OIG Approves Arrangement Regarding Drug Cost Subsidies for Certain Low-Income Medicare Enrollees

The Department of Health and Human Services, Office of Inspector General (“OIG”) recently released a favorable advisory opinion, OIG Advisory Opinion No. 24-07 (the “Opinion”), to a nonprofit tax-exempt grant-making organization (the “Requestor” of the opinion). In the opinion, OIG analyzes the proposed structuring of a program to subsidize certain cost-sharing obligations for low-income diabetic Medicare enrollees who reside in a specified rural area. The Requestor inquired whether the contemplated subsidy program (the “Proposed Arrangement”) would constitute grounds for sanctions under the civil monetary penalty provisions at section 1128A(a)(5) and (7) of the Social Security Act (the “Act”), as those sections relate to the commission of acts described in section 1128B(b) of the Act (the “Federal Anti-Kickback Statute” or “AKS”) or prohibition of inducements to beneficiaries (the “Beneficiary Inducements CMP”). The Requestor also sought confirmation that the Proposed Arrangement would not expose it to sanctions under the exclusion authority at section 1128(b)(7) of the Act. OIG concluded that though the Proposed Arrangement would generate prohibited remuneration if the requisite intent were present, it would not impose sanctions under the Act in connection with the Proposed Arrangement.

The Advisory Opinion

The Requestor is a nonprofit tax-exempt grant-making organization created from proceeds of a sale of a rural nonprofit hospital. Many Medicare enrollees in the hospital’s former service area do not meet Medicaid enrollment requirements, yet still face financial challenges that hinder their ability to purchase needed medications. The Requestor’s mission is to improve the health and wellbeing of the residents in the hospital’s former service area. As such, the Requestor would establish a patient assistance program (“PAP”) that would pay for 100% of the cost-sharing obligations of low-income Medicare Part D enrollees in the service area for all diabetes prescription medications that have been approved by the U.S. Food and Drug Administration (“FDA”) and are covered by Medicare Part D.

Specifically, if a pharmacy participates in the PAP, the Requestor would reimburse the pharmacy for the entire amount of a PAP enrollee’s cost-sharing burden for a covered diabetes drug, eliminating the need for a cash outlay by the enrollee at the point of sale. Conversely, if a PAP enrollee elects to use a nonparticipating pharmacy, the enrollee would pay its cost-sharing expense for the covered drug at the point of sale, but could submit a claim for reimbursement of the full amount to the Requestor. PAP enrollment eligibility would not be contingent on the use of a particular treating provider, pharmacy, or drug. Enrollees would have to re-apply each year and they would receive assistance on a first-come, first-served basis for so long as funding remains available in a given calendar year.

The Requestor does not solicit donations, but occasionally receives them. To the Requestor’s knowledge, it has not received donations from any person affiliated with Pharmaceutical Entities (namely pharmaceutical manufacturers or distributors; drug wholesalers; pharmacy benefit managers; group purchasing organizations; pharmacies; or entities owned or controlled by, or that have an ownership or control interest in, any of the foregoing types of entities). Before implementing the Proposed Arrangement, the Requestor would create a mechanism whereby each potential donor would certify that it is not a Pharmaceutical Entity nor donating on behalf of a Pharmaceutical Entity. The Requestor would not accept donations from a donor who could not so certify. The Requestor itself is neither owned or controlled by, nor has an ownership or control interest in, any Pharmaceutical Entity, and it does not furnish any items or services for which payment may be made under a federal healthcare program.

OIG acknowledged that PAPs can provide important safety net assistance to patients, especially those who cannot afford their prescription drug cost-sharing obligations. But PAPs should be independent of pharmaceutical manufacturer influence and not function as a conduit for payments by the pharmaceutical manufacturer to patients to avoid fraud and abuse risks, including: (1) the potential for improperly increased drug prices, which could result in improperly increased costs to federal healthcare programs and certain patients; (2) the possible steering of Part D enrollees to certain drugs, which could result in enrollees taking drugs that are not as safe and efficacious for them as other drugs; and (3) the prospect of anti-competitive effects.

OIG concluded that the Requestor’s proposed PAP would involve remuneration to participants in the form of cost-sharing subsidies and enabling enrollees to avoid upfront out-of-pocket expenses when they obtain covered drugs at a participating pharmacy. Neither of these remuneration streams would be protected by an AKS statutory exception or regulatory safe harbor.

The cost-sharing subsidies would implicate the AKS because they could induce enrollees to purchase items reimbursable by a federal health care program — in particular, diabetes drugs covered by Medicare Part D. Nevertheless, OIG believes the risk of fraud and abuse presented by the subsidies is sufficiently low under the AKS for a combination of reasons: (1) most importantly, the cost-sharing subsidies under the PAP would not function as a conduit for payments by a pharmaceutical manufacturer — or any other Pharmaceutical Entity — to patients; (2) the PAP’s design reduces the likelihood that the cost-sharing subsidies would steer Medicare enrollees to a particular product based on the availability of the subsidy because the PAP would subsidize the cost of any FDA-approved and Medicare-covered prescription diabetes drug; and (3) PAP participation eligibility would be based on a good-faith determination of financial need (which would be verified each year) and would be narrowly tailored to address a particular community need.

Enabling enrollees to avoid upfront out-of-pocket expenses also implicates the AKS because this remuneration stream could induce enrollees to purchase certain items reimbursable by a federal health care program from a participating pharmacy. Nevertheless, OIG believes the risk of fraud and abuse this stream presents is sufficiently low under the AKS for a number of reasons, including: (1) the risk of steering to a particular pharmacy is mitigated because Requestor uses objective criteria to select participating pharmacies, and enrollee pharmacy choice could be informed by additional convenience factors (e.g., location, availability, etc.); (2) risks of overutilization, inappropriate utilization, or interference with clinical decision-making are low because enrollees would obtain the same medications whether they select a participating or non-participating pharmacy; and (3) the risk of increasing costs to federal programs is low because those programs would pay the same amount for the medications whether obtained from participating or nonparticipating pharmacies.

Both remuneration streams also implicate the Beneficiary Inducements CMP because the Requestor would offer remuneration to enrollees that could induce them to select a participating pharmacy for the receipt of covered drugs, which are items payable by Medicare. But OIG would not impose sanctions under the Beneficiary Inducements CMP for the out-of-pocket expense abatement stream for the same reasons it found low risk of fraud and abuse under the AKS. Also, OIG did not believe it likely that the cost-sharing subsidies would influence enrollees to select a particular pharmacy because eligibility for enrolling and remaining in the PAP would be independent of an enrollee’s selection of a particular pharmacy, the value of the cost-sharing subsidy would not differ based on the chosen pharmacy, and switching pharmacies would not affect an enrollee’s PAP eligibility.

Analysis

OIG has long emphasized the importance of PAPs maintaining sufficient independence from pharmaceutical industry players (e.g. drug manufacturers or pharmacies) so as not to function as a payment conduit from these entities to patients.¹ OIG has also stressed the value of determining patients’ PAP eligibility according to consistent and verifiable measures, as well as decoupling PAP enrollment from a selection of a particular product or subset of products.² OIG has explicitly stated that cost-sharing subsidies provided by bona fide independent charities operating consistently with the 2005 Bulletin and 2014 Bulletin should not raise AKS concerns.³  The favorable opinion issued here illustrates that patient assistance programs must be carefully structured, but may not run afoul of the AKS or Beneficiary Inducement CMP provisions so long as critical safeguards are maintained.

For more information on OIG Advisory Opinion No. 24-07 or other issues addressed herein, please contact AGG Healthcare attorney Lisa Churvis.

[1] See, e.g., OIG, Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs, 79 Fed. Reg. 31,121 (May 30, 2014), https://oig.hhs.gov/fraud/docs/alertsandbulletins/2014/
independent-charity-bulletin.pdf, (the “2014 Bulletin”).

[2] Id. at 31,122; see also OIG, Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees, 70 Fed. Reg. 70625-26 (Nov. 22, 2005), https://oig.hhs.gov/documents/special-advisory-bulletins/880/2005PAPSpecialAdvisoryBulletin.pdf, (the “2005 Bulletin”).

[3] OIG Advisory Opinion No. 15-14, n.8 (Nov. 13, 2015).