On March 18, 2021, HHS OIG issued a favorable advisory opinion (Advisory Opinion 21-01) regarding an arrangement through which a pharmaceutical manufacturer offers free drugs to patients who satisfy certain criteria. The drug in question is a personalized medicine made from the patient's own cells, intended to be a one-dose and potentially curative treatment. The drug is also subject to the Risk Evaluation and Mitigation Strategy (REMS) program of the U.S. Food and Drug Administration (FDA) and is required to be administered only by a healthcare facility certified by the manufacturer and prescribed only by a physician trained to meet the requirements of the REMS.

Under the arrangement, patients that meet certain requirements, including the lack of insurance or denial of coverage by the patient's insurer and certain objective financial needs criteria, would qualify for the free drug. Given these requirements, no third-party payors, including federal healthcare programs, would be billed for the cost of the drug. However, third-party payors, including federal healthcare programs, may be billed for ancillary services associated with administering the free drug, including professional services and facility fees.

The OIG determined that there is a low risk of fraud and abuse under the federal AKS because:

  • The drug is a potentially curative treatment that is administered only once, which negates the risk that the arrangement constitutes a "seeding" arrangement through which future referrals of a drug are induced through a free dosage.
  • The drug is FDA-approved for the indications at issue and thus distinct from other arrangements where manufacturers offer a free drug for one clinical indication to maintain a high price for all of the drug's indications when paid for by federal healthcare programs.
  • The arrangement is available to all eligible patients regardless of the setting in which it is administered (e.g., inpatient vs. outpatient) or payor status, which mitigates the risk that the free drug will inappropriately steer a patient to one care setting over another or inappropriately discriminate against a beneficiary due to payor status.
  • There is low risk that physicians would overutilize the free drugs to earn professional fees and facility fees because the drug is only administered once and approved for use only when other therapies failed.

The OIG also determined that the arrangement is also unlikely to implicate the prohibition on beneficiary inducement under the civil monetary penalty statute because it is unlikely to induce beneficiaries to select a particular provider, practitioner or supplier of federally reimbursable items or services. Specifically, the arrangement is agnostic to the beneficiary's use of a particular provider, practitioner or a supplier because the arrangement is available regardless of which eligible physician prescribes the product or which eligible facility administers the drug. Additionally, the eligibility of physicians who prescribe the drug, as well as facilities that administer the drug, is dependent solely on the FDA's REMS criteria and not the remuneration offered under the arrangement.

While the requestor in Advisory Opinion 21-01 was able to obtain a favorable opinion, the provision of free drugs in general may implicate both AKS and the prohibition on beneficiary inducement, depending on the particular circumstances of each arrangement. Each arrangement should be carefully analyzed to ensure that the arrangement poses a low risk of fraud, waste or abuse and to avoid scrutiny of the OIG, the U.S. Department of Justice and other enforcement authorities.

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