Health and Human Services (HHS) is proposing to eliminate safe harbor protection for manufacturer reductions in price on prescription pharmaceutical products to Medicare Part D plans, PBM’s, and Medicaid Managed Care Organizations.

In conjunction with this amendment, HHS is proposing new safe harbor protections which would protect manufacturer point-of-sale (POS) reductions in price on prescription pharmaceutical products to Medicare Part D plans, PBM’s, and Medicaid Managed Care Organizations.  In addition, HHS proposes a new safe harbor to protect certain fixed fees (service agreements) that manufacturers pay to PBM’s

BluePath has reviewed the HHS proposal for safe harbor revisions and additional secondary data sources to build a comprehensive review of the proposed changes and implications for manufacturers.

 

Key Findings

The proposed new rule requires that a price be set in advance and cannot be a rebate unless special requirements are met.  In addition, HHS is proposing that PBM service fees receive protection under a new safe harbor.

While Medicare and Managed Medicaid plan sponsors would be affected by the proposed rule, there is also the potential to impact the commercial market as well.

Figure 1. Overview of Plan Sponsors Affected by the Proposed Legislation

Implications for Life Science Organizations

Short-term implications for life science manufacturers include uncertainty as to how Part D plan sponsors may respond to the proposed rule.  This may result in Part D plan sponsor requests for a standard rebate assuming status quo for the 2020 contract year and a second option where the a point-of-sale discounts are made available.

From a long-term perspective, the proposed rule presents multiple potential issues for manufacturers to consider.  Among these are rebate transparency and the subsequent impact on access strategy, Part D plan sponsor requests for incremental rebates, and a possible surge in requests for value-based agreements which continue to enjoy safe harbor protection under the proposed rule.

 

Conclusions/Action Steps

Manufacturers should monitor the proposed rule process and consider participating in the open period for comments which closes on April 8.

In addition, manufacturers should evaluate the potential administrative burden which may result from the potential change in managing a discount (prospective price concession) as opposed to a rebate (retrospective price concession) based contract system.