September 22, 2020

Volume X, Number 266

September 21, 2020

Subscribe to Latest Legal News and Analysis

The Battle Over Drug Pricing: First Shot Targets Pharmacy Benefit Managers

On July 18, 2018, the federal Department of Health and Human Services (HHS) sent a proposed rule to the Office of Management and Budget (OMB) for review and clearance. While the substance of the proposed rule is not yet published (or leaked), the title of the rule itself is rather transparent:

Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of a New Safe Harbor Protection (Proposed Rule).[1]

Pharmacy Benefit Managers (PBMs) act as connectors between prescription benefit plans (largely employer-sponsored plans), pharmaceutical manufacturers and pharmacies.  Their role is to help plans manage cost and drug utilization by negotiating with manufacturers and pharmacies to facilitate beneficiary access to appropriate medications, while managing the costs to the plan.

Currently, there is an Anti-Kickback Statute (AKS) safe harbor that allows drug manufacturers to pay rebates to PBMs with protection against enforcement actions when the conditions set forth in the safe harbor are met. This safe harbor has been relied upon, for example, to permit the PBM to exclusively cover the manufacturer’s product or favor such products through prescription benefit plan design, such as inclusion of the drug on the plan formulary or lower co-pays to plan beneficiaries.[2] Groups like America’s Health Insurance Plans believe that such rebates are beneficial for consumers.[3] Conversely, the American Patients First blueprint, which was issued in May 2018 by the Department of Health & Human Services and is subtitled “The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” states: “What had been a hidden negotiation and wealth transfer between drug manufacturers and PBMs is now a direct increase on consumer out-of-pocket spending that likely decreases drug adherence and health outcomes.”[4]

Food and Drug Administration commissioner Scott Gottlieb has been vocal regarding PBM rebates as a component of drug pricing controls, stating “One of the dynamics I’ve talked about before that’s driving higher and higher list prices, is the system of rebates between payers and manufacturers . . . what if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the [AKS]?”[5]

The Proposed Rule was sent to OMB just two days after the close of public comments in response to the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs Request for Information (RFI).[6]  The timing and apparent aim of the Proposed Rule has the PBM industry understandably concerned.  The Pharmaceutical Care Management Association (PCMA) offered the following in response to the administration’s proposed rule just days after the organization submitted comments in response to the RFI:

“While we will await the Administration’s expected proposal to re-examine the Anti-Kickback and Medicare Part D statutes as they relate to rebates and safe harbors, we are immediately faced with several troubling questions. Before proceeding further with any proposed changes to the longstanding safe harbor protection for manufacturer rebates to [PBMs], we would encourage the Administration to review the extensive public comments PCMA and other payer-oriented groups submitted just a few days ago in response to HHS’s [RFI] on this very issue.”[7]

Despite the difference in opinion regarding the role of PBMs in rising drug costs, removal of the safe harbor would dramatically affect the PBM market, as it would curtail its ability to collect rebates from drug manufacturers under the AKS safe harbor protection.[8]  OMB review could take up to several months, and until that point the proposed rule is not made public.[9]  However, companies operating throughout the pharmaceutical manufacturing, wholesale, insurance, PBM and pharmacy markets should follow developments closely.

Olivia King contributed to this post.

[1] Office of Mgmt. & Budget, Exec. Office of the President, RIN No. 0936-AA08, Removal of Safe Harbor Protection for Rebates to Plans or PBMs involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection (July 18, 2018).

[2] See


[4] (p. 17).


[6] See Office of Mgmt. & Budget, Exec. Office of the President, RIN No. 0936-AA08, Removal of Safe Harbor Protection for Rebates to Plans or PBMs involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection (July 18, 2018); 83 Fed. Reg. 22692 (May 16, 2018).

[7] Pharmaceutical Care Management Association, PCMA Statement on the Administration’s RX Rebates Proposal, available at: (July 19, 2018).

[8] Washington Analysis, LLC.

[9] Washington Analysis, LLC.

© 2020 Foley & Lardner LLPNational Law Review, Volume VIII, Number 212


About this Author

Benjamin Daniels, Foley Lardner, healthcare lawyer
Special Counsel

Benjamin M. Daniels is a special counsel and business lawyer with Foley & Lardner LLP. He focuses his practice in the health care field, where he advises health care providers, investors, and lenders on transactional matters and regulatory compliance, including mergers and acquisitions, recapitalizations, buyouts, restructurings, joint ventures, and broad range of commercial transactions. He is a member of the firm's Health Care Industry Team.

Prior to Foley, Mr. Daniels was an assistant general counsel to Fresenius Medical Care North America. While at...

Heidi A. Sorensen, Foley Lardner, Health Care Attorney, corporate integrity agreements Lawyer
Of Counsel

Heidi A. Sorensen is of counsel and a health care lawyer with Foley & Lardner LLP. Ms. Sorensen has extensive experience in health care fraud and abuse and compliance issues. In particular, Ms. Sorensen has worked with medical device and pharmaceutical manufacturers and corporate health care providers in the negotiation of False Claims Act settlements and corporate integrity agreements, and the resolution of matters under the Civil Monetary Penalties Law and the Office of Inspector General's exclusion authorities. She is a member of the Health Care and Life Sciences Industry Teams.

Prior to joining Foley, Ms. Sorensen was chief in the Administrative & Civil Remedies Branch of the Office of Counsel to the Inspector General (OCIG) at the United States Department of Health and Human Services. Ms. Sorensen served as OCIG's coordinator for the Provider Self-Disclosure Protocol and as coordinator for the Physicians at Teaching Hospitals national project. Ms. Sorensen previously served OCIG as senior counsel and as deputy branch chief.

Judith Waltz, False Claims Act Attorney, Foley Lardner Law Firm

Judith A. Waltz is a partner and business lawyer with Foley & Lardner LLP. Her practice focuses on government investigations, false claims act, corporate integrity agreements (CIAs), bankruptcy, and Medicare and Medicaid counseling. Ms. Waltz works with clients in various areas of the health care industry. She is former co-chair of the firm’s Life Sciences Industry Team, and former vice chair of the Health Care Industry Team. Ms. Waltz is also a member of the Government Enforcement, Compliance & White Collar Defense and Bankruptcy & Business Reorganizations...