HHS finalizes rules to nix Part D rebate safe harbor, tie Part B prices to foreign countries

The Trump administration finalized a rule Friday that gets rid of the safe harbor shielding Medicare Part D rebates from the anti-kickback statute and a rule that will tie certain Medicare Part B drug prices to those paid by countries overseas.

Trump called for both rules to be published during a flurry of executive orders back in September. The rebate rule is expected to generate significant pushback from providers, payers and pharmacy benefit managers (PBM) that say it will harmfully impact seniors' access to cheaper drugs. The so-called most-favored-nation rule will also change how providers get paid for administering and storing Part B drugs.

The rebate rule will replace the safe harbor for Part D rebates, meaning they could be targeted under the federal anti-kickback law, with a new safe harbor that applies only to discounts offered at the point of sale.

The goal is to curb the use of rebates in Medicare Part D, which Health and Human Services Secretary Alex Azar has described as a "kickback" that drug companies must give to pharmacy benefit managers and insurers in order to get on their plan formularies.

HHS put out a proposed rebate rule in 2018 and it generated intense pushback from the insurer and PBM industry. The industries complained the rule will raise premiums for Part D seniors, pointing to a report from the Centers for Medicare & Medicaid Services' actuaries that the rule would lead to a 19% hike in premiums.

A report commissioned by the PBM industry group Pharmaceutical Care Management Association said that the rule would also hike federal spending and is unlikely to lower prices. 

Payers and PBMs are worried that the rule would remove a key negotiating tool that they have with drug companies to ensure lower prices. In turn, the pharmaceutical industry has been a major proponent of the rule.

Rebates have generated PBMs and insurers a lot of money. A 2018 analysis from the consulting firm Altarum found that insurers got $89 billion in rebates from drug companies in 2016.

The threat of premium hikes to seniors was a major reason the White House scuttled the rule last year and its revival is a boost for Azar, who has complained that PBMs don't pass on the savings from rebates to beneficiaries. 

“The rebate rule will be seen as a victory for Azar, since he championed the concept from the beginning,” said Stephanie Kennan, senior vice president of federal public affairs at McGuireWoods Consulting, in a statement to Fierce Healthcare.

Insurers, PBMs and providers have reignited their vociferous opposition to the rule, which can be finalized before the incoming Biden administration on Jan. 20.

The Coalition for Affordable Prescription Drugs — a lobbying group that includes unions, employers and PBMs — slammed the rule in a statement in a prelude to the opposition the final rule will face.

“Rushing one of the most expensive regulations ever through an opaque and extremely irregular review process in the waning days of the Administration is a shortsighted decision — one that will have lasting and serious consequences for America’s seniors,” the group said.

The group urged the incoming Biden administration and Congress to overturn the rule.

The Campaign for Sustainable Rx Pricing, a group that includes major payers and providers, added that it will also turn to Congress and the incoming administration to "halt and reverse implementation of this disastrous policy."

PCMA said in a statement Friday that it is exploring any litigation options to challenge the rule in court. 

Trump called for HHS to revive the rule in an executive order back in September. But the order had a caveat: Azar had to attest that the rule won’t increase premiums for seniors.

Azar confirmed in a statement Friday that the rule won't raise premiums. He said that the rule will change insurers and PBMs' behaviors and not increase spending or premiums. 

"My extensive experience in this field, coupled with the fifteen-year history of the program, supports my projection that there will not be an increase in federal spending, patient out-of-pocket costs, or premiums for Part D beneficiaries under the final rule," Azar said.

Azar told reporters Friday that the confirmation has no bearing on the rule itself and the rule would continue to be in place regardless if he is wrong.

But PBMs and insurers were highly skeptical of Azar's claims. 

"It is inconceivable that the Administration would now do a complete about face and violate its own executive order by asserting that the rule would not increase federal spending, beneficiary premiums, or patients’ total out-of-pocket costs," said AHIP President and CEO Matt Eyles in a statement.

PCMA also said that the rule doesn't meet the executive order's requirements "given previous analyses from multiple private sector and government scorekeepers."

The final rule has a major change from the proposed version back in 2018.

The rule will go into effect on Jan. 1, 2022, a major change from the Jan. 1, 2020 effective date from the proposal.

HHS also decided to not move forward with a proposal to amend the discount safe harbor to exclude rebates offered to Medicare managed care organizations.

“Rebates offered from pharmaceutical manufacturers directly to Medicaid MCOs can still be protected by this safe harbor,” HHS said in a release.

HHS also changed its definition of chargeback. The proposed rule defined chargeback as a payment from a drug maker to a pharmacy that is at least “equal to the discounted price of the drug agreed to by the manufacturer and the Part D plan sponsor or Medicaid MCO,” the fact sheet said.

However, HHS agreed with rule commenters that the definition could lead to gaming the system and that the chargeback should just be equal to the price reduction and not the discounted price.

“We define a chargeback in the final rule as a payment equal to the reduction in price,” the fact sheet said. “This definition ensures that the pharmacy is made whole for the difference between the acquisition cost, plan payment and beneficiary out-of-pocket payment.”

Most-favored-nation model

HHS also finalized a rule that would create a payment model that ties Medicare Part B drug prices to the most-favored-nation price paid by countries overseas. All providers who participate in Medicare must participate in the model but there are some exceptions.

The rule includes major changes for how providers get paid for storing and administering a Part B drug, which is a pharmaceutical like chemotherapy or a vaccine administered in a doctor's office, hospital or clinic. Normally Part B providers get paid roughly 4% on top of the average sales price for the product to cover storage and handling.

"Instead of paying based on price manufacturers charge in the U.S., Medicare will test paying based a formula that phases in the lowest adjusted international price," according to a release from CMS.

CMS Administrator Seema Verma said on a call with reporters Friday that some physicians may see an increase in the amount of reimbursement but it "depends on the drug they are prescribing."

But some providers are livid about the change. The Community Oncology Alliance, which represent independent oncology centers, said that the model was throwing these providers "under the bus" by cutting their payments.

"Forcing a radical change in the entire health care system during a global pandemic is not rational or safe," said Ted Okon, the alliance's executive director, in a statement.

The pharmaceutical industry is already signaling a major fight on the model.

“We have repeatedly warned that price controls will handicap future medical innovation,” said Michelle McMurry-Heath, MD, President and CEO of the biologic advocacy group Biotechnology Innovation Organization in a statement.

The Pharmaceutical Research and Manufacturers of America, the industry's top lobbying group, said that the rule "defies logic."

"History proves that when governments take unilateral action to set prices, it disrupts patient access to treatments, discourages investment in new medicines and threatens jobs and economic growth," the group said in a statement.

The proposed rule would set up a payment model that requires Medicare to tie the prices for certain high-cost drugs and biologics to the lower “most-favored-nation price” that overseas countries pay for drugs. Countries like Germany and France pay lower for drug prices in part because they have a single-payer health system.

The model will go into effect on Jan. 1, 2021.

Trump also called for the finalization of the rule in the September executive order. However, Trump wanted the rule to cover both Part B and Part D. The proposed rule only applies to Part B.

Verma said that CMS is working on a separate initiative concerning Part D but declined to elaborate further.

HHS issued a notice of advance rulemaking back in 2018 that outlined a similar model for Part B drugs. But the agency never got around to actually issuing a proposed rule amid fierce pushback from the pharmaceutical industry.