January 25, 2021

Volume XI, Number 25

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OIG Finalizes Revisions to Safe Harbor Protection for Drug Rebates and Establishes New Safe Harbors for Point-of-sale Price Reductions, Pbm Service Fees

On November 20, 2020, the US Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a final rule as part of ongoing administration drug pricing reform efforts and in conjunction with the release of several other significant final rules (for more information about the other rules HHS released on November 20, 2020, please see Regulatory Sprint to Coordinated Care. The final rule—scheduled to be officially published in the Federal Register on November 30, 2020—largely adopted the policies proposed in OIG’s related notice of proposed rulemaking (proposed rule), which we previously discussed in this On the Subject. Once effective, the final rule will modify a regulatory provision that had previously protected certain pharmaceutical manufacturer rebates from criminal prosecution and sanctions under the federal Anti-Kickback Statute, and will instead provide an alternative pathway to protection for certain price reductions made available at the point of sale. The final rule will also provide protection for certain fees that a manufacturer might pay to a pharmacy benefit manager (PBM).

In Depth


Specifically, the final rule will exclude rebates and other discounts on prescription pharmaceutical products offered by pharmaceutical manufacturers to Medicare Part D plan sponsors from protection under the discount safe harbor, unless the price reduction is required by law. The proposed rule had also proposed to exclude discounts to Medicaid Managed Care Organizations (MCOs), but commenters persuaded OIG to not finalize those changes. Thus, the final rule’s exclusion will apply only to pharmaceutical manufacturer discounts and rebates offered directly to Part D plan sponsors, and those negotiated by or paid through a PBM acting under contract with a Part D plan sponsor. OIG also confirmed that, despite the modification under the final rule, it intends for the discount safe harbor to continue to protect discounts on prescription pharmaceutical products offered by pharmaceutical manufacturers to other entities, including, but not limited to, wholesalers, hospitals, physicians, pharmacies and third-party payors in other Federal health care programs. The final rule makes this modification effective on January 1, 2022.

In addition, the final rule will add two new regulatory safe harbors for:

  • Certain price reductions that are fully passed through to the dispensing pharmacy and applied to the price charged to a Medicare Part D plan or Medicaid MCO member at the point of sale; and

  • Fixed fee payments from manufacturers to PBMs for the services that PBMs provide to those manufacturers. In order to be protected, the fees would have to be for services provided to the manufacturer that relate to the PBM’s arrangements with health plans (e.g., services that rely on data collected from health plan customers).

These new safe harbors will become effective 60 days following publication of the final rule in the Federal Register (assuming a November 30, 2020 publication date, that would make the new safe harbors available starting on January 29, 2021).

The potential implications of the final rule extend beyond the context of federal Anti-Kickback Statute compliance to drug reimbursement in the United States more broadly. Public debate and legal scrutiny of the final rule and its policies will likely continue.

The final rule can be found here and the HHS factsheet is available here.

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© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 328
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About this Author

James A. Cannatti III* practices at the intersection of today's most pertinent health care issues, including digital health, health IT policy, and fraud and abuse, including Anti-Kickback Statute/Stark Law matters. With more than 10 years of experience in the US Department of Health & Human Services’ (HHS) Office of Inspector General (OIG), most recently as Senior Counselor for Health Information Technology, James is well-attuned to the regulatory issues impacting the rapidly evolving digital health landscape, including:

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Emily J. Cook, McDermott Will Emery Law Firm, Health Care Attorney
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Emily J. Cook is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Los Angeles office.  She focuses her practice on Medicare provider certification, reimbursement and regulatory compliance.

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Tony Maida Health Care Attorney McDermott WIll Law Firm
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Tony Maida is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal Anti-Kickback and Physician Self-Referral/Stark laws, false claims and overpayments, and government investigations.    He works closely with our health and white collar teams on criminal, civil, and administrative investigations and counseling clients on corporate transactions and compliance programs.

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Monica A. Wallace is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  She focuses her practice on complex regulatory and transactional counseling to health care organizations such as health systems, hospitals, physician groups, integrated delivery systems, durable medical equipment prosthetics and orthotics suppliers, home health agencies, and other health care providers. Monica’s regulatory practice focuses on the Anti-Kickback and Stark laws; Medicare and Medicaid reimbursement and billing; legal assessments and compliance...

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