Healthcare compliance risks exist even when a company takes steps to structure its business activities to follow the government's own statements. A recent decision by the U.S. District Court for the Eastern District of Virginia, Civil Action No. 3:22-cv-714 (RCY) – in an action brought by the Pharmaceutical Coalition for Patient Access (PCPA) against the U.S. Department of Health and Human Services (HHS) and its Office of the Inspector General (OIG) – highlights the fact that such guidance is not binding. Rather, the OIG has significant leeway to interpret the Anti-Kickback Statute (AKS).

2005 OIG Guidance

In a 2005 Special Advisory Bulletin, the OIG discussed at length "nascent efforts" by the pharmaceutical industry to structure patient assistance programs whereby manufacturers would combine efforts to provide Medicare Part D enrollees with subsidies or discounts if those enrollees could not afford particular medications. Under this "coalition model," the OIG recognized that manufacturers would, in effect, only provide assistance for their own products but noted that the risks of such programs providing "illegal inducement potentially may be reduced if:"

1. The program had adequate safeguards to avoid incentivizing beneficiaries to favor one drug product, provider, plan or supplier over another
2. A large number of manufacturers participate in the coalition so as "to sever any nexus between the subsidy and a beneficiary's choice of drug" and
3. Each manufacturer subsidizes all of its products covered by Part D

The OIG stated that other safeguards could also be needed. The risks could be further reduced if beneficiaries were required to pay part of the drug costs out-of-pocket.

2022 Advisory Opinion

Trying to follow the OIG's guidance was not enough to save the PCPA program from disapproval, potentially because the program had other features that arguably could increase risk.¹ PCPA proposed a patient assistance program for financially needy Medicare Part D beneficiaries facing cancer that aimed to generally follow the guidance in the 2005 bulletin. Beneficiaries in need would have paid monthly amounts for the drugs. However, they could also be eligible for financial assistance for insurance premiums through an "Additional Medical Needs" program. PCPA requested an advisory opinion on the program from the OIG, and while it was warned that the advisory opinion would be unfavorable, PCPA did not voluntarily withdraw its request. As a result, the OIG issued its Advisory Opinion (No. 22-19) in September 2022, concluding that the program "would fit squarely within" the AKS' prohibitions if the requisite intent were present and the program was "calculated to induce Part D enrollees to purchase their Part D oncology drugs." The OIG characterized its 2005 discussion of the coalition models as "premature" and containing only a "brief discussion" of such models.

The Lawsuit

PCPA filed suit in November 2022 to challenge the Advisory Opinion. PCPA argued that the opinion should not stand and gave four alternative reasons:

1. The opinion is inconsistent with the AKS's plain language.
2. The Advisory Opinion is arbitrary and capricious because it treats PCPA's proposal differently than similarly situated parties.
3. The 2005 bulletin means that the 2022 Advisory Opinion is arbitrary and capricious.
4. The opinion violates PCPA's free speech rights under the First Amendment.

The court rejected all four arguments and found that the OIG's opinion was not contrary to law and the proposed coalition model would involve a quid pro quo requirement. The beneficiary assistance to be offered was designed to induce Medicare Part D enrollees to purchase the manufacturers' products. Consistent with prior precedent and the so-called "one purpose test," the court disagreed with PCPA's assertion that the word "induce" requires a corrupt intent in order to violate the AKS. The court stated that "[t]he AKS does not specifically require that the things to be induced be independently unlawful – as is the case with criminal solicitation." Similarly, the court concluded that the remuneration need not be "corrupt" to constitute an AKS violation, despite PCPA's assertion that the "canon against absurdity" required the AKS to be interpreted as requiring quid pro quo and corruption.

PCPA argued that it was subject to disparate treatment because the OIG issued favorable opinions by not sanctioning arrangements that could violate the AKS. PCPA also argued that the negative opinion was inconsistent with the OIG's adoption of AKS safe harbors. The court found that both of these arguments "fail right off the block" because all of the past advisory opinions to which PCPA cited found "that the proposed schemes could run afoul of the AKS if the requisite mens rea were present," and the "HHS OIG concluded the exact same in the advisory opinion in this case." The only difference was that the OIG concluded that it would impose sanctions in PCPA's case, but the court found that it lacked subject matter jurisdiction to review the government's imposition of administrative sanctions.

With respect to the other two arguments, the court found that "the negative opinion was a faithful application of the [2005 bulletin]. The Guidance made clear that it was taking no definitive stance on the legality of any proposal." The court also rejected the First Amendment argument and found that a course of conduct can still be illegal even if it is carried out in part through language or speech. The court said, "The fact that those transactions might be facilitated via speech does not cause the opinion to run afoul of the First Amendment, nor can that fact render the negative opinion arbitrary and capricious on First Amendment grounds."

Lessons Learned

The court's decision serves as an important reminder to the pharmaceutical industry that patient assistance programs have AKS risk. The AKS applies broadly to "whoever" engages in certain prohibited conduct, and as demonstrated by both this court case and the Advisory Opinion, the AKS is interpreted and enforced increasingly broadly. Moreover, each AKS analysis is very fact specific, so each arrangement must be analyzed independently and structured with sufficient safeguards, specific to the facts and circumstances of the particular proposed arrangement, to adequately minimize any risk or perceived risk of generating prohibited remuneration, referrals or business. Manufacturers contemplating offering and operating patient assistance programs should consult experienced counsel and consider implementing guardrails, including but not limited to an arrangement's:

• impact on patient choice of a product, provider, plan or supplier
• eligibility metrics for subsidy recipients
• criteria used to select subsidy recipients
• control, discretion and authority over a program
• clinical guidelines to support the program
• impact on full length of course of treatment
• impact on discontinuation of assistance
• impact on competition
• imposition of any program limits
• any other risk-mitigation that a program may entail

While patient assistance programs may have a number of positive justifications and can offer an important benefit to patients, this court case and its underlying Advisory Opinion serve as a cautionary tale that patient assistance programs must be appropriately structured.

Notes

¹ Another potentially fatal factor here is that the OIG's 2005 guidance predated the 2006 effective date of the Medicare Part D Program. The Part D program has undoubtedly evolved since its initial contemplation and inception until now, so necessarily the OIG's interpretation has also likely developed from its almost 20-year-old guidance.