The U.S. Department of Health and Human Services Office of Inspector General (“OIG”) published Advisory Opinion 22-19 on October 5, 2022 in response to a proposal by a putative 501(c)(3) nonprofit organization. The proposed arrangement would allow the requesting corporation and its charitable operations to be funded entirely by pharmaceutical manufacturers who make oncology drugs covered by Medicare Part D.
Under the Proposed Arrangement, oncology drug manufacturers would indirectly fund three categories of expenditures:
(1) cost-sharing subsidies for eligible Medicare Part D patients,
(2) health insurance premiums and other specified programs promoting health equity, and
(3) overall operating costs of organizations like the requestor, through these organizations.
However, given that the proposed participants of this program are responsible for the production of approximately 90% of oncology drugs covered by Medicare Part D, these manufacturers would be subsidizing the costs of their own drugs, even if indirectly through charitable organizations. This seems to be what concerned the OIG the most.
Despite the safeguards the requestor claims would be instituted in the program, the OIG concluded that this proposed arrangement would trigger scrutiny under the Federal Anti-Kickback Statute (“AKS”). This statute prohibits knowingly or willfully paying or offering to pay any renumeration to any person to induce the purchase or ordering any items or services reimbursable under a Federal health program. In this context, the remuneration in question would be the financial support extended to charitable organizations by pharmaceutical manufacturers. The OIG’s concern stems from the fact that, while acknowledging that evaluating intent is not within the purview of an advisory opinion, all three categories of funds, if provided with the necessary intent, constitute renumeration prohibited by AKS.
Upon analyzing the Proposed Arrangement as a whole, the OIG concluded that multiple streams of renumeration, if accompanied with the requisite intent, would influence the purchase of their federally reimbursable products. Despite the charity’s claims that they would not have control over product choices, thereby preventing pharmaceutical manufacturers from knowing if they were aiding their own drug’s purchase, the core issue remained: it would still induce patients to purchase a drug that is federally reimbursable.
Additionally, the OIG determined that the Proposed Arrangement would not fall under a statutory exception or safe harbor. The OIG also examined whether the arrangement poses a risk of fraud and abuse leading to the imposition of sanctions. It concluded that this arrangement could allow charitable organizations and pharmaceutical manufacturers to design their own Medicare cost sharing structure and bypass existing pricing controls. This could empower manufacturers to raise drug prices, and influence doctor’s prescribing decisions, encouraging the prescription of products covered by Medicare and subsidized by a manufacturer, rather than prescribing a product requiring a patient out-of-pocket payment. For these reasons, the OIG concluded that there is more than a minimal risk of fraud and abuse under AKS, and warranting the imposition of sanctions if enacted.
The OIG recently expressed similar sentiments with regards to a recent proposal by a cochlear implant manufacturer. On October 25, 2023 the OIG issued Advisory Opinion 23-08, which considered the potential liability risks of an arrangement in which a third-party’s hearing aids would be given to patients for free with the purchase of the requestor’s own hearing implant. As with Advisory Opinion 22-19, the OIG cited concerns regarding the inducement of patients to purchase the manufacturer’s product, which is also reimbursable by Federal health care programs, as the basis for its AKS concerns.
While the requestor in this situation may have anticipated that this arrangement may fall under an exception to the AKS, the OIG pointed out that while there is a safe harbor for arrangements which improve health outcomes, the provision of these hearing aids would not qualify as such due to the fact that the hearing aids value exceeded the $570 monetary cap on such safe harbor arrangements. The OIG also pointed out that as the hearing aid itself is not necessary in order for the implant to function, even if the hearing aid price fell within the monetary cap it is not likely it would fall under the safe harbor exception due to the concerns regarding the unfair advantage it would give the manufacturer against its competitors who are unable to make a comparable offering to patients.
These Advisory Opinions reflect the OIG’s continued regulatory concerns under the AKS arising from co-payment assistance programs and similar financial subsidization of costs associated with pharmaceuticals.
How Frier Levitt Can Help
Navigating the dynamic regulatory landscape of healthcare and pharmaceutical law necessitates vigilance. Frier Levitt’s experienced attorneys consistently monitor updates from the OIG and other regulatory agencies to ensure that healthcare providers are adequately informed. Healthcare providers frequently engage us to analyze the potential impact of advisory opinions on their operations and establish patient assistance programs that comply with all applicable laws and regulations. If you have questions about this advisory opinion or any other regulatory updates with respect to the potential to impact your business, contact our office to speak with an attorney today.
