On February 28, 2023, the Department of Health and Human Services’ Office of Inspector General (“OIG”) issued a favorable advisory opinion regarding an arrangement through which a pharmaceutical company provides free enzyme replacement therapy (“ERT”) medication to patients who satisfy certain eligibility requirements where the patients’ insurer is delayed in making a coverage determination.

The OIG noted that, although the arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if conducted with the requisite intent, it would not impose administrative sanctions. Further, the OIG opined that the arrangement would not generate prohibited remuneration under the beneficiary inducement prohibition (“Beneficiary Inducement CMP”).

Existing program to provide free limited supply to patients

The pharmaceutical manufacturer acquired the ERT medication, which was approved by the United States Food and Drug Administration (FDA) to treat a genetic disorder that causes a severely compromised immune system. Currently, the only FDA-approved treatments are the ERT medication and a bone marrow transplant. Unless managed with the ERT medication or successful bone marrow transplant, the genetic condition is fatal. Notably, the pharmaceutical company represented that as of July 2021, only 49 patients in the United States were using the ERT medication. Of these patients, 6 were Medicare beneficiaries and 32 were Medicaid beneficiaries.

Through the arrangement, patients can receive a 14-day supply of the ERT medication. To be eligible, the patient must satisfy the following conditions:

  • A licensed health care professional must diagnosis the patient with the genetic condition;
  • The licensed health care professional must prescribe ERT medication;
  • The patient has never been treated with the ERT medication;
  • The patient has health insurance, such as coverage from a commercial insurer or federal health care program; and
  • The insurer must be delayed in making its coverage determination for the ERT medication. The delay must be at least 48 hours from the time at which the insurer received all required information.

If the patient satisfies all of the above conditions, he or she is eligible to receive a free 14-day supply of the ERT medication. Further, if the patient finishes the initial supply and is still waiting for a coverage determination or is actively pursuing an appeal of a denial, the patient is eligible for one additional 14-day supply. Upon receiving a free supply, the patient is informed that neither he or she nor the prescribing health care provider are permitted to seek reimbursement for the cost of the ERT medication or its administration, if the health care provider administers the first dose.

The ERT medication has specific use, storage, and handling requirements. Consequently, the pharmaceutical company works with a single specialty pharmacy, which dispenses the ERT medication directly to patients. As an additional safeguard, upon dispensing the prescription, the specialty pharmacy informs the patient’s health plan that the ERT medication is being provided outside of plan benefits; therefore, neither the patient nor provider are permitted to file a claim for the item or its administration.

Arrangement poses low risk of fraud and abuse

The AKS prohibits a person from knowingly and willfully offering, soliciting, paying, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce the referral of any item or services covered by a federal health care program. Under the Beneficiary Inducement CMP, if a person offers or transfers remuneration to a Medicare or state health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of provider or supplier to order or provide a reimbursable item or service, the person may be subject to civil monetary penalties or exclusion from Medicare or state health care program.

The OIG indicated that the arrangement implicates the AKS because providing the ERT medication for free to federal health care program beneficiaries constitutes remuneration that could induce future purchases of the ERT medication, which could be paid for by a federal health care program. Nonetheless, the OIG determined that the arrangement presents a sufficiently low risk of fraud and abuse for the following reasons:

  • It is unlikely to lead to overutilization of the ERT medication. First, the ERT medication’s sole FDA-approved indication is to treat the genetic disorder. Second, patient eligibility is limited to patients who: (1) have been diagnosed with the genetic disorder by a licensed health care provider; (2) have been prescribed and have not previously been treated with the ERT medication; and (iii) are facing a delay in their insurer’s coverage determination. Third, patients who receive the ERT medication under this arrangement are subject to cost-sharing obligations after the free dose(s) have been received. Finally, the number of free doses is limited to one 14-day supply and possible 14-day refill.
  • Unlike other types of “seeding” programs, it is unlikely to induce patients to take the ERT medication because the health care providers who prescribe the ERT medication likely presuppose that it will be covered by the patients’ insurer. The arrangement is not available to all patients; rather, it is only available if there is a delay in an insurer’s coverage determination. Moreover, the arrangement is unlikely to influence patients’ or health care providers’ decision-making because there is only one alternative therapy, a bone marrow transplant.
  • It does not confer any financial benefit to the health care provider who prescribes the medication. The ERT medication is dispensed directly from the specialty pharmacy to the patients, and the health care providers do not bill for the ERT medication, even in cases where the health care providers administer the first dose.  
  • It does not result in any costs to federal health care programs. The ERT medication is free; thus, no patient, payor, or other third party is billed for the cost of ERT medication or its administration under the arrangement. Upon dispensing the ERT medication, the specialty pharmacy informs patients, health care providers, and health plans that the ERT medication is being provided outside of the plan benefits, and neither patients nor health care providers should file a claim for the ERT medication.
  • While the remuneration scheme implicates the AKS, there is sufficiently low risk associated with this arrangement because it does not create an obligation for the patient to continue purchasing the ERT medication, or any other item or service, from the specialty pharmacy in the future.

The OIG also stated that the arrangement may implicate the Beneficiary Inducement CMP because the pharmaceutical company is offering remuneration (i.e., free ERT medication) that is knows or should know is likely to influence the patient’s decision to select a particular supplier (i.e., the specialty pharmacy). In the OIG’s estimation, the likelihood of influencing the patient’s decision-making is mitigated given that the specialty pharmacy is the only supplier that dispenses the ERT medication. Therefore, all patients must obtain it from the specialty pharmacy irrespective of receiving the ERT medication under the arrangement or as a covered item pursuant to their insurer’s coverage determination. Moreover, the OIG said that receiving the free ERT medication was unlikely to influence the patient to purchase additional items from the specialty pharmacy that would be paid for by federal health care programs. Therefore, the OIG decided that the remuneration was unlikely to influence a beneficiary from purchasing the ERT medication from the specialty pharmacy.

Although the OIG concluded that this arrangement was permissible, there is no guarantee that similarly structured arrangements devised by other pharmaceutical companies would be immune from administrative sanctions. However, the analysis 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 track developments regarding fraud and abuse enforcement. Should you have any questions related to this advisory opinion or other health care compliance concerns, please do not hesitate to reach out the health care attorneys at Reed Smith.