; (ii) the services performed for such fees do not involve the counseling or promotion of a business arrangement or other activity that violates any State or Federal law; (iii) the fees paid by the manufacturer to the PBM must be consistent with fair market value and must be a fixed amount (not based on a percentage of sales); and (iv) the fees must not take into account the volume or value of any referrals or business generated between the parties that could be paid for by Medicare, Medicaid, or other Federal health care programs. In addition, the PBM must disclose the services that it provides to every pharmaceutical manufacturer to each health plan with which it contracts on an annual basis, and to HHS upon request. The Final Rule refers to this as the “PBM service fees” safe harbor.

Of note, the Final Rule does not prohibit conditioning the point-of-sale deductions on formulary placement or conditioning.

The health insurance industry opposed the changes in the proposed rule arguing that the replacement of AKS protection for formulary rebates paid to Medicare Part D plans and their PBM agents with the point-of-sale safe harbor would result in increased Medicare Part D premiums. However, nothing in the Final Rule addresses this concern. As the Final Rule does not take effect until January 1, 2022, there is plenty of time for stakeholders to consider a potential legal challenge and/or the new Biden Administration to further delay implementation of the Final Rule.