In Brief

• The Office of Inspector General of the Department of Health and Human Services recently issued a warning to pharmaceutical manufacturers, reminding them that copay coupons used for drugs purchased through federal healthcare programs can constitute illegal kickbacks and a violation of the False Claims Act.

The Office of Inspector General (“OIG”) of the Department of Health and Human Services (“HHS”) recently issued a warning to pharmaceutical manufacturers about allowing customers to use copay coupons on drugs purchased through federal healthcare programs like Medicare Part D. On September 19, 2014, the OIG released a Special Advisory Bulletin (the “bulletin”) reminding manufacturers that copay coupons used for drugs purchased, either in part or in full, by federal healthcare programs can constitute illegal kickbacks under the Anti-Kickback Statute (Section 1128B(b) of the Social Security Act).

In the bulletin, the OIG noted that the Anti-Kickback Statute criminalizes “knowingly and willingly offer[ing], pay[ing], solicit[ing], or receiv[ing] any remuneration to induce or reward the referral or generation of business reimbursable by any federal healthcare program.” When pharmaceutical manufacturers offer copay coupons to customers, these coupons can constitute remuneration with the purpose of inducing the purchase of certain drugs. The problem arises if the customer then uses the coupon when purchasing pharmaceutical drugs through a federal healthcare program like Medicare Part D, which may violate the Anti-Kickback Statute.

Such a claim that results in a violation of the Anti-Kickback Statue may constitute a false or fraudulent claim under the False Claims Act. Manufacturers who issue copay coupons could also face False Claims Act liability, if the coupon induces a beneficiary of a federal healthcare program to use a particular practitioner or pharmacy. The OIG explained that use of copay coupons under these circumstances could upset the aims of cost-sharing in federal healthcare programs by: 1) encouraging physicians and patients to make prescribing decisions with the “true cost” of drugs in mind; and 2) maintaining competition among drug manufacturers for lower drug prices.

Along with the bulletin, the OIG also released a study criticizing the effectiveness of the safeguards used by manufacturers to prevent federal beneficiaries from using copay coupons. “Manufacturer Safeguards May Not Prevent Copayment Coupon Use for Part D Drugs,” (OEI-05-12-00540) (“OEI Report”). The OEI Report focused on the flaws in the procedures used by manufacturers to prevent copay coupons from being used on drugs purchased through Medicare Part D. For example, the OEI Report noted how some manufacturers fail to include notices on their coupons alerting customers that the coupons cannot be used for the purchase of drugs through Medicare Part D.

On the other hand, manufacturers face difficult challenges in preventing use of copay coupons on drugs purchased through federal healthcare programs. The Center for Medicare & Medicaid Services (“CMS”) prohibits manufacturers from accessing customers’ Part D enrollment data, because that information includes private healthcare information. The manufacturers then must use different proxies like age or the insurance provider to determine whether the customer is trying to purchase drugs through Medicare Part D.

In response to this concern, the OEI Report recommends that CMS “cooperate with industry stakeholder efforts to improve reliability of mechanisms to determine when copayment coupons are used in connection with the purchase of drugs paid for, in part, by Part D.” The report does not suggest that CMS should allow manufacturers to access customers’ enrollment data but did generally propose improvements to the reliability of claim edits and making copayment coupons universally identifiable in pharmacy claims transactions.

Going forward, the OIG stressed that pharmaceutical manufacturers who issue copay coupons “ultimately bear the responsibility to operate these programs in compliance with Federal law.” The manufacturers could face sanctions if they do not take measures to alert ineligible customers and prevent them from using these coupons on drugs purchased, either in full or in part, by federal healthcare programs like Medicare Part D. The manufacturer’s “[f]ailure to take steps to prevent the use of the coupon could be evidence of intent to induce the purchase of drugs paid for by federal healthcare programs.”