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HHS OIG Proposes Changes to AKS Discount Safe Harbor

Richard P. Kusserow | March 2019

In early February, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) proposed amendments to the Anti-Kickback Statute (AKS) regulatory discount safe harbor to exclude certain rebates from pharmaceutical manufacturers. HHS proposed these regulatory amendments to pass on the benefits from the rebates negotiated between pharmaceutical manufacturers and Part D plans, Medicaid Managed Care Organizations (MCOs), and their Pharmacy Benefit Managers (PBMs) to beneficiaries at the time of the sale. These entities often retain the negotiated rebates. As a result, the rebates do not ultimately lower the beneficiary’s premium or out-of-pocket costs.  HHS also notes that these rebates can lead to manipulated formularies which can discourage plans from placing lower priced but equally effective drugs on their formularies, as the plans or PBMs would then receive a smaller rebate.

The Proposed Rule would make the following changes:

  1. HHS would amend the AKS regulatory safe harbor definition of “discount” to exclude any reductions in price or other remuneration from a pharmaceutical manufacturer to a Part D plan sponsor, a Medicaid MCO, or their contracted PBM, unless the rebate or price reduction is required by law. The proposed change does not prohibit discounts on prescription pharmaceuticals offered by manufacturers to wholesalers, hospitals, physicians, pharmacies, and third-party payors in other federal health care programs.
  2. HHS would also create a new Point-of-Sale Reduction safe harbor that allows a pharmaceutical manufacturer to offer a reduction in price for a product payable under Part D or a Medicaid MCO, so long as the manufacturer sets the price in advance and in writing with the plan sponsor or a PBM, the full value of the reduction is provided to the dispensing pharmacy in the form of a chargeback, and the price reduction is applied to the price of the pharmaceutical at the time of sale to the beneficiary.
  3. Additionally, HHS would create a new PBM Service Fees safe harbor to allow pharmaceutical manufacturers to pay a PBM for services that the PBM renders to the manufacturer. However, the fees must be set out in a written agreement that describes all services that the PBM provides, the terms and specifics of each service, and the compensation for each service. The compensation must be consistent with fair-market-value and not be based on the volume or value of referrals or business by either the PBM or plan. The PBM must also disclose these arrangements to each of the plans it contracts with annually and with the Secretary of HHS upon request.

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If finalized, the Point-of-Sale Reduction safe harbor would go into effect 60 days after the final rule is published. The amendment to the discount safe harbor would take effect on January 1, 2020. However, the proposed rule does not provide an effective date for the PBM Service Fee safe harbor.  Comments on the proposed rule will be accepted until April 8, 2019.

The OIG Proposed Rule is available at:


About the Author

Richard P. Kusserow established Strategic Management Services, LLC, after retiring from being the DHHS Inspector General, and has assisted over 3,000 health care organizations and entities in developing, implementing and assessing compliance programs.

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