The Department of Health and Human Services Office of Inspector General (“OIG”) recently issued a favorable advisory opinion regarding whether a proposed patient assistance program (“PAP”) would run afoul of Federal antifraud statutes.

Under the proposed PAP, a nonprofit organization would subsidize certain cost-sharing obligations for low-income Medicare enrollees who have diabetes and reside in a specified rural area. Although the PAP displayed the potential for the generation of prohibited remuneration and did not fall under a safe harbor for either the Federal Anti-kickback Statute (AKS) or the beneficiary inducement provisions of the Civil Monetary Penalties statute (CMP), OIG stated that it would not impose administrative sanctions on the requesting entity.

While this advisory opinion is only applicable to the specific program at issue and can only be relied upon by the requestor, there are some potential considerations that could be applied more broadly to other arrangements.

Factual Background

The requesting entity is a nonprofit organization that was created and funded from the net proceeds of the sale of a nonprofit hospital and does not furnish any items or services reimbursed under a Federal health care program. The requestor proposes to fund a PAP that pays for 100% of the participants’ cost-sharing obligations for all diabetic prescription medications, irrespective of the patient’s treating provider, pharmacy, or particular drug used.

The requestor does not solicit and has not knowingly received donations from any person or organization affiliated with pharmaceutical entities. As part of the proposed arrangement, the requestor would require that any donors to the PAP certify that they are not a pharmaceutical entity or donating on behalf of one. Additionally, no member of the requestor’s board of trustees and none of its corporate officers are permitted to have a financial relationship with a pharmaceutical entity.

The Patient Assistance Program

Participant eligibility in the PAP was made contingent on the following:

  • residence within the designated service area,
  • enrollment in Medicare Part D,
  • lack of secondary insurance coverage,
  • household income below 400% of the poverty level,
  • and a diabetes diagnosis with a treatment regimen prescribed by licensed health care practitioner.

Under the PAP, participants could obtain covered drugs at any pharmacy, which would be reimbursed in their entirety under the program. Some pharmacies would be designated as “participating pharmacies,” which would provide certain conveniences like submitting for reimbursement directly to PAP sponsor and not prompting participants to pay cost sharing for the medications out-of-pocket at the point of sale. Meanwhile, beneficiaries obtaining drugs from non-participating pharmacies would have pay the out-of-pocket cost at the point of sale, and then separately submit for reimbursement from the requestor. Participating pharmacies were selected based on the following criteria:

  • familiarity with and participation in Medicare Part D,
  • independent ownership,
  • geographic location,
  • history of compliance with laws,
  • and sufficient infrastructure to effectuate administrative tasks.

AKS and CMP Implications

The OIG concluded that the proposed PAP would involve remuneration to participants in the form of cost-sharing subsidies and would not be protected by a statutory exception or regulatory safe harbor to the AKS. Nonetheless, the OIG said it would not impose administrative sanctions, because it believes the risk of fraud and abuse is low for the following reasons:

  • Cost-sharing subsidies would not function as a conduit for payments by a pharmaceutical manufacturer to patients: The restrictions on donations and influence from pharmaceutical entities, as well as coverage of all drugs irrespective of treating provider, manufacturer, or pharmacy, help to mitigate the potential for the program to be used to improperly increased drug prices.
  • Low risk of steering Medicare enrollees to certain drugs: The design of the proposed PAP reduces the likelihood that the cost-sharing subsidies would steer Medicare enrollees to a particular product based on the availability of the subsidy.
  • Eligibility for financial assistance would be based on financial need: The OIG noted that there “would be a reasonable, verifiable, and uniform measure of financial need that would be applied in a consistent manner.” Additionally, assistance would be narrowly tailored to address a community need that was limited in scope, time, and amount.

The OIG also concluded that the proposed PAP would involve remuneration to participants by allowing them to avoid upfront out-of-pocket expenses when they obtain covered drugs at a “participating pharmacy” as opposed to a non-participating pharmacy. This too would not be protected by a statutory exception or regulatory safe harbor to the AKS. However, the risk of fraud and abuse was considered low for the following reasons:

  • Low risk of steering to a particular pharmacy: OIG acknowledged that other convenience factors would inform a participant’s choice of pharmacy, and that the “participating pharmacies” were selected based on objective criteria. Additionally, the ultimate dollar value of the cost-sharing subsidies would not differ based on the pharmacy.
  • Unlikely to interfere with clinical decision-making: Enabling participants to avoid upfront out-of-pocket expenses would be unlikely to lead to inappropriate utilization.
  • Unlikely to increase costs to Federal health care programs: Federal health care programs would pay the same amount for covered drugs regardless of whether participants obtain those drugs from a participating pharmacy or not under the program.

What does this mean?

As is typical, the advisory opinion only applies to the entity requesting it.  That said, the opinion potentially is instructive to other entities.

OIG has consistently warned that, in order to reduce fraud and abuse risks, PAPs should be independent of pharmaceutical manufacturer influence and “not function as a conduit for payments by the pharmaceutical manufacturer to patients,” which could create potential for improperly increased drug prices. The OIG’s conclusions also appear to be focused on the fact that the PAP was not likely to steer Medicare enrollees to certain drugs or pharmacies. This could result in enrollees taking drugs that are not as safe and effective for them as other drugs.

Reed Smith will continue to follow health care fraud and abuse developments. If you have questions about an arrangement you are utilizing or contemplating utilizing, do not hesitate to reach out to a Reed Smith attorney.