On September 18, 2020, OIG issued Advisory Opinion No. 20-05 analyzing a pharmaceutical manufacturer’s proposal to offer direct cost-sharing assistance to Medicare beneficiaries prescribed certain of the manufacturer’s new drugs. As discussed in further detail below, the drugs are the only pharmaceutical treatments currently available for a rare disease and carry a high list price that would impose significant cost-sharing obligations on most Medicare beneficiaries. The manufacturer’s proposed arrangement would subsidize most of these cost-sharing obligations for beneficiaries meeting certain eligibility criteria. OIG concludes in the Advisory Opinion that the proposed arrangement would not generate prohibited remuneration under the beneficiary inducement prohibitions of the civil monetary penalties law, but could generate prohibited remuneration under the Federal anti-kickback statute (the AKS), which could result in the imposition of sanctions by OIG if the requisite intent to reward referrals is present.
Factual Background
The manufacturer’s drugs are intended to treat a rare disease that affects approximately 100,000 to 150,000 Americans. The manufacturer certified to OIG that alternative non-pharmaceutical treatments generally have limited application and the FDA is not expected to approve any competitors’ drugs until 2021 or later. The manufacturer also certified that the price of the drugs is cost prohibitive for most Medicare beneficiates, with a list price of $225,000 for a one-year course of treatment. Beneficiaries enrolled in the standard Medicare benefit would face a $5,100 true out-of-pocket cost when filling their first order and $13,000 in annual out-of-pocket expenses.
Under the manufacturer’s proposed arrangement, the manufacturer would provide cost-sharing assistance to patients who meet certain eligibility criteria requiring that they (i) are Medicare beneficiaries enrolled in a Part D plan or Medicare Advantage Part D plan that covers the medications, (ii) are U.S. residents, (iii) have household income between 500% and 800% of the Federal poverty level, and (iv) have been prescribed either of the medications on-label for treatment of the disease.
The manufacturer also certified that it has an existing free-drug program for certain Medicare beneficiaries who are below 500% of the Federal poverty level. The assistance program would not be offered as part of any advertisement or solicitation. A third-party vendor would handle administration and issue qualifying beneficiaries a card to be used at the point of sale to receive the cost-sharing assistance. Each beneficiary would be responsible for a monthly copayment of up to $35 at each refill and the manufacturer would cover the remaining balance of the cost-sharing obligations. The vendor would require both the prescriber and patient to provide certain information and certifications for purposes of determining eligibility and would conduct an investigation to determine whether alternative funding is available.
Beneficiary Inducement Analysis
OIG determined that the proposed arrangement would not generate prohibited remuneration under the beneficiary inducement prohibition of the civil monetary penalties law, 42 U.S.C. § 1320a-7a(a)(5). In reaching this conclusion, OIG noted that the beneficiary inducement prohibition only applies to remuneration that might influence a patient’s selection of a “provider, practitioner, or supplier.” An entity that solely operates as a pharmaceutical manufacturer¾and does not also own or operate a pharmacy or pharmacy benefits manager¾is not considered a “provider, practitioner, or supplier.” OIG also analyzed the manufacturer’s relationships with dispensing pharmacies and found that the subsidy program would be unlikely to influence a patient’s selection of a dispensing pharmacy.
Anti-Kickback Statute Analysis
OIG found that the proposed arrangement could generate prohibited remuneration under the AKS, 42 U.S.C. § 1320-7b, and stated that OIG could potentially impose sanctions on the manufacturer if the requisite intent to induce or reward referrals were present. In reaching this conclusion, OIG noted at the outset that the subsidy “plainly would involve remuneration to an individual to induce that individual to purchase an item for which payment may be made under a Federal health care program.” Analyzing further, OIG opined that there is a “significant risk” the subsidy would “effectively abrogate” the cost-sharing protections under the Part D program. Based on the profile of Medicare beneficiaries who would likely be prescribed the drugs, all but 9% would be able to purchase the drug without incurring any significant out-of-pocket costs. OIG also expressed concern with the manufacturer’s high list prices, citing a study that found treating all eligible patients would increase U.S. spending by approximately $32.3 billion. Finally, OIG expressed concerns that the arrangement could result in patient steering and anti-competitive effects due to the current absence of any competitive drugs on the market.
The Advisory Opinion is limited in scope to the proposed arrangement and can only be relied upon by the requestor. However, the opinion provides a helpful indication of how OIG might respond to similar requests from other pharmaceutical manufacturers.
The Advisory Opinion is available here.
