The History of Rebates in the Drug Supply Chain and HHS’ Proposed Rule to Change Safe Harbor Protection for Manufacturer Rebates
April 2, 2019
In February of 2019, the Department of Health and Human Services’ Office of Inspector General (HHS-OIG) issued a Proposed Rule that, if adopted, would upend the current prescription drug rebate system. According to HHS-OIG, the current rebate system is a significant cause of high drug prices. The agency argues in the Federal Register notice accompanying the rule that the current system harms patients, lacks transparency, and is detrimental to state and Federal government health care programs.
The major focus of the Proposed Rule is disrupting the existing manufacturer rebate system under which drug manufacturers negotiate rebates with plan sponsors (and their contracted pharmacy benefit managers, or PBMs) in exchange for formulary placement, development of a pharmacy network, and favorable coverage policies. The Proposed Rule, if adopted, would result in an elimination or restriction of rebates in favor of upfront discounts or fixed prices for brand drugs. It would accomplish this in two ways: first, the Proposed Rule would remove safe harbor protection from any discount or remuneration paid from a manufacturer to a Medicare Part D or Medicaid managed care plan unless the remuneration or discount was mandated by law. Second, the Proposed Rule would add two new safe harbors: one protecting price reductions that are fully passed through at the point-of-sale, and a second protecting fixed fees paid from manufacturers to pharmacy benefit managers (PBMs) for services that meet specified criteria.