Trump Administration’s Proposal to Update Anti-Kickback Safe Harbors Gives Patients Drug Price Relief at the Pharmacy Counter

Mya Strauss

Associate Editor

Beazley Institute for Health Law & Policy, Loyola University Chicago, Masters of Law 2019

On January 31, 2019, the Trump administration proposed yet another regulation in efforts to control rising prescription costs for Americans. If the regulation becomes final, drug manufacturers and Pharmacy Benefit Managers (“PBM”) will no longer be able to harbor from Anti-Kickback violations when negotiating discounts with Medicare and Medicaid managed care programs. The Administrations, continuing the tone of transparency, will instead provide Medicare Part D beneficiaries with the ability to receive discounted prices at the pharmacy counter. The administration hopes this will allow patients to not endure high out-of-pocket costs by purchasing medications at a more affordable price necessary to sustain their health.

Proposal to Remove Disguised Kickbacks

There is no surprise the cost of prescription drugs have elevated exponentially over the years. President Trump made the issue one of many focal points of his presidential campaign. The Presidents’ American Patients First drug pricing blueprint identifies the provision of incentives to PBMs effects patients out of pocket costs by including incentive costs in the drug list price, enriching PBMs as the “middlemen”.

Various entities such as corporate employers, health plans, and other organizations utilize PBMs to negotiate with drug manufacturers to reduce pharmacy drug spending within prescription benefit plans and increase access to the different medications. In doing so, PBMs benefit by receiving compensation through the rebate amount obtained through negotiation for covering the drug manufacturer’s drug. HHS estimates PBMs compensation totals around $89 billion rebates in 2016 from the increase of approximately 26% of drug list prices.

The Federal Anti-Kickback Statute makes it a crime to pay or receive anything of value for inducing referrals payable under federal healthcare programs. However, the remuneration is not a violation of the statute when the compensation arrangement fits wholly within an exception or safe harbor provided within the statute. Currently, the government permits PBMs incentives under an AKS safe harbor intended to allow arrangements with drug manufacturers in efforts to increase competition. The incentives received typically include the fees calculated within the list price disguising the “kickback” amount in inflated drug list. The administration purports the elimination of the current safe harbor will save patients from high prescription costs because it will essentially eliminate PBMs as the “middle man” from receiving incentives through rebate programs. Elimination of the safe harbor will make such arrangements prohibited and will carry steep penalties for parties who do not comply.

Alternatively, the proposal provides two new safe harbors in efforts to prevent drug list prices from rising, and increase competition for generic and biosimilar drug manufacturers minimizing the likelihood that rebates might induce business with higher priced brand name drug manufacturers. One safe harbor allows the Medicare Part D and Medicaid MCO patients to conditionally reap the benefit of receiving direct discounts. The second proposed safe harbor protects the fees paid between a PBMs and health plans in accordance to arrangement for services rendered.

Pass-Through Rebate System

Aimed to go into effect January 2020, PBMs need to begin shifting rebate systems to a more patient centered approach that the administration focuses on when it comes to discounting prescription drugs. PBMs must maintain ethical standards and adjust internal procedures to comply with the potential new policy. Compliance officer must team up with other responsible executives who are subject matter experts in anti-kickback compliance to create new standards of conduct when PBMs arrange the provision of services with the various business entities. Upon creation of new internal procedures, training must take place to ensure employees understand the changes that have occurred in their job responsibilities. Due to the many layers of the anti-kickback statute, this training should serve as an opportunity to promote understanding of and compliance with the federal regulation and any other laws serving as a reminder for employees, providing guidance of what is expected, and penalties that they could succumb to if prohibited.

As the administration requests feedback on the proposal, affected entities that begin restructuring their current arrangements prior to 2020 will have time to monitor the systems they have implement on a day-to-day process allowing compliance committee to review the strength of their process and improve the performance of the program. Moreover, data obtained from compliance program collection by the committee will allow PBMs to identify opportunities to provide in their feedback to the administration.