United States: OIG Will Not Impose Sanctions On Entities For Program That Provides Free Drugs To Patients Experiencing Delayed Insurance Approvals

On August 5, 2015, the Department of Health and Human Services ("HHS") Office of Inspector General ("OIG) issued  Advisory Opinion No. 15-11 (the "Opinion")1 in response to a request by pharmaceutical manufacturers that co-promote a drug and have implemented a program that provides the drug at no cost for a limited time to patients experiencing a delay in the insurance approval process (the "Program"). The OIG concluded that it would not impose administrative sanctions under its exclusion or civil money penalty authority based on kickback and beneficiary inducement theories.2

In this Client Alert, we provide a brief summary of the Program and the OIG's analysis. We then discuss the importance and potential implications of the Opinion to drug manufacturers introducing new drugs in the marketplace, and some of the key variables that should be considered when evaluating similar programs.

The Proposed Program The Food and Drug Administration ("FDA") approved the antineoplastic drug at issue through the fast-track process under its Breakthrough Therapy Designation process for certain indications, and to treat patients with specific types of cancer.3 In describing the relevant characteristics of the drug, the OIG noted that it is the sole approved product within some indications, but subject to competition from off-label agents with boxed warnings, and that a patient can switch from the drug to another therapy within a short period of time (only a two-day gap) and will see a response within two months of first using the drug. Further, patients can only obtain the drug through specialty pharmacies.

Patients must meet certain eligibility criteria to enroll in the Program, which is managed by the requestors, a vendor, and the vendor's affiliated pharmacy (the "Pharmacy"). To enroll, the patient must: (1) be a new patient; (2) have received a prescription for the drug; (3) have an on-label diagnosis; (4) be insured by a private or public payor; and (5) have experienced a delay in a coverage determination of five or more business days. Generally, the prescriber or pharmacy may submit a request to the Pharmacy for the drug under this Program if the patient or prescriber does not receive a decision from an insurer within five business days. This request to the Pharmacy must be through a separate prescription from the original prescriber. Thereafter, the Pharmacy dispenses up to two free, 30-day supplies of the drug to the patient.4 The patient is only eligible for a second 30-day supply if the coverage determination delay continues beyond the first 30-day period. To the extent that the patient continues to need the product (e.g., after insurance coverage has been secured), those follow-on prescriptions must be filled through a different specialty pharmacy.

The requestors and the OIG specifically addressed the application of the Program to Medicare Part D beneficiaries to pinpoint any additional risks associated with the Program, and the free supply provided to federal health care program ("FHCP") beneficiaries. The requestors stated that the Program is available to Medicare Part D or other FHCP beneficiaries in the event that they encounter coverage determination delays. However, they do not foresee many beneficiaries using the Program because of Medicare Part D's formulary and turn-around-time requirements (i.e., many antineoplastic drugs are required to be on the formularies, and plans are required to deliver coverage determinations within 72 hours).5 In fact, the requestors stated that the Program is used infrequently (representing only about .0008 percent of all dispensing), and only about one-third of all shipments of the drug under the Program have been to Medicare and Medicaid beneficiaries. Regardless, the requestors implemented certain protections, including that the Pharmacy must notify the patient's Part D plan sponsor if the drug is provided through the Program, and that no part of the costs should be counted toward the patient's true-out-of-pocket ("TrOOP") costs, and no claim should be submitted to the Part D plan sponsor for the free drug supply. Additionally, eligibility and receipt of the drug is not dependent upon future purchases of the drug or any other products manufactured by the requestors. In fact, those who continue to use the drug may be responsible for significant cost-sharing amounts unless the patient is receiving support through a patient assistance program. However, the requestors stated that they have not dispensed the drug to a patient who is enrolled in a separate patient assistance program that provides co-payment support for the same diseases.

Finally, although the manufacturers include information concerning the Program on company websites and in physician detailing materials, they do not advertise it in direct-to-patient communications.

The OIG's Analysis Because FHCP beneficiaries are receiving some of the free drug supplies under the Program, the OIG completed a two-part analysis for any implications under both the anti-kickback statute and the Beneficiary Inducements Civil Monetary Penalty Law ("Beneficiary Inducements CMP Law").

a. Anti-Kickback Statute The OIG concluded that the Program raises low risks under the anti-kickback statute, citing several factors:

1. Low Risk of Overutilization: The potential for overutilization is low because (a) the patient is not eligible for the Program if the insurer makes a favorable coverage decision within five business days; (b) the drug only treats certain types of cancer and the Program is restricted to on-label uses of the drug; and (c) the patient is only eligible for up to two, 30-day supplies of the drug.

2. It Is Not a Seeding Program: The OIG stated that this Program is different from a "seeding" program (i.e., where a manufacturer offers a drug for free or at a substantial discount to induce the patient to use the drug in the future), in that (a) the Program is not marketed directly to patients, (b) only a small percentage of the drug has been shipped under the Program, implying that patients and prescribers "assume" that it will be covered under insurance with the applicable cost-sharing amounts; and (c) it is only applicable in rare cases so it is unlikely to influence patients and prescribers to choose the drug over alternative therapies.

3. Prescribers Do Not Receive a Financial Benefit: The drug is dispensed directly to the patient from the Pharmacy, so prescribers do not receive any type of administrative fee for the drug.

4. There is a Limited Relationship Between the Pharmacy and Patient: The Pharmacy's role outside of the Program is limited because a patient who receives a free supply and possible refill under the program cannot obtain future refills from the Pharmacy. Further, the Pharmacy only dispenses to certain client programs so "it is unlikely that the [Program] would induce the patient to obtain other federally reimbursable drugs from the Pharmacy."

5. FHCPs Are Not Billed for the Free Supply: There is no cost to the FHCP for the free drug supply. Also, as previously noted, the claims are not submitted to Medicare Part D plan sponsors for the free supply or refill of the drug, and none of the costs for providing the drug under the Program should be accounted for in the patient's TrOOP.

b. Beneficiary Inducements CMP Law Similarly, the OIG concluded that it would not subject the requestors to sanctions under the Beneficiary Inducements CMP Law because there is a low risk that the Program would "influence the beneficiary's selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare [or another FHCP]." First, pharmaceutical manufacturers are not considered to be "providers, practitioners, or suppliers" under this law, as the OIG has stated in previous guidance, and thus the statute does not apply to potential incentives to select a product.6 Second, while the Pharmacy could be a "supplier," it will not dispense the product commercially outside of the Program under the limited business model (i.e., it only services certain client programs and not the general public, and it does not bill payors) and client base (i.e., only those that are eligible for similar client programs).

Discussion and Commentary As pharmaceutical manufacturers introduce new, more expensive, and more clinically complicated therapies into an increasingly regulated and competitive payor environment, the reimbursement challenges associated with those therapies can be critical inhibitors of patient access and, ultimately, commercial success. Viewed against that backdrop, Advisory Opinion 15-11 must be considered a net positive in that it confirms the important principle that free product starter programs pending insurance coverage determinations can be a legitimate mechanism to facilitate patient access to therapies under the right circumstances.

As with all advisory opinions, however, the OIG's views are limited to the requesting parties and the specifics of the proposed arrangement, and thus, the challenge for manufacturers, their distribution partners, and their advisors is to assess how the opinion may apply to slightly different circumstances. That is especially important to remember with Advisory Opinion 15-11, as there are at least a half-dozen variables in the fact pattern that could fairly be construed as potentially material to the analysis. Some potentially important areas of variation in other programs that should be considered may include:

  • Nature of the Product Several characteristics of the product in question strike us as potentially meaningful. First, the product is a rapid-response oncology product designated as a breakthrough therapy, which is significant because of (1) the potential clinical benefit to patients, (2) the likelihood that the patient would truly need the product, and (3) the broad coverage mandate for such products under Medicare Part D. Second, it lacks on-label competitors. Third, if coverage were ultimately denied, the patient could discontinue therapy without expected clinical consequences. This may very well be the most conservative product profile that could be envisioned from an analytical perspective.
  • Timing Triggers and Duration of Assistance The Program under review provided for assistance to begin after five days without a prior authorization determination, and that assistance could last up to 60 days. The former number suggests an important principle: that the coverage process should be given a fair chance to work, given the nature of the product, so that starting a patient on therapy does not completely circumvent legitimate utilization controls of the payor. At the same time, the latter number reflects an equally fair principle that those processes do not always work like clockwork, and that it is reasonable to provide for that. Whether either period may be longer or shorter may depend on the circumstances of the product and the expected coverage environment.
  • Limited Role of the Fulfillment Pharmacy The OIG emphasized the fact that the Program would not be an inducement to use the fulfillment Pharmacy for federally covered refills since the fulfillment Pharmacy did not otherwise dispense the product commercially, and that it would not be an inducement to the pharmacy to influence product selection for similar reasons. This strikes us as a no-brainer. But other scenarios could also entail low risks, such as if patients were referred for refills to a specialty pharmacy network, including the fulfillment pharmacy, on a neutral basis, or if the product were distributed exclusively through a single specialty pharmacy that also provided fulfillment functions.
  • Marketing the Program From our perspective, the OIG drew a fairly reasonable line between the dissemination of information about the Program to professionals or through the company's website on the one hand, and through other types of direct-to-consumer promotion on the other. While there are inherent limits on patients' ability to influence the use of prescription products, avoiding even this limited potential by restricting program communications to vehicles that are not overt patient-selling vehicles is a favorable factor for the anti-kickback analysis.
  • Scope of the Program The OIG noted that the Program dispensing represented only 0.0008 percent of all product utilization, which of course underscores that the Program was already in operation. While the OIG fairly points out that this limited scope may imply that providers expect a product to be covered, one would hope that the fact that a program is perceived to be unnecessary has not become the key decisional touchstone. Indeed, the time when such programs may be most important for facilitating patients' access to breakthrough therapies is when a product is new and the rules and logistics of coverage are most uncertain. In any event, it is impossible to know such utilization figures prospectively with any certainty, and so it is somewhat difficult to determine what to make of this factor from a counseling perspective.
  • New Patients versus "Bridge" Scenarios The Program in question applied only in the case of patients new to therapy. However, similar "bridge" programs may also be justifiable in situations where a patient is already taking a therapy, experiences a disruption in his or her insurance coverage as a result of a change in employment or insurer, and desires to maintain continuity of therapy while coverage under the new insurance plan is sorted out. From our perspective, these situations may be even more defensible under the usual risk factors identified by the OIG, inasmuch as the alternative would be a disruption to the patient's therapy.

Manufacturers and other stakeholders involved in the design and administration of such programs should carefully consider these and other factors unique to their products when evaluating such programs.


If you have further questions concerning Advisory Opinion 15-11 or similar product programs, please contact Joseph Metro, Jackie Godin, or any other Reed Smith attorney with whom you have worked.

1 The opinion is available at http://oig.hhs.gov/fraud/docs/advisoryopinions/2015/AdvOpn15-11.pdf.

2 These sanctions are generally provided under the civil monetary penalty provisions under sections 1128(a)(5) and 1128(a)(7) of the Social Security Act, and the exclusion authority under section 1128(b)(7) of the Social Security Act.

3 The approved indications and diseases are not disclosed in the Opinion.

4 The OIG noted that the requestors certified that they pay the Pharmacy a fair market value dispensing fee.

5 See Centers for Medicare & Medicaid Services, Medicare Prescription Drug Benefit Manual, chapter 6, section 30.2.5, chapter 18, section 40.2.

6 See Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries (Aug. 2002), available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/SABGiftsandInducements.pdf.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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