December 8, 2020

HHS Releases Four Major Rules to Lower Drug Prices, Amend Anti-Kickback and Stark Laws

Holland & Knight Healthcare Blog
Miranda A. Franco
Healthcare Blog

The U.S. Department of Health and Human Services (HHS) issued four major rules on Nov. 20, 2020, which was the final day for the Trump Administration to issue a rule with a 60-day implementation period for it to take effect before Inauguration Day on Jan. 20, 2021. The rules focus on drug pricing and reform the Stark Law and Anti-Kickback Statute (AKS). Notably, the incoming Biden Administration could reverse some or all of the policies. Below please find a high-level overview of each rule.

Most Favored Nation Interim Final Rule

The Centers for Medicare & Medicaid Services (CMS) issued an Interim Final Rule with comment period implementing a new mandatory, nationwide drug pricing model that includes Medicare participant physicians, non-physician providers, suppliers, hospital outpatient departments, ambulatory surgery centers, and other provider groups that receive Part B fee for service (FFS) payment for drugs included in the Model. CMS will accept public comment through Jan. 26, 2021.

The rule finalizes a Center for Medicare and Medicaid Innovation (CMMI) demonstration that will lower Part B drug payment to the lowest price that drug manufacturers receive in countries with similar GDP per capita. The Most Favored Nation (MFN) Model will operate for seven years, beginning on Jan. 1, 2021, through Dec. 31, 2027.

The Model will include the following components:

  • Instead of paying providers that administer drugs based on the average sales price (ASP) in the U.S., the MFN Model will establish a new alternative payment limit for the drug portion of an included product (excluding the current plus 6 percent), known as the MFN Drug Payment Amount. For each MFN Model Drug, the payment will be derived by identifying the lowest GDP adjusted country-level price from ex-U.S. and the Organisation for Economic Co-operation and Development (OECD) nations with at least 60 percent of the U.S. per capita.
  • The MFN Price will be phased in by 25 percent per year for performance years one to three of the Model. It will then continue at 100 percent during performance years four through seven but is subject to an accelerated timeline if U.S. prices rise faster than the MFN Price and inflation.
  • CMS will apply a single per-dose add-on payment of $148.73 per dose for drugs included in the Model. The add-on payment represents the total pooled add-on spending amount in 2019 for drugs included in the MFN Model Drug HCPCS Codes list divided by the total number of claim lines in 2019.
  • The MFN Model will focus on a list of 50 drugs that encompass a high percentage of Medicare Part B spending. Inclusion of the drugs will be identified by HCPCS codes listed with quarterly ASP files. CMS will publish the MFN Model Drug HCPCS Codes List quarterly on the MFN Model website. CMS will be able to include additional drugs on an annual basis. Biosimilars will be included in the MFN Model.
  • CMS will evaluate the Model's performance in quarterly intervals, with further performance evaluations pertaining to the quality of care, including access to drugs in year five.
  • The MFN Model will include all beneficiaries who are 1) enrolled in Medicare Part B, 2) receive an MFN Model drug by an MFN participant, 3) have Medicare as the primary payer and 4) are not covered by a Medicare Advantage or group health plan.
  • The Model is mandatory for 340B entities, except for cancer hospitals, children's hospitals, Federally Qualified Health Centers (FQHCs), critical access hospitals and Indian Health Service facilities.
  • CMS believes the MFN Model is compatible with other applicable CMMI programs and does not intend to make adjustments to the MFN Drug Payment Amount of the MFN alternative add-on payment for participants within other CMMI Models.

The rule has already received significant pushback from stakeholders. Due to how the Administration circumvented the typical rulemaking process in issuing this regulation, it may face legal challenges. Though Interim Final Rules do not need to be preceded by proposed rules and they take effect immediately, there are restrictions on their use. In addition, agencies must demonstrate that following the notice and comment rulemaking process would be "impracticable, unnecessary, or contrary to the public interest."

Rebate Final Rule

The Rebate Final Rule, finalized by the HHS Office of the Inspector General (OIG), updates the Discount Safe Harbor provision of the AKS to explicitly exclude rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) and Part D plans from the definition of a discount. The rule also creates two narrow safe harbors for price reductions on pharmaceutical products charged to the patient at the pharmacy counter and protection for fixed-fee services arrangements between manufacturers and PBMs.

There appear to be no significant structural changes between the notice of proposed rulemaking (NPRM) and this Final Rule besides the effective date (the rule will be effective Jan. 1, 2022) and removing Medicaid Managed Care Organizations (MCOs) from the scope of the safe harbor 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.

Notably, HHS states, "the draft rule was proposed on Jan. 31, 2019. The Department never withdrew the proposal from consideration and is finalizing the proposal today in a way which addresses the comments received." The rebate NPRM was introduced in January 2019 and came under immediate criticism due to the large projected increases in federal spending and projected increases in beneficiaries' premiums. As a result, the Administration released a statement that the President decided to withdraw the rebate rule. Typically, if an agency withdraws a previously proposed rule, it cannot proceed directly to the final rule stage as it did here. The agency must start again at the NPRM stage. If it is determined that the rule was officially withdrawn in 2019, the Final Rule could be invalidated.

Stark Law, AKS Reform Final Rules

The HHS OIG finalized revisions to safe harbors under the AKS, and CMS finalized changes to the Physician Self-Referral Law/Stark Law regulations. The rules would create new protections under the AKS and Stark Law for healthcare entities engaging in value-based arrangements, allowing "value-based enterprises (VBEs)" to design and participate in certain "value-based activities."

The Stark Law generally prohibits providers from making referrals to an entity for certain healthcare services if the provider has a financial relationship with the entity. The CMS Final Rule creates new, permanent exceptions to the Stark Law for value-based arrangements and finalizes many of the proposed policies from the notice of proposed rulemaking issued in October 2019.

Specifically, CMS implemented new exceptions to the Stark Law for value-based arrangements that apply based on the level of risk assumed by the VBE or the physician:

  • Full financial risk exception: This exception applies to value-based arrangements between VBE participants in a VBE that has assumed full financial risk for the cost of all patient care items and services covered by the applicable payer for each patient in the target patient population during the entire duration of the value-based arrangement.
  • Meaningful downside financial risk exception: This exception would protect remuneration paid under a value-based arrangement where the physician is at meaningful downside financial risk for failure to achieve the value-based purpose of the enterprise. While the proposed rule set "meaningful downside financial risk" to mean that the physician is responsible to pay the entity no less than 25 percent of the total value of the remuneration the physician receives under the value-based arrangement, CMS lowered the threshold to 10 percent.
  • Value-based arrangements: This exception would permit both monetary and nonmonetary remuneration between the parties of compensation arrangements that quality as value-based arrangements. This would apply regardless of the level of risk undertaken by the VBE or any of its participants. This exception would apply to value-based arrangements where neither party has undertaken downside financial risk. Because the exception potentially applies to arrangements where neither party has assumed any financial risk, CMS included a number of additional requirements to satisfy this exception, compared with the exceptions for full financial risk and meaningful downside financial risk, to guard against patient and program abuse.
  • Indirect compensation arrangements that include a value-based arrangement: CMS finalized its proposal to make value-based exceptions applicable to indirect compensation arrangements that include a value-based arrangement to which the physician or physician organization is a direct party.

CMS also provides cybersecurity technology and related services donation safe harbor. Currently, a hospital that wants to protect its electronic health records (EHRs) and other data may be worried about providing cybersecurity software at a reduced fee to physicians using the system due to concerns about the Stark Law. The goal is to protect the broader healthcare system by providing cybersecurity software to physician practices that may individually find it financially infeasible to purchase it themselves.

The OIG rule implements new AKS safe harbors, all designed to protect certain arrangements entered into with or by a VBE, broadly defined to capture any number of network arrangements where the participants have agreed to collaborate for value-based purposes. The three new safe harbors vary in terms of the type of remuneration that can be provided, the level of financial risk the parties assume (full, substantial downside and no risk), and the types of safeguards required to satisfy the safe harbor. The value-based safe harbors are generally narrower than the Stark exceptions. Pharmaceutical manufacturers, PBMs, medical device companies, lab companies and compounding pharmacies are excluded from the value-based safe harbors.

OIG finalized two other value-based arrangement safe harbors: 1) a new patient engagement safe harbor for specific tools and supports provided to patients that are intended to bolster efficiency, health outcomes and quality as well as modifies the existing safe harbor for personal services and management contracts to increase flexibility for outcomes-based payments and part-time agreements and 2) the CMS-Sponsored Models safe harbor for remuneration provided in connection with CMS-sponsored payment models.

Like the proposed changes to the Stark Law regulations, the OIG also included changes to allow for donations of cybersecurity technology and services through a new safe harbor. The rule also modifies the existing safe harbor for EHR to include protections for certain EHR-related cybertechnology and updates provisions related to interoperability.

Finally, the rule codifies that arrangements that fit into the new safe harbors for patient engagement and support, and local transportation, are protected under the Beneficiary Inducements civil monetary penalty (CMP) law. It also codifies the statutory exception to "remuneration" relating to ACO Beneficiary Incentive Programs.

The Final Rules are set to go into effect on Jan. 19, 2021 (one day before Inauguration Day), except for provisions of the rule relating to profit shares and productivity bonuses used by a group practice, to take effect Jan. 1, 2022.

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