On December 28, 2022, the Department of Health and Human Services’ Office of Inspector General (OIG) issued a favorable advisory opinion on a proposal by a drug manufacturer to enter into an arrangement with certain hospitals to provide up to a specified number of free samples of a long-acting antipsychotic drug for inpatient use.

The OIG indicated it would not impose administrative sanctions, despite the fact that there is no safe harbor available under the federal Anti-Kickback Statute (AKS) to protect the proposed arrangement.

Manufacturer proposes to provide free drug samples to hospitals

Under the arrangement, the drug manufacturer will provide free samples of an FDA-approved long-acting injectable atypical antipsychotic drug to certain hospitals for inpatient use in treatment of a disorder. This long acting formulation of the drug, which is dosed once a month, is intended to provide uninterrupted medication coverage for an extended period of time. The extended coverage is shown by peer-reviewed studies to reduce the incidence of patients missing doses, decrease worsening of symptoms, lower rates of hospitalization, and shorten lengths of hospital stays. As a result, the drug is expected to reduce aggregate costs to the health care system.

A health care professional can administer this drug in either an inpatient or outpatient setting. When administered in an inpatient setting, the drug generally is not separately reimbursable by a federal health care program because it is usually covered under Medicare Part A. When administered in an outpatient setting, the drug is covered by either Medicare Part B or Part D, depending on the setting in which it is dispensed.

Hospitals must enroll and are limited in distribution of drugs

The hospitals permitted to enter into this arrangement cannot dispense any other drug samples that comply with the Prescription Drug Marketing Act of 1987 (PDMA) and must enroll for the arrangement via an online portal.

Upon enrollment, the program administrator would initially ship to the participating hospital’s pharmacy up to five free sample doses of the drug. After samples are administered to eligible patients, the pharmacist would be able to order additional units of the drug to replace those administered via secure online portal, such that, at any given time, a participating hospital would have no more than five units in inventory as part of this arrangement.

A hospital can request up to a maximum number of 20 units per month, limited to two free units of the drug per eligible inpatient, per calendar year.  For a patient to be eligible to receive the free drug: (i) the patient must have been diagnosed with the disorder; (ii) the drug must be administered to the patient in a manner consistent with the drug’s label; and (iii) the patient must be a current inpatient at a participating hospital.

As part of the enrollment and upon receipt of each free sample shipment of the drug, the participating hospital must certify that:

  • The drug may be administered to a patient only if the prescriber has independently determined that the drug is clinically appropriate and in the best interest of the patient.
  • The participating hospital and prescriber cannot bill any patient, insurer, or other third party for the free samples, and the samples may not be sold, resold, traded, or distributed for sale.
  • There is no obligation on the part of a participating hospital or prescriber to continue using, prescribing, or recommending the drug.
  • The participating hospital must establish adequate controls to track sample usage and report any irregularities to the manufacturer.

Additionally, the arrangement implements certain protocols to ensure that each drug sample is properly administered to eligible patients. For example, the program administrator must validate each product order to confirm eligibility and confirm that the participating hospital has appropriately certified to the requirements of the arrangement.

The drug manufacturer would make hospitals aware of the proposed arrangement via: (i) field-based sales representatives; (ii) manufacturer-approved communications sent directly to hospitals; or (iii) prescriber-accessible websites. The proposed arrangement would not be advertised in magazines, journals, digital ads, or other mass consumption forums. Also, the prescribers would not receive any financial incentive to prescribe the drug to inpatients as opposed to a competing long-acting agent or a daily oral alternative.

No safe harbor available under the AKS

The OIG recognized in its opinion that the provision of drug samples is a widespread industry practice and that the PDMA governs their distribution. The OIG expressed no opinion regarding potential liability of the drug manufacturer under the PDMA or the False Claims Act and limited its analysis to the AKS, which prohibits the exchange of remuneration to induce the referral of services, items, or goods that are reimbursable by a federal health care program.  

In this case, the OIG found that the proposed arrangement would implicate the AKS because free drug samples would constitute remuneration from drug manufacturers to hospitals, and hospitals may be referral sources for the drug. The OIG determined that there is no safe harbor available under the AKS and evaluated the facts and circumstances of the proposed arrangement to assess risks of overutilization, increased costs to federal health care programs, corruption of medical decision-making, patient steering, and unfair competition.

Arrangement showed low risk of fraud and abuse

The OIG decided that the proposed arrangement would present a sufficiently low risk of fraud and abuse for the following reasons:

  • The risk of a participating hospital steering patients to the drug based on receipt of free samples is low. Participating hospitals must allow clinicians to make independent decisions about whether the drug is clinically appropriate for a particular patient. The prescribers would not receive any financial incentive to prescribe the drug to patients as opposed to competing drugs. The OIG noted that in an outpatient setting, where the drug would be billable, prescribers could receive a financial benefit but that benefit would have existed even without the arrangement. Additionally, patients may still decide to switch to another long-acting injectables or a daily oral alternatives after receiving this drug.
  • The arrangement could actually reduce federal health program costs over time if the drug successfully achieves the outcomes as shown in the studies. The free samples of the drug will be given only to patients diagnosed with the disorder and for whom a prescriber independently determined that: (i) the drug is clinically appropriate; and (ii) immediate onsite treatment with the drug increases the long-term likelihood of a positive treatment outcome. Although the drug could be billed to federal health care programs if a beneficiary continues to receive it after discharge, the drug could still achieve the benefits described above and the aggregate costs to federal health care programs could decrease over time.
  • The arrangement would include safeguards to minimize the risk that the free drug samples would be misused. The participating hospital would be required to agree that the free samples cannot be sold, resold, traded, distributed for sale, or billed to any patient or payor. Also, the participating hospitals could receive only a limited number of samples per year and per patient. Finally, by enrolling in the arrangement, participating hospitals would agree that they: (i) will require that prescribers act in accordance with professional standards, including making prescribing decisions in the best interest of the patient; and (ii) understand that there is no obligation to continue using, prescribing, or recommending the drug, as a condition of receiving a free sample.

Although the OIG gave the drug manufacturer the green light on this arrangement, there is no guarantee that similarly structured arrangements would be immune from an administrative sanction. Regardless, the analysis of this arrangement outlined in this advisory opinion sheds some light on how future arrangements are likely to be reviewed and analyzed by the OIG.

Reed Smith will continue to follow developments with regard to fraud and abuse enforcement. Should you have any questions related to this advisory opinion, or any other health care compliance issues, please do not hesitate to reach out to the health care attorneys at Reed Smith, LLP.