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HHS Proposes to Remove Safe Harbor for Drug Manufacturer Rebates

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Yesterday, the Department of Health and Human Services Office of Inspector General released a proposed rule redefining the current safe harbor for pharmaceutical manufacturer discounts and rebates to entities like health plans and pharmacy benefit managers (PBMs).

The proposed rule removes the current protection for rebates in Medicare Part D and Medicaid Managed Care and requires price reductions offered by drug manufacturers to be passed through at the point of sale, reducing what patients pay in cost sharing.

The proposed change to the Anti-Kickback Statute (AKS) is the latest effort by the Trump administration to lower drug costs and change the incentives driving negotiation for medicines. Under the proposed rule, patients in Medicare Part D will likely see lower costs on some medications when they go to the pharmacy but may also pay higher premiums for their Medicare Part D plans.

“This rule underscores the Trump administration’s focus on lowering drug list prices and patient out-of-pocket spending,” said Matt Brow, President at Avalere. “The changes would introduce new incentives into the market that could fundamentally reshape how payers and manufacturers negotiate.”

Avalere experts offer the following observations on the AKS proposed rule.

1. This policy change would dramatically alter the current structure of drug price negotiations and payments between drug manufacturers, PBMs, health plans, and pharmacies in public programs.

“All the key players will have to review and adjust their contracting and pricing strategies,” said Lance Grady, Managing Director at Avalere. “It will be a whole new world in public programs.”

2. The impact of the proposed rule is likely to vary for patients with some patients paying more in premiums while others, particularly users of higher priced drugs, seeing lower cost sharing.

“The proposal would lower patient out-of-pocket spending by passing through the full amount of manufacturer discounts,” said Elizabeth Carpenter, Practice Director at Avalere. “While this means Medicare patients will benefit directly from any discounts when they go to pay for their drugs, they may also pay higher monthly premiums for their plan.”

3. Structural changes may be necessary to operationalize this policy, specifically with the addition of chargebacks between drug manufacturers and pharmacies.

“The proposed rule would require substantial operational changes and investment in data systems, especially for pharmacies,” said Miryam Frieder, Managing Director at Avalere. “This could be challenging for various entities within the pharmacy supply chain, especially given the timeline outlined in the rule.”

To speak with an Avalere expert on the recent proposed rule, please contact Frank Walsh at 202-697-2029 or

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