Proposed Drug Rebate Rule Could Disrupt Employer Pharmacy Contracts

February 01, 2019

A U.S. Department of Health and Human Services proposal would make rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Medicare Part D plans, and Medicaid managed care organizations subject to the Anti-Kickback Statute, and would indirectly impact employers through other current rules.

The proposal is projected to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients by creating a new safe harbor for prescription drug discounts offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs.

Disruption for employers may come from longstanding Inspector General rules that exclude from safe harbor protection price reductions offered to a private sector payor but not to Medicare or Medicaid.

  • For example, if a manufacturer offered a rebate on a product to an insurer or PBM for its private pay plans conditioned (explicitly or implicitly) on the product’s favorable formulary placement across all plans (including Part D plans), such a rebate could implicate the Anti-Kickback Statute.

The proposed rule is “potentially devastating to the current pharma ecosystem,” said Eric Coldwell, Senior Research Analyst, Healthcare Supply Chain & Pharma Services, at Baird.  HHS Secretary Alex Azar said the “proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter.”

The Senate and House also held hearings this week on drug prices.  While there is bipartisan support to lower prices, there is no consensus yet on how to do so.

Outlook:  The proposed rule must undergo a public comment period before they can be finalized, with a currently projected effective date of January 1, 2020.  However, that date could easily slip to 2021.