HHS Secretary Azar proposed a new rule that will eliminate a Safe Harbor to the federal Anti-Kickback Statute that provides legal protection for rebate arrangements allowing drug makers to pay PBMs to secure their drugs position on PBMs’ Medicare formularies. The goal of eliminating this Safe Harbor, and replacing with a new one, is to ultimately lower prescription drug prices for patients and Medicare and to upend the complicated structure for how drugs are priced. If passed, the proposed rule has the potential to dramatically impact pharmacies’ acquisition price and pharmacy reimbursement rates. It could also potentially alter distributor profit margins, as well as impact the commercial space.
In addition to eliminating the current Safe Harbor, the proposed rule also creates a new Safe Harbor protecting discounts offered to patients at the pharmacy counter and would also protect fixed fee services arrangements between manufacturers and PBMs. The impact of such fixed fee service arrangements is another aspect stakeholders must carefully consider.
What did the CBO Report Reveal About the Proposed Rule?
Earlier this month, the Congressional Budget Office (CBO) released its score of the proposal and found that the proposed rule would increase Part D premiums and federal spending by $177 billion between 2020 and 2029. Interestingly, CBO stated that it “expects that rather than lowering list prices, manufacturers would offer the renegotiated discounts in the form of chargebacks.”
Who is the CBO?
The CBO is a crucial and highly influential voice in determining how policy is developed by looking solely at the cost Congressional bill or a regulatory agency’s proposal. According to the CBO, the CBO since 1975 has been produced independent analyses of budgetary and economic issues to support the Congressional budget process. Each year the agency’s economists and budget analysis produce dozens of reports and hundreds of costs estimates for proposed legislation. The CBO is strictly nonpartisan. It conducts objective, impartial analysis and hires employees without inquiring about political affiliation. They do not make policy recommendations, and each report summarizes the method underlying the analysis.
At this point the direction of the rebate rule is unknown. The comment period closed on April 8th and we are currently waiting for information from HHS. There are rumors on the Hill that due to the costs of this rule, there may be hesitation to continue forward with it. There has also been talk of a potential policy around out of pocket spending caps in Medicare Part D, as well as the discussion of drug importation in the wake of Florida’s latest legislative enactment.
With so much uncertainty in Congress and in the state legislature, it can be tempting to feel overwhelmed and not plan anything at all. While the status quo may feel comfortable, it will eventually change and you need to be ready. FLGA has its finger on the pulse of the various moving federal and state policy parts. Contact FLGA today to discuss the next steps for you or your organization.
The Centers for Medicare & Medicaid Services (CMS) has released “Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses,” a proposed rule to amend the Prescription Drug Benefit Program (Part D) regulations to support health and drug plans’ negotiation for lower drug prices and reduce out-of-pocket costs for enrollees. One important component is a proposal to change the definition of “negotiated price.” Currently, the term must include all pharmacy price concessions except those contingent amounts that cannot be “reasonably determined” at the point of sale. This small exception is what has led PBMs to manipulate Medicare bidding and to the explosion of DIR Fees in the pharmacy space.
CMS is proposing a change to the definition of “negotiated price” to eliminate this exception and instead adopt a new definition were the term would mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan sponsor or the sponsor’s PBM.
Independent pharmacies, especially those dispensing high-cost medication such as specialty pharmacies, have paid substantial money back to PBMs and plan sponsors in the form of percentage-based DIR Fees. The government has only now begun to analyze the impact that DIR fees have had on the Medicare Part D marketplace, including pharmacies, Medicare beneficiaries and the Government. CMS is ready to change regulations that have created PBM and plan sponsors’ incentives that have “distorted” CMS’s intentions and original definition of “negotiated price.” CMS is asking for stakeholders to comment by January 25, 2019 on the proposed rule changes. The proposed changes could remove these distorted incentives and undue some of the negative consequences that have been caused by DIR Fees. This potential impact is highlighted by some of CMS’ own commentary in its proposed rule, including:
DIR fees “[p]erformance-based pharmacy price concessions, net of all pharmacy incentive payments, increase, on average, nearly 225 percent per year between 2012 and 2017 and now comprise the second largest category of DIR received by sponsors and PBMs, behind only manufacturer rebates.”
Less than 1 percent of plans have passed through any price concessions to beneficiaries at the point of sale.
“When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug.”
“[P]harmacy price concession applied as DIR can lower plan premiums and increase plan revenues, result in cost-shifting to beneficiaries and the government, and reduce consumer and government knowledge about the true costs of prescription drugs.”
If a Part D plan sponsor’s actual drug costs are within +/- 5 percent of the drug costs estimated in its bid, the plan assumes all of the risk or reward. CMS’s own analysis show “that in recent years the DIR amounts that Part D sponsors and their PBMs actually receive have consistently exceeded bid-projected amounts, by as much as three percent as a share of gross drug costs.” The three percent increase in estimated DIR revenue is kept 100% by Part D plan sponsors without the requirement to pass any of that “savings” to the government, beneficiaries or health care providers such as the pharmacies that acquire and dispense the medication in accordance with prescriber instructions.
Why You Should Comment:
Opportunities to comment directly on DIR are rare. Last year, CMS issued a Medicare Part D Final Rule and declined to discuss DIR. Providers are in danger of closing or are being forced to drastically alter their business models. CMS has stated in this proposal that the current application of DIR by PBMs was an unintended consequence.
Frier Levitt Government Affairs (FLGA) helps pharmacy industry stakeholders, including independent pharmacies, specialty pharmacies, state and national pharmacy associations, and in-office dispensers, comment on proposed regulations. FLGA understands the nuances around DIR fees and has strategies that can help successfully communicate pharmacy stakeholders’ positions on DIR Fees and other issues to CMS.