Federal watchdog’s ‘arms are tied’ in rethinking drug rebate safe harbors, experts say

Drug prices
The Trump administration is considering changes to the safe harbors for drug rebates. (Getty/Tero Vesalainen)

The Trump administration has yet to unveil its plan for overhauling safe harbor protections for drug rebates, but experts say the federal agency overseeing that effort has limits on what it can do through regulation.

The Department of Health and Human Services Office of Inspector General submitted the proposed language of the rule in July. It remains at the Office of Management and Budget and will not be formally unveiled until the office signs off.

Ross Margulies, associate at Foley Hoag LLP, said it’s likely that OIG is considering one of four approaches. Among them: ending the safe harbors entirely or modifying them—for example, only offering safe harbors to agreements where most of the rebate is passed on to the patient at the point of sale. It may also be considering providing safe harbors only for medications above a certain high-cost threshold or extending safe harbor protections, or creating new safe harbors, for outcomes-based or value-based pricing arrangements.

Free Daily Newsletter

Like this story? Subscribe to FierceHealthcare!

The healthcare sector remains in flux as policy, regulation, technology and trends shape the market. FierceHealthcare subscribers rely on our suite of newsletters as their must-read source for the latest news, analysis and data impacting their world. Sign up today to get healthcare news and updates delivered to your inbox and read on the go.

But since safe harbors are protected under the anti-kickback statute, the OIG may have limited room to work without needing Congress to act, he said.

“The administration has its arms tied a little bit in how it can address rebates, and drug pricing generally,” Margulies said.

RELATED: In a blow to PBMs, Trump administration mulling overhaul to drug rebate safe harbor protections

Margulies was one of several speakers on a panel about the role rebates play in the current pharmaceutical supply chain, which was hosted by the Alliance for Health Policy.

The rebating structure has been a key target for criticism in the debate over ways to address rising drug prices, and pharmaceutical companies have alleged that pharmacy benefit managers—which negotiate the discounts—and insurers use the rebates to line their own pockets instead of lowering costs for consumers.

Margulies said there are other concerns to consider in either eliminating or significantly overhauling the safe harbors. For instance, it’s unclear if HHS intends to apply these changes solely in Medicare Part D, or if it would extend to Part B or to Medicaid, which has its own pricing policies.

And what’s the trade-off? Margulies said that Part D premiums are low in part due to rebates, so if they’re eliminated or changed, it could lead to higher premiums for beneficiaries.

RELATED: OIG’s anti-kickback request for information offers providers an opportunity for ‘legal clarity’

Jack Hoadley, Ph.D., a health policy analyst at Georgetown University with expertise on Medicare policy, said policymakers need to also consider how steps they take impact incentives for manufacturers, PBMs and Part D plan sponsors.

“The question is—Will the game be played the same way if the rules are changed?” he said.

Suggested Articles

Industry group CHIME is urging federal healthcare policy officials to go slow with dual interoperability and information blocking rules.

Although healthcare plays a role, behavioral and social factors have significantly more influence on life longevity of people in the U.S., according to a new…

Patients with Crohn’s disease who used a digital care coordination solution were more likely to stay out of the hospital.