Reed Smith Client Alerts

The Department of Health and Human Services has issued proposed amendments to the safe harbor regulations under the Federal anti-kickback statute (AKS) that would (i) eliminate protection under the discount safe harbor for rebates on prescription drugs paid by manufacturers to Part D plans and Medicaid MCOs, directly or through PBMs, and (ii) create two new safe harbors, for “point of sale reductions in price” (POS Discounts) provided by manufacturers, and for certain service fees paid by manufacturers to PBMs. In light of an April 8, 2019 comment deadline and a proposed January 1, 2020 effective date, industry stakeholders are scrambling to work through numerous questions and issues—particularly those regarding the operation of the proposed new safe harbor for POS Discounts, as detailed here—with resolution of those issues necessary to ensure compliance and minimize risks of alleged AKS violations.

Through proposed amendments to the Federal anti-kickback statute (AKS) safe harbor regulations released on January 31, 2019 (the Proposed Rule),1 the Department of Health and Human Services (HHS) aims to effectively ban the rebates currently paid by manufacturers to Medicare Part D plan sponsors and Medicaid managed care organizations (Medicaid MCOs), directly or through pharmacy benefit managers (PBMs), with the intent that manufacturers will lower their list prices and/or replace the rebates with “point of sale reductions in price” (POS Discounts) to be provided under a new safe harbor.2 However, while the proposed amendments to the discount safe harbor would clearly eliminate protection for such rebates under that safe harbor, the details of how the POS Discounts would operate under the proposed new safe harbor are not clear, in numerous respects.3 Comments on the Proposed Rule are due by April 8, 2019, and HHS has proposed a January 1, 2020 effective date for the amendments eliminating protection for rebates under the discount safe harbor.

In this Client Alert, we outline some of the key questions and our observations regarding the operation of the proposed new safe harbor for POS Discounts.4 The answers to these questions will have huge impacts on manufacturers, plan sponsors, PBMs, wholesalers, pharmacies, Medicare and Medicaid beneficiaries, and the Federal government, among others.5 Critically, ambiguities that may result in the conduct of industry participants being deemed not to satisfy the requirements of the new safe harbor create substantial risks, given the severe criminal and civil penalties, potential for exclusion from Federal health care programs, and massive potential liabilities under the Federal False Claims Act which may result if that conduct is found to violate the AKS.