On September 23, 2020, the Office of Inspector General of the United States Department of Health and Human Services (OIG) publicly released Advisory Opinion 20-05 (AO 20-05), a significant, adverse opinion rejecting a proposal by a pharmaceutical manufacturer to provide copay assistance to Medicare Part D beneficiaries who were prescribed medications that the company manufactures. The OIG opined that the proposed program was “highly suspect” under the Federal Anti-Kickback Statute and was likely to induce patients to purchase the company’s products reimbursed under Part D.

In AO 20-05, an unusually lengthy opinion, the OIG sets forth in detail its concerns regarding the provision of financial assistance by pharmaceutical companies to Part D beneficiaries who cannot afford their out-of-pocket copay and other expenses. The key to the OIG’s legal analysis is its broad interpretation of the term “induce” as used in the Anti-Kickback Statute. The OIG appears to take the position that copay assistance “induces” a beneficiary to purchase a medication when the assistance removes a financial barrier, even if the medication is one that the beneficiary indisputably needs and would have purchased if he or she had the financial means to do so. The OIG’s interpretation of “induce” is likely to be tested in one or more pending cases in federal court.

Overview of Proposed Arrangement

The advisory opinion was requested by a pharmaceutical company that manufactures and markets medications approved by the FDA in 2019 to treat a rare and serious cardiac disease that the opinion did not identify (Requestor). The Requestor set the list price of its medications at $225,000 for a one-year course of treatment, making the drug the most expensive cardiovascular drug “ever launched in the United States.” According to the Requestor, the cardiac disease affects 100,000 to 150,000 Americans, the majority of whom are Medicare beneficiaries who cannot afford the $13,000 out-of-pocket expenditures for the medications under the standard Medicare Part D benefit.

To address the financial impediment posed by the out-of-pocket costs, the Requestor sought to implement a cost-sharing assistance program specific to Medicare Part D beneficiaries who are prescribed the Requestor’s medications (the Subsidy Program). To be eligible for financial assistance under the proposed program, the applicant must (1) be a Medicare beneficiary enrolled in either a Part D plan or a Medicare Advantage- Part D plan that covers the Requestor’s medications; (2) reside in the United States; (3) have a household income between 500 and 800 percent of the Federal Poverty Level (FPL); and (4) have been prescribed the Requestor’s medications. Patients eligible to receive assistance from other funding sources, such as the Medicare Low-Income Subsidy or a separate company program providing free drugs to patients below 500% of FPL, would not be eligible for the Subsidy Program. Between the Requestor’s proposed Subsidy Program and the Medicare Low-Income Subsidy, approximately 91% of Medicare beneficiaries would be eligible for cost-sharing assistance for the Requestor’s drug.

The Requestor proposed to engage a third-party vendor to administer the Subsidy Program. Once a patient was enrolled, the patient would be issued a Subsidy Card that he or she could use at the point of sale to receive cost-sharing assistance. Under the program, a beneficiary would be responsible for a monthly copayment of up to $35 each time he or she filled a prescription for one of the Requestor’s medications, and the Requestor, through the third-party administrator, would pay the remainder of the beneficiary’s cost-sharing obligations. The Subsidy Card could be used at any pharmacy that the Requestor authorized to dispense its medications (Dispending Pharmacy). The Requestor selected Dispending Pharmacies through a request for proposal process, and only Dispending Pharmacies are permitted to dispense Requestor’s medications to any patient, regardless of whether the patient received assistance under the Subsidy Program.

The OIG Concludes Proposed Arrangement ‘Highly Suspect’ Under Anti-Kickback Statute and Would ‘Induce’ the Purchase of Requestor’s Drugs

The OIG evaluated whether the Proposed Arrangement violated the Federal Anti-Kickback Statute, which makes it illegal, among other things, to knowingly and willfully offer, pay, solicit or receive any remuneration to “induce” the purchase of a drug reimbursed in whole or in part under a federal health care program, such as Medicare Part D. Before delving into its analysis, the OIG noted that it is mindful of the importance of ensuring Medicare beneficiaries have access to medically necessary drugs. Citing its prior guidance outlining how pharmaceutical manufacturers may donate to independent charitable copay assistance foundations, the OIG emphasized that lawful avenues exist for pharmaceutical manufacturers and others to help ensure that all Part D beneficiaries can afford medically necessary drugs, including in those instances where there may be only one drug to treat a disease. ¹

The OIG concluded that the proposed Subsidy Program differed materially from permissible company donations to independent copay assistance foundations because the Subsidy Program provided remuneration to Medicare beneficiaries to induce them to purchase an item or service for which payment may be made under a federal health care program. The OIG reasoned that, where a Medicare beneficiary otherwise may be unwilling to or unable to purchase the Requestor’s medications due to the beneficiary’s cost-sharing obligations, the Subsidy Program would “induce” the beneficiary to purchase the medications by removing the financial impediment:

[T]he Subsidy Card would be offered to beneficiaries to induce them to purchase a covered item by removing what would otherwise be an impediment that would deter such purchase. . . . [W]here a Medicare beneficiary otherwise may be unwilling or unable to purchase the Medications due to his or her cost-sharing obligations, which are driven by the list price of the Medications, the Subsidy Program would induce that beneficiary to purchase the Medications by removing the financial impediment, and the Medicare program would bear the costs for the Medications. Using the language of the Federal anti-kickback statute, Requestor proposes to provide remuneration (the Subsidy Card) to a person (the Medicare beneficiary) to induce that person to purchase an item (the Medications) reimbursable under a Federal health care program (Medicare).

In sum, although not stated in these exact terms, it appears that the OIG has taken the position that copay assistance “induces” a beneficiary to purchase a medication when the assistance removes a financial barrier, even if the medication is one that the beneficiary indisputably needs and would have purchased if he or she had the financial means to do so.

Given its broad interpretation of “induce,” the OIG concluded that the Requestor’s proposed arrangement was “highly suspect” under the Anti-Kickback Statute “because one purpose the Subsidy Program — perhaps the primary purpose — would be to induce Medicare beneficiaries to purchase Requestor’s federally reimbursable Medications.”

In further support of its adverse opinion, the OIG stated that that it perceived a number of fraud and abuse risks that were not mitigated by Requestor’s proposed arrangement:

• According to the OIG, the Subsidy Program would increase costs to Medicare by effectively eliminating beneficiary copayments, which the OIG described as “one of the key pricing controls” and a “key market constraint” that Congress included in the Part D program. In this context, the OIG expressed concern regarding the high list price set by the Requestor and stated that the “facts and circumstances here suggest” that the Subsidy Program may be “critical” to the Requestor’s ability to keep its price at a high level.
• The OIG also expressed concern that the Subsidy Program could steer patients towards, and lock them into, a particular therapy. The OIG noted that although the Requestor’s drug is the only drug approved by the FDA for the disease in question, there are some other treatment options; some physicians prescribe other drugs off-label for the disease, an organ transplant is an option for some patients, and new treatments could emerge in the future.
• The OIG also noted that although the Proposed Arrangement did not involve providing remuneration to physicians to induce them to prescribe the Requestor’s drug covered by Part D, the availability of copay assistance for patients could influence physician treatment decisions.² While the OIG emphasized that it is not inappropriate for a physician to consider costs to patients when making prescribing decisions, the OIG expressed concern that physician decision-making could be skewed. According to the OIG, if the Subsidy Program were adopted, physicians might be swayed to prescribe the Requestor’s drug even if cheaper or lower-cost and equally effective therapies happened to be available or became available in the future.

Enforcement Context

The OIG issued AO 20-05 against the backdrop of considerable government enforcement efforts against pharmaceutical companies providing copay financial assistance. Since at least 2015, the Department of Justice (DOJ) and the OIG have investigated numerous pharmaceutical companies regarding their donations to charitable foundations that provide financial assistance to help needy patients afford their copy and other out-of-pocket expenses for prescription drugs. Although AO 20-05 reaffirmed that donations to independent charitable copay assistance foundations are permissible, and cited relevant OIG guidance, in a number of cases, the government has contended that pharmaceutical company donations did not adhere to the OIG guidance and that pharmaceutical company donors used the foundations as mere conduits to provide assistance to patients purchasing the donor’s products. In recent years, 11 pharmaceutical companies have paid an aggregate amount in excess of $1 billion to settle False Claims Act allegations premised on alleged Anti-Kickback Statute violations, arising from their donations to copay assistance foundations, and some of the companies have entered into Corporate Integrity Agreements with the OIG. In addition, four copay assistance foundations have also entered into settlements and Integrity Agreements with the OIG. And in another instance, the OIG rescinded an advisory opinion that it had issued to a copay assistance foundation.

More recently, the United States has filed suit against three pharmaceutical companies alleging that their donations to copay assistance foundations violated the Anti-Kickback Statute,³ and one pharmaceutical company filed a declaratory judgment action challenging the Government’s position that pharmaceutical companies cannot provide direct financial assistance to Medicare beneficiaries.⁴ The OIG’s broad interpretation of “induce” in AO 20-05 is likely to be tested in these four federal lawsuits, with the pharmaceutical companies disputing the Government’s position that pharmaceutical companies are “inducing” purchases when they provide financial copay assistance to needy patients in order to remove a financial impediment to patients receiving medications prescribed by their physicians that they would have otherwise purchased if they had the financial means.

Conclusion

In AO 20-05, the OIG elaborates upon its concern under the Anti-Kickback Statute regarding pharmaceutical companies providing financial support to assist Medicare beneficiaries in affording their copay and other out-of-pocket expenses. The OIG also reaffirmed its previously issued guidance that pharmaceutical companies may permissibly make donations to independent charitable copay assistance programs that follow certain safeguards set forth in the OIG guidance.

FOOTNOTES

1. AO 20-05 at 10-11 (citing Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees, 70 Fed. Reg. 70,623, 70,626 (Nov. 22, 2005) and Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs, 79 Fed. Reg. 31,120 (May 30, 2014)).
2. In litigation, the Government has taken the position that where a pharmaceutical company provides copay assistance in the Medicare Part B context, unlike Medicare Part D, the prescribing physician who also bills for the Part B drug administration does receive remuneration under the Anti-Kickback Statute. See The United States’ Opposition to Regeneron’s Motion to Dismiss, United States v. Regeneron Pharmaceuticals, Inc., No. 1:20-cv-11217-FDS (D. Mass. Sept. 21, 2020) [ECF 24].
3. See United States ex rel. Clark v. Questcor Pharmaceuticals, Nos. 2:13-cv-01776-BMS, 2:12-cv-00175-BMS (E.D. Pa.); United States v. Regeneron Pharmaceuticals, 1:20-cv-11217-FDS (D. Mass); United States v. Teva Pharmaceuticals, No. 20-11548 (D. Mass.).
4. Pfizer v U.S. Department of Health and Human Services et al., No. 20-04920 (S.D.N.Y).