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Safe Harbor Rule Changes Are Coming:  Model N Speaks on the Industry Impact 

by Melonie Warfel , General Manager, Model N Life Sciences June 3, 2019

Biopharma manufacturers are facing an unprecedented change to operating and business models, with a proposed rule published by HHS that would eliminate rebates on prescription drugs paid by manufacturers to PBMs, Part D plans, and Medicaid managed care organizations. The proposed rule was published on February 6, 2019 and calls for the Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees.  You can find the full text of the rule here. The deadline for submitting comments was April 8, 2019 and Model N’s CEO Jason Blessing and the rest of our life science team had a lot to say about how the changes will affect our customers. Industry chatter leads us to believe the timeframe for a final rule will be in the next month or two and implementation expected around the beginning of 2020.

Here are some highlights from the comments we submitted to HHS:

  • Doing this right will take time. The pharmaceutical industry is highly regulated and involves a high compliance mindset in all aspects of the business.  Lengthy processes must be followed to implement new systems, create new policy, comply with new data standards and negotiate, implement, and operationalize new contracts. Given the potential effective date of January 1, 2020, there is minimal time available for manufacturers to conceive of, design, test, and implement a completely new way of exchanging data and payments if that is what is required.
  • More information required. More clarification is needed as solution providers like Model N start building workflows, processes and software to support their clients’ adoption of the new rule.  Manufacturers, PBMs, and pharmacy networks already have well established mechanisms in place for negotiating and establishing prices, formulary statuses, and coverage of drugs and administered plans, sharing pricing with pharmacies, reimbursing pharmacies and collecting prescription utilization data for rebate collection from manufacturers. Because these mechanisms already exist, we asked HHS to clarify if leveraging these existing pipes (i.e. the current processes used by pharmaceutical manufacturers, PBMs, and pharmacies to communicate pricing data and payment transactions) is an acceptable method of administering this rule and remaining compliant.  More clarity is also requested on the implications of the new policy on determining how Medicare Part D and Medicaid Managed Care plan payments should be accounted for in prospective calculations of AMP and Best Price. Since manufacturers have little to no visibility into the cost sharing between beneficiaries and PBMs/payors, if the discount is to be treated as a reduction in price, the operational challenges in complying with such a requirement would be significant and may lead to increased risk of error in Best Price reporting. Manufacturers don’t have visibility into the patient’s out of pocket cost (e.g. deductible, co-insurance, etc.) at the time drug was dispensed and have no means to discern whether the full value of the discount was realized by the patient.
  • The implementation date should reflect the complexity of the requirements. Depending on the final rule, it’s important for HHS to consider the complexity and industry impact of the proposed changes and ensure that the final implementation date reflects the time needed to get companies compliant with minimal disruption.
  • We’re all in this for the patients. The shared goal of the rule change, as stated by HHS and shared by Model N and its customers, is to permit patients to receive positive financial benefits in the form of reduced drug prices at the point of sale. We’re looking forward to partnering with our customers to bring these valuable changes directly to patients as soon as possible but want to make sure we do it in a way that ensures uninterrupted access to medications for patients by keeping the networks, contracts and agreements that are needed to keep the supply chain operational functioning throughout the transition.
  • Model N is committed to supporting its biopharma customers. Whatever the final rule contains, Model N is committed to supporting its biopharma customers. While new approaches may contain advantages compared to the current process, the perspective of Model N is that any new process should be developed thoughtfully and with a broad range of constituents to ensure all needs are considered, including data feeds, data standards, roles played by various constituents in the process, and other regulatory/compliance implications and considerations. For this reason, we recommend that greater clarity be provided related to the ideal approach that best meets the stated patient objectives and that, once this clarity is obtained, an appropriate timeframe is developed to properly construct the new systems and processes.

We at Model N are committed to building solutions in partnership with our customers that will allow them to comply and succeed with the new HHS Safe Harbor Rule and welcome their feedback on the announcements as well. For more information about the new rule and Model N solutions for compliance, please join us for a webinar on June 19, by registering here. For more information about the Safe Harbor Rule changes, please join our A World Without Rebates customer community by signing up here. You may also email us at for more information about our products and services to support upcoming changes to the Safe Harbor Rule.

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