[co-author: Alyssa Ferreone]*

On November 16, 2018, the Office of the Inspector General of the Department of Health and Human Services (OIG) posted an unfavorable Advisory Opinion No. 18-14 regarding an arrangement where a vendor (Requestor) of a commonly used drug would supply free doses of the drug to hospitals for treatment of inpatients with a rare and serious form of epilepsy (Proposed Arrangement). The drug is not separately reimbursable in the inpatient setting. As a result, and according to the Requestor, many hospitals do not stock sufficient quantities of the drug and are reluctant to administer the drug due to insufficient reimbursement from government and commercial payers.

Under the Proposed Arrangement, the Requestor would stock the drug at hospitals for exclusive use with a hospital’s inpatients suffering from the specific form of epilepsy. Because the sudden discontinuation of the drug is potentially harmful to patients, the Requestor would then provide additional dosages of the drug for the patients for both the duration of hospital admission and following discharge so long as the patient’s insurance does not cover the drug. In this situation, the Requestor would continue providing the drug free of charge until the patient obtains coverage for the drug or the treatment is complete.

In an unusual move, the OIG expressed concern about the steep rise in the cost of the drug from 2001 to 2018 ($40 to $39,000) and described a $100 million settlement between the Requestor and the Federal Trade Commission arising out of allegations of a monopoly and stifling of competition that allegedly allowed the Requestor to maintain extremely high prices for the drug.  Requestor did not concede to these allegations as part of the settlement.

The OIG explained that the Proposed Arrangement implicated the federal anti-kickback statute (AKS) because the drug would be remuneration to the hospitals, which could then serve as a source of referrals for the drug. Additionally, according to the OIG, by providing the drug to the hospitals at no cost, the Requestor could induce the hospitals to continue to purchase or recommend future purchases of the drug. This is especially true here where there are health consequences to abruptly discontinuing the drug and there is only one other drug on the market that can treat the epileptic condition.

In its analysis, the OIG found that the Proposed Arrangement would present a substantial risk of fraud and abuse under the AKS and could potentially result in penalties under the AKS (if the requisite intent were present) for the following reasons:

• Providing the drug for free would relieve a hospital of the significant financial burden of stocking the drug.
• The Federal health care programs would not experience the same financial saving that the hospitals would under the Proposed Arrangement because the drug is included in a bundled payment and the reimbursement amount would not change.
• The Proposed Arrangement could be a “seeding arrangement” by offering the drug for free to a small subset of patients while retaining a high price for all other patients.
• Hospitals could influence patients to consider the drug as a first option thereby resulting in unfair competition.
• The OIG was not convinced that the Requestor needed to provide the drug free of charge to avoid delays in administration. The OIG pointed out that the Requestor could place the drug on consignment at the hospitals and charge the hospitals when the drug is used, thus negating concerns about delays.
• The Requestor would not provide continued free vials of the drug to patients who are discharged and have insurance coverage; yet, the Requestor certified that discontinuation of the course of treatment has potential adverse consequences. In this situation, the free vial is contingent on future purchases for patients with insurance coverage.

As the OIG has emphasized, Advisory Opinions are issued only to the requestors of the opinion, and have no application to, and cannot be relied upon by, any individual or entity, nor may they be introduced into evidence by anyone other than the requestors to prove the individual or entity did not violate the anti-kickback statute, or any other law.

*Legal intern

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