OIG Advisory Opinion Rejects Pharmaceutical Manufacturer’s Proposed Beneficiary Cost-Sharing Program

Health Highlights

On September 18, 2020, the Department of Health and Human Services Office of Inspector General (OIG) issued an unfavorable Advisory Opinion, No. 20-051 (the Opinion), that a pharmaceutical manufacturer’s (Requestor) proposed arrangement (Proposed Arrangement) to provide cost-sharing assistance directly to Medicare beneficiaries would generate prohibited remuneration under the federal anti-kickback statute (AKS) if the requisite intent to induce or reward referrals were present and that OIG declined to exercise its discretion not to impose administrative sanctions. The Opinion separately concluded that the Proposed Arrangement would not generate prohibited remuneration under the civil monetary penalty provision prohibiting inducements to beneficiaries (CMP). The Opinion is noteworthy for its discussion of the list price of the drug in question and assertion that the Proposed Arrangement was an attempt to undercut the cost-control effects of the beneficiary cost-sharing obligations under the Part D program.

The Proposed Arrangement

The Proposed Arrangement would apply with respect to certain medications (the Medications) manufactured by the Requestor and approved for the treatment of a progressive, rare disease (cause redacted in Opinion) that can lead to heart failure and death (the Disease). Under the Proposed Arrangement, the Requestor would institute a cost-sharing assistance program specific to Medicare beneficiaries who are prescribed the Medications (the Subsidy Program). To be eligible for financial assistance under the Subsidy Program, the applicant would have to: (i) be a Medicare beneficiary enrolled in either a Part D plan or a Medicare Advantage – Part D (MA-PD) plan that covers the Medications; (ii) be a United States resident; (iii) meet the Subsidy Program’s criteria for financial need (which Requestor would set as a household income between 500 percent and 800 percent of the Federal Poverty Level); and (iv) have been prescribed (by any provider or practitioner) one of the Medications on-label for the treatment of the Disease.

If a beneficiary qualifies for the Subsidy Program, the Requestor, through a third-party Subsidy Program vendor, would complete enrollment by activating a physical card, issuing a personal identification number to the beneficiary or both (collectively, the Subsidy Card) that the beneficiary would use at the point of sale to receive cost-sharing assistance when purchasing the Medications. Under the Subsidy Program, a beneficiary would be responsible for a monthly copayment of up to $35 at the point of sale each time he or she fills a prescription for one of the Medications. Requestor, through its vendor, would pay 100 percent of the beneficiary’s remaining cost-sharing obligations for the Medications, including any deductible and required cost sharing owed during the initial coverage phase, the coverage gap phase and the catastrophic coverage phase.

The Requester would engage a third party (the Hub) to administer the Proposed Arrangement. The Requestor certified that the Hub would conduct an individualized, case-by-case income determination based on a uniform measure of financial need and would determine a beneficiary’s eligibility for the Subsidy Program in a verifiable, uniform and consistent manner. Once the Hub verified that a beneficiary is eligible for the Subsidy Program, it would enroll the beneficiary and would communicate that enrollment to the beneficiary, the prescriber (upon the prescriber’s request) and the applicable specialty pharmacy (Dispensing Pharmacy) which would dispense the Medications.

The Requestor certified that the majority of patients with the Disease are Medicare beneficiaries, and the majority of patients who may be prescribed the Medications will be Medicare beneficiaries. The Medications are not curative; but a phase 3 trial found that one form of the Medications reduced all-cause mortality and the frequency of certain hospitalizations and also reduced decline in functional capacity and quality of life. With respect to alternative treatments for the Disease, the Requestor certified that there may be non-pharmacological treatments (e.g., transplants) but most patients with the Disease are too sick and have too many comorbidities to meet transplant criteria. In addition, the Requestor stated that some physicians prescribe certain non-Medication drugs off-label for treatment of the Disease.

Cost and Required Cost Sharing. The Opinion notes that the Requestor set the list price for the Medications at $225,000 for each one-year course of treatment; that at this price and based on cost-sharing requirements in the phases of the standard Medicare Part D benefit a Medicare beneficiary enrolled in the standard benefit must pay annually approximately $13,000 in out-of-pocket expenditures for the Medications; that in 2019 many Medicare beneficiaries filling their first order for the Medications would face $5,100 in true out-of-pocket (TrOOP) spending, and therefore would reach the catastrophic phase with their first prescription.

Anti-Kickback Analysis

The Opinion’s AKS analysis is on the one hand routine, and on the other hand quite remarkable. It is routine in its application of traditional AKS considerations and remarkable in the intensity of language used to describe the Requestor’s pricing for the Medications and description of the Medications’ effect on healthcare spending and the Proposed Arrangement’s effects on safeguards designed into the Medicare Part D drug program and characterization of the intent of the Proposed Arrangement.

Statutory Analysis. The Opinion notes that in evaluating the Proposed Arrangement under the AKS, the question is whether it would involve remuneration to an individual to induce that individual to purchase an item or service for which payment may be made under a federal healthcare program, and answers this question stating, “The Proposed Arrangement plainly would.” The Opinion states that the Requestor would be providing remuneration in the form of a valuable Subsidy Card to eligible Medicare beneficiaries; to be eligible, a Medicare beneficiary would have to be prescribed one of the Medications for treatment of the Disease, meet certain financial need criteria, and be enrolled in a Part D or MA-PD plan that provides coverage for the Medications. These beneficiaries would, in turn, use the Subsidy Card at the point of sale to pay virtually all of the cost-sharing obligations that would otherwise apply for the Medications. The Opinion states that, in this respect, the Subsidy Program would operate as a “quid pro quo” because the Requestor would offer remuneration (the Subsidy Card) to the beneficiary in return for the beneficiary purchasing one of the Medications. The Opinion noted that the Subsidy Card could only be used to pay for Medicare cost-sharing obligations specific to the Medications; that it would have no value outside of these cost-sharing obligations; and that it could not be used to assist with expenses related to the other medical needs of beneficiaries diagnosed with the Disease (e.g., prescription drugs used by the patient in connection with managing the Disease, treating symptoms of the Disease, or treating pain and other side effects of the Disease).

The Opinion states that the Requestor certified that beneficiary cost-sharing obligations for the Medications are approximately $13,000 per year and that inability to pay these cost-sharing obligations is an impediment to a significant portion of Medicare beneficiaries purchasing the Medications. The Opinion states that the Requestor designed the Subsidy Program to address this impediment and thus, the Subsidy Card would be offered to beneficiaries to induce them to purchase a covered item by removing what would otherwise be an impediment that would deter such purchase. Further, a beneficiary would know about the availability of the Subsidy Program at the time he or she purchases the Medications. Accordingly, where a Medicare beneficiary otherwise may be unwilling or unable to purchase the Medications due to his or her cost-sharing obligations (which, the Opinion asserts, are driven by the list price of the Medications, discussed below), the Subsidy Program would induce that beneficiary to purchase the Medications by removing the financial impediment to do so. The Opinion summarizes, “Using the language of the Federal anti-kickback statute, Requestor proposes to provide remuneration (the Subsidy Card) to a person (the Medicare beneficiary) to induce that person to purchase an item (the Medications) reimbursable under a Federal health care program (Medicare).”

In light of the foregoing, and as discussed below, the OIG concluded that the Proposed Arrangement would present “more than a minimal risk” under the AKS, characterizing it as “highly suspect” under the AKS because “one purpose of the Subsidy Program—perhaps the primary purpose—would be to induce Medicare beneficiaries to purchase Requestor’s federally reimbursable Medications.”

Pricing, Cost and “Additional Publicly Available Background Information.” As noted above, the Opinion states that the Requestor set a list price at $225,000 for each one-year course of treatment with the Medications and that, according to the Requestor, at this price and based on cost-sharing requirements in the phases of the standard Medicare Part D benefit (i.e., deductible, initial coverage, coverage gap, catastrophic), a Medicare beneficiary enrolled in the standard benefit must pay annually approximately $13,000 in out-of-pocket expenditures for the Medications. In 2019, many Medicare beneficiaries filling their first order for the Medications would face $5,100 TrOOP spending, and thus reach the catastrophic phase (which had a threshold of $5,100 in 2019) with their first prescription. The Requestor also certified that, once beneficiaries are in the catastrophic coverage phase, the coinsurance requirement in that phase would be prohibitive for many beneficiaries. 

The Opinion states that OIG “conducted an appropriate independent inquiry to better inform our understanding of the Medications and the Disease as it relates to our assessment of the Proposed Arrangement,” citing 42 CFR § 1008.39(d) (“In connection with any request for an advisory opinion, the OIG or DoJ may conduct whatever independent investigation they believe appropriate.”).2 Based on such information, which the Opinion indicates included journal articles and commentary, the Opinion states that the Medications “constitute the most expensive [description redacted] drug ever launched in the United States,” and that treating all eligible patients with the Disease would increase healthcare spending in the United States by $32.3 billion a year, with nearly all of the budget impact resulting from the cost of the Medications, increasing the total U.S. spending for all prescription drugs by 9.3 percent.

Risk of Improper Increased Costs. By insulating Medicare beneficiaries from the economic effects of the Medications, the Proposed Arrangement would “abrogate[] a market safeguard that Congress included to protect against inflated drug prices.” The Opinion notes the initial list price of the Medications and states that the facts and circumstances suggest that the Proposed Arrangement (in conjunction with other assistance available to patients) “is critical to Requestor’s ability to maintain the price at this level.” Although not expressing an opinion on the appropriateness of the list price, the Opinion states, “we cannot ignore how the Proposed Arrangement would operate to drive up costs to the Medicare program by providing remuneration to beneficiaries to shield them from the economic impacts of the list price and, in so doing, influence their decision to purchase the Medications.”

Abrogation of Part D Program Safeguard. The Opinion states, “the design of the Proposed Arrangement appears to be calibrated to circumvent one of the key pricing controls that Congress instituted in its design of the standard Medicare Part D prescription drug benefit [statutory cost-sharing requirements under the Part D program] and would lay bare the dangers of removing this market safeguard.” Asserting that the Proposed Arrangement would leave the price for the Medications “unbridled,” the Opinion states, “It is not appropriate for pharmaceutical manufacturers to use remuneration that would be prohibited by the Federal anti-kickback statute as a backdoor way to sidestep the cost-sharing requirements that Congress included in the standard Part D benefit.”

Elimination of Cost-Sharing Obligations for Almost All Medicare Beneficiaries. The Opinion notes that the Requestor certified that a majority of patients who may be prescribed the Medications will be Medicare beneficiaries and that cost-sharing obligations would present a prohibitive financial barrier for a significant portion of these Medicare patients. The Opinion then states that the Subsidy Program would eliminate any meaningful cost-sharing obligations and, operating in conjunction with other Requestor financial assistance programs, “all but approximately 9 percent of Medicare beneficiaries who are prescribed one of the Medications would be able to purchase it without incurring any significant out-of-pocket costs.” Finally, the Opinion states, “Our concern regarding increased costs to the Medicare program is magnified where, as here, the Proposed Arrangement would hasten Medicare beneficiaries’ progression to the catastrophic phase, where the Medicare program pays 80 percent of the costs for pharmacological therapies through reinsurance, in addition to the money the Medicare program has already paid plans to deliver the Part D drug benefit.”

Risk of Patient Steering, Effect on Clinical Decision-Making and Anti-Competitive Effects. Stating that the Requestor acknowledged that some physicians may consider the costs and availability of the Subsidy Program when determining the preferred treatment option for a patient, the Opinion states that OIG expects patients to consider the cost of the Medications, as well as the availability of the Subsidy Program in evaluating the Medications over an alternative option. The Opinion concludes, “In light of these circumstances, we conclude that Requestor’s Subsidy Program would present more than a minimal risk of steering beneficiaries to, and locking them into, the Medications.” Further, the mechanics of the Proposed Arrangement would mean that physicians would learn of the Subsidy Program soon after it was implemented, and once physicians were aware of the program, every subsequent prescribing decision would be made with the knowledge that the Subsidy Program is available to minimize out-of-pocket costs for Medicare beneficiaries. Noting that the Requestor described two other medications that physicians have prescribed off-label to treat patients with the Disease, and acknowledging that other medications might become available, the Opinion asserts, “[W]e believe that the Subsidy Program could negatively affect competition for as long as it remains in existence because it would give a financial advantage to the Medications over competing treatments, regardless of whether such other treatments are equally as effective.”

Rejection of Requestor Argument. The Opinion states that among the arguments advanced by Requestor in support of its advisory opinion request is that “offering co-pay assistance to help eligible patients afford a clinically-appropriate medication, when such medication is the only approved medication for the disease and the principal reason that patients would not fill their prescriptions is their inability to pay their out-of-pocket costs, does not improperly induce the underlying prescribing decisions.” The Opinion rejects this interpretation of the AKS: “We disagree with Requestor’s formulation of the legal standard. The central inquiry here is whether one purpose of the remuneration offered and provided by Requestor is to induce the beneficiary to purchase the Medications. If, as Requestor’s formulation indicates, the principal reason a beneficiary would not fill a prescription is inability to pay the out-of-pocket expenses, then remuneration that would address that inability to pay would, without question, influence the patient’s purchasing decision.”

Beneficiary Inducements

The Opinion concludes that under the unique circumstances of the Proposed Arrangement, although the Subsidy Card is clearly remuneration to the beneficiary, the Proposed Arrangement would not implicate the CMP because it is unlikely to influence a beneficiary to order the Medications from a particular provider, practitioner or supplier.

Conclusion

While the Opinion’s legal conclusions are unsurprising, its publication could stir up the overlapping public policy debates over pharmaceutical pricing, patient cost-sharing, and OIG’s fraud and abuse authorities. The Opinion indicates that OIG is not likely to be receptive to beneficiary cost-sharing assistance for high-cost drugs that a pharmaceutical manufacturer provides directly to beneficiaries (without the intermediation of an independent nonprofit charity). See OIG, Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs, 79 Fed. Reg. 31,120 (May 30, 2014), available at https://oig.hhs.gov/fraud/docs/alertsandbulletins/2014/independent-charity-bulletin.pdf. It also indicates that advisory opinion requestors must be aware that OIG considers publicly available information about the subject of their request and their company operations as fair game in the review process.

1 Available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2020/AdvOpn20-05.pdf.

2 The OIG also utilized “certain publicly available information,” citing 42 CFR §1008.39(d), in Advisory Opinion 18-14 (Nov. 13, 2018) in which it referenced the Requestor’s SEC Form 10-K filings in discussions of multiple and substantial increases in price of the drug at issue in that advisory opinion. As with Advisory Opinion 20-05, in the earlier advisory opinion the OIG concluded that the arrangement at issue could potentially generate prohibited remuneration under the AKS and declined to provide regulatory protection. The Opinion also states that OIG took into consideration its recent enforcement history involving conduct by pharmaceutical manufacturers—vis-à-vis foundations that operate assistance programs—that the United States alleged was illegal, noting that ten pharmaceutical manufacturers and four foundations have settled enforcement actions totaling more than $900 million against ten pharmaceutical manufacturers for conduct solely involving the allegedly illegal use of foundations that operate patient assistance programs as conduits for improper payments to patients. The Opinion asserts, “Central to these allegations is a concern that pharmaceutical manufacturers blunt the impact of patient cost sharing to induce patients to fill prescriptions for costly medications. This, in turn, removes a potential downward pressure on the price of the drugs.”

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