For states to participate in Medicaid programs, “it must offer Medicaid plans that meet certain federal statutory and regulatory requirements[,]” which “include those promulgated by the Secretary of Health and Human Services . . . .”
A state is able to “offer outpatient prescription drug coverage as part of its Medicaid plan.” Drug manufacturers must participate in the Medicaid Drug Rebate Program, which requires manufacturers to enter into agreements with states to “rebate . . . a portion of a drug’s cost purchased through the state’s Medicaid plan.” This is intended by Congress to act as a “cost-saving measure” which “manage[s] the costs of covering prescription drugs . . . .”
To calculate these rebates, manufacturers are obligated to report their “best price”—“to provide their drugs to state Medicaid programs at prices at least as favorable as the prices offered to certain commercial purchasers.” A manufacturer’s “best price” is defined as “the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States.” The entities “off[ered] the lowest price are known as the ‘best-price-eligible purchasers.’”
Recently, to help patients with the high costs of medications, manufacturers “have started providing financial assistance to patients” to help those that “might be priced out of certain drug markets without a manufacturer’s financial assistance.”
The Court recognized that “[c]ommercial health insurers . . . caught on to these offerings” and looked “to pocket for themselves at least some of the assistance . . . .” This ultimately resulted in the creation of accumulator adjustment programs. In a footnote, the Court explained that the programs are “complex.” The program, “[i]n essence,” allows insurers to “use an ‘accumulator’ to track an insured patient’s payments toward that patient’s annual out-of-pocket costs.” “Using the data, commercial health insurers exclude from the patient’s out-of-pocket costs any financial assistance received from a manufacturer” and “[i]n effect, then, . . . accumulator adjustment programs seek to shift drug costs from insurers to patients and manufacturers.”
Accumulator Adjustment Rule
HHS has issued and revised regulations regarding the Medicaid Drug Rebate Program’s “best price” requirements, including both how to calculate the price and the exclusions for those calculations.
The Rule at issue in Pharmaceutical Research & Manufacturers of America v. Becerra is known as the “Accumulator Adjustment Rule,” which was finalized on December 31, 2020. The final Rule codified language from HHS’s June 2020 proposed revisions, which required manufacturers to “ensure the full value of the assistance or benefit is passed on to the consumer or patient for any financial assistance to an insured patient not to count toward the best price.” Importantly, though promulgated in 2020, HHS delayed the effective date of the Rule until January 1, 2023. The reason? “[M]anufacturers had voiced concern[s] that they may not be able to ensure their manufacturer assistance is going to the patient and not being passed through to the health plan via an electronic means right away.” The delayed effective date would “give manufacturers time to implement a system that will ensure the full value of assistance under their manufacturer-sponsored assistance program is passed on to the patient.”
PhRMA’s Action in DC District Court Against HHS
In May 2021, PhRMA brought suit against HHS, “alleging that the accumulator adjustment rule violates the APA because it conflicts with the text, structure, history, and purpose of the Medicaid rebate statute.” PhRMA moved for summary judgment and the government cross-moved, arguing: (1) that PhRMA’s members lack Article III standing; and (2) “the statute is ambiguous and the Court should defer to its reasonable interpretation.”
The government argued that PhRMA’s members lacked standing because the harm alleged stems from the 2007 and 2016 regulations, not the 2020 Rule. The Court, however, disagreed with the government’s characterization, holding that the 2020 Accumulator Adjustment Rule “impose[d] new regulatory requirements on manufacturers” and “create[d] . . . an injury that is traceable to the rule” and, thus, PhRMA had standing.” “[T]he 2007 and 2016 rules provided that manufacturer assistance must both be passed on to the consumer and . . . a best-price eligible purchaser must not receive any price concession for the manufacturer’s assistance to be excluded from the best price calculation.” The Accumulator Adjustment Rule now “places the burden on manufacturers to ‘ensure’ that patients receive the full benefit of assistance programs; otherwise, any financial assistance cannot be excluded from the calculation of the best price.”
“Under the new rule, then, no longer will it be enough that the manufacturer's financial assistance ‘passes on’ to the patient and that the best-price-eligible purchaser receives no ‘price concession.’ Rather, starting on January 1, 2023, manufacturers must ‘ensure’ that the full value of the assistance stays with the patient. That new obligation will impose on the manufacturers numerous compliance requirements that will affect pocketbooks.”
The Court even pointed to the delayed effective date as evidence that the Rule would give PhRMA standing: “Why delay the effective date if the rule imposed no additional obligations?”
“Turning to the merits, the Court starts and ends with the statutory text.” The Court, using Chevron as its guide, determined that the Accumulator Adjustment Rule did not meet step one of the Chevron framework. Patients are not listed as one of the best price eligible entities, so the Court asked, in what it referred to as “[t]he dispositive question in the case, . . . whether a manufacturer's financial assistance to a patient—at least in the context of an accumulator adjustment program—can count as the ‘lowest price available from the manufacturer . . . to any [best-price-eligible purchaser]?’” The Court, holding that the answer to the dispositive question was “no,” wrote:
A manufacturer’s financial assistance to a patient does not qualify as a price made available from a manufacturer to a best-price-eligible purchaser. Rather, a manufacturer’s financial assistance is available from the manufacturer to the patient. And a patient is not a best-price-eligible purchaser. As a result, HHS lacks the statutory authority to adopt the accumulator adjustment rule.
Congress, the Court held, “enacted a statute that covers only prices available from a manufacturer to a best-price eligible entity, not prices available from a manufacturer to a patient.”
The Court’s decision in this case is important for its practical implications, its legal analysis, and its effective mitigation of certain FCA exposures specific to federal prescription drug programs.
On a practical level, the Court’s decision effectively preserves efforts by prescription drug manufacturers to offer discounts to patients. Of course, the availability of affordable prescription drugs to patients is also one of the primary goals of the Medicaid Best Price components of the Medicaid Drug Rebate Program. The irony here, however, is that, if HHS had succeeded in convincing the Court of its positions, it would have effectively ended these types of drug discounts offered to patients.
The Court’s decision is also important in that, through its legal analysis, it revisits the principles underlying Chevron and their practical application in a way that elucidates the contours of agency deference afforded in regulatory interpretation and should help guide both the government and those in the healthcare industry moving forward.
Finally, by rendering the Accumulator Adjustment Rule dead on arrival (i.e., before its effective date), the Court’s decision effectively divests enterprising, would-be relators (so-called “whistleblowers”) from might what otherwise would have been fertile ground for actions brought under the FCA’s qui tam provisions premised on alleged violations of the Rule.