CCF Comments to Administration’s Harmful Rebate Safe Harbor Rule

We submitted comments to the Trump Administration’s proposed regulation to eliminate the safe harbor in the federal anti-kickback law for rebates negotiated by pharmacy benefit managers (PBMs) on behalf of Medicaid managed care plans (and Medicare Part D plans).  

As we have previously written, the proposed regulation raises serious concerns because it would likely harm the Medicaid program, raise federal and state Medicaid prescription drug costs and could lead to states making cuts to their Medicaid programs that adversely affect low-income beneficiaries including children and families.  We encourage you to submit your own comments here by the April 8, 2019 deadline.

Our comments make the following points:

1. The safe harbor changes would likely harm the Medicaid program.  Most states currently rely on Medicaid managed care plans to negotiate voluntary supplemental rebates on behalf of their enrollees, in addition to those required under the highly effective Medicaid Drug Rebate Program.  The proposed regulation would effectively eliminate these rebates, increasing total Medicaid spending by nearly $2 billion over the next 10 years, according to actuaries at the Centers for Medicare and Medicaid Services (CMS).  While states would still be permitted to negotiate supplemental rebates with manufacturers directly, the CMS actuaries assume only half of the current managed care rebates which would go away under the proposed rule would be replaced by such directly negotiated rebates.  The net increase in Medicaid costs could be even larger if drug manufacturers do not lower list prices in response to the regulation, as the Administration promises.

2. The primary policy rationale cited in support of the proposed regulation does not apply to Medicaid. According to the Administration, consumers can now face higher out-of-pocket costs if their deductible and co-insurance amounts are based on list prices, rather than prices net of rebates. The Administration argues that its regulation would result in current rebates being converted to “point-of-sale” rebates under which negotiated discounts fully flow through to consumers at the pharmacy counter and reduce out-of-pocket costs for beneficiaries.  But while that could be true of Medicare Part D beneficiaries in some cases, that would not be the case in Medicaid.  Medicaid beneficiaries generally pay only nominal co-payments irrespective of the price of individual drugs.

3. Any final safe harbor regulation should exclude rebates negotiated by Medicaid managed care plans. We recommend that in any final regulation, the Administration should not apply the proposed safe harbor changes to Medicaid managed care — that is, the Administration should retain the existing safe harbor in the federal anti-kickback law for rebates negotiated by Medicaid managed care plans — irrespective of whatever changes are applied to Medicare Part D.  Moreover, the Administration should reiterate that any safe harbor changes in a final regulation would have no effect on federally-required rebates under the Medicaid Drug Rebate Program or voluntary supplemental rebates directly negotiated between states and drug manufacturers. Otherwise, state Medicaid programs would be at significant risk of facing higher net prescription drug costs.  States, in turn, would either have to contribute more money to their Medicaid programs or as is more likely, respond by instituting programmatic cuts harming children, families and other low-income beneficiaries, such as cuts to Medicaid eligibility, benefits and provider payments that reduce access to needed care including to prescription drugs.

Edwin Park
Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy.

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