District Court Strikes Down Copay Accumulator Best Price Rule and Provides Guidance to Pharmaceutical Manufacturers on Price Reporting Obligations

On May 17, 2022, the United States District Court for the District of Columbia issued an opinion granting Summary Judgment to Pharmaceutical Research and Manufacturers of America (“PhRMA”), and setting aside the December 2020 Medicaid Best Price rule, on the grounds that the rule violated the Administrative Procedure Act.  Namely, the Final Rule, entitled Revising Medicaid Drug Rebate and Third Party Liability Requirements, 85 Fed. Reg. 87000, was set to take effect on January 1, 2023, and would have manufacturers to report – as Best Price discounts – the amount of manufacturer-assistance provided to patients (i.e., copay coupons), unless the manufacturer could “ensure[ ] the full value of the assistance or benefit [was] passed on to the consumer or patient.”  In the face of pervasive copay accumulator and copay maximizer programs, which seek to enable health plans to take advantage of such assistance otherwise intended for patients, this would have meant that manufacturers would have been at risk of misreporting Best Prices unless they could assure that the benefits of such funds were received by patients and not health plans.  The looming impact of this Final Rule had led to much concern and consternation within the pharmaceutical industry.

In the recent Opinion, the District Court held that the Final Rule was not in accordance with the text of the applicable law and must be set aside. The Medicaid rebate statute defines “Best Price” as the “lowest price available from the manufacturer . . . to any [best-price-eligible purchaser],” which includes wholesalers, retailers, providers, health maintenance organizations, nonprofit entities, or governmental entities. 42 U.S.C. § 1396r-8(c)(1)(C).  The District Court found that a manufacturer’s financial assistance to a patient – even in the context of a copay accumulator program – does not qualify as a price made available from a manufacturer to a best-price-eligible purchaser.  Thus, the Court held that HHS lacked the statutory authority to adopt the Final Rule.

This case and its Opinion not only represent a significant win (and sigh of relief) to the pharmaceutical industry, but also present certain insights regarding judicial interpretation of HHS rules and guidance, particularly in the context of Best Price reporting obligations. Of note, the Court held that the financial assistance being made available was being made available to the patient, not to the best-price-eligible entity (such as the health plan), finding that “commercial health insurers cannot capture any portion of a manufacturer’s financial assistance to a patient unless and until that patient first obtains the assistance from the manufacturer independent of the insured patient’s health plan.”  This provides particular guidance for manufacturers determining which discounts potentially need to be “stacked” when being offered to multiple different entities (such as integrated delivery networks).

In addition, the Court addressed the feasibility concerns of making manufacturers responsible for calculating Best Price, when the necessary information was in the sole possession of commercial health insurers.  Recognizing that transaction-by-transaction investigations would make it infeasible for manufacturers to report Best Price in the statutorily-required time frame, the Court further justified the fact that the new Final Rule was beyond the scope of the Medicaid rebate statute.

At its core, this decision recognizes the somewhat underhanded “scheme” being employed by health plans and copay accumulator and maximizer programs to siphon benefits intended for patients, and fits within a string of other recent actions aimed at these programs (including Johnson and Johnson’s recent lawsuit against maximizer program, SaveOnSP).  In addition, the Opinion provides additional guidance to manufacturers in structuring their Best Price reporting programs. 

Frier Levitt represents manufacturers in complying with price reporting obligations, including Best Price, Average Manufacturer Price and Average Sales Price. If you have questions about reporting obligations or are looking to develop compliant programs, contact us.