OIG Issues Favorable Advisory Opinion Regarding Pharmaceutical Manufacturer’s Free Drug Program

In February, the Office of Inspector General (“OIG”) issued an advisory opinion regarding a pharmaceutical manufacturer’s proposal to provide a free 14-day supply of its drug to patients experiencing delays in the insurance approval process. While the OIG found that the model would generate prohibited remuneration under the Federal Anti-Kickback Statute (“AKS”), OIG indicated that it would not impose administrative sanctions on the parties to the arrangement in light of the low risk of program abuse. Moreover, the OIG opined that the arrangement would not generate prohibited remuneration under the Beneficiary Inducements provision of the Civil Monetary Penalties Law (“Beneficiary Inducements Statute”).

The Manufacturer’s Proposed “Free Drug” Program

The requestor of the advisory opinion was described as a pharmaceutical manufacturer of an enzyme replacement therapy intravenous drug (“Drug”) for a rare inherited generic disorder for which approximately 15 patients per year receive diagnosis. The disorder is one that severely compromises a person’s immune system, and if left untreated is fatal. The only current treatments for the disorder are the Drug or bone marrow transplantation. The Drug is a treatment rather than a cure, and patients taking the Drug may remain on the medication for the rest of their lives. However, given the small patient population affected by this disorder, only 49 patients in the United States were receiving the Drug to treat the disorder as of July 2021.

Under the manufacturer’s Free Drug Program (“Program”), the manufacturer proposed providing a free 14-day supply of the Drug to patients that: (1) have been diagnosed with the condition by a licensed health care professional; (2) have received a prescription for the Drug but have not previously been treated with the Drug; (3) are covered by insurance, whether commercial or a federal health care program; and (4) have experienced a delay in insurance coverage determination for at least 48 hours once the patient’s insurer has received all required information. Additionally, a patient is eligible for the program if they have been denied insurance coverage for the Drug and are pursuing their appeal rights. After the 14-day supply is provided, eligible patients may receive up to one additional 14-day refill.

Once eligibility for the Program is determined, patients and providers would be informed that they may not seek reimbursement for the free Drug or for the provider’s administration of the free Drug. Additionally, any Drugs dispensed under the Program could not count toward the patient’s true out-of-pocket (“TrOOP”) costs.

The manufacturer would contract with one specialty pharmacy to serve as the exclusive pharmacy for the Drug, and this pharmacy would ship the Drug directly to patients. Moreover, the specialty pharmacy would not to sell, distribute, or trade the Drug under the Program, nor would it bill any third-party payor for the free Drug.

The OIG’s Assessment of the Free Drug Program

The OIG found that the Program did implicate the AKS because patients receive one free 14-day supply (with the potential for one additional refill) of the Drug, which could induce future purchases of the Drug paid for under a federal health care program. However, the OIG found that the Program posed a sufficiently low risk under the AKS because: (1) it was unlikely the Program would lead to overutilization of the Drug due to patient eligibility requirements, including an insurer’s delay in making coverage determinations; (2) patients who receive the Drug under the Program would be subject to any applicable cost-sharing amounts for the Drug after the free dose has been administered if insurance coverage is eventually approved; (3) the Program is not a problematic “seeding program” because it is only available in the event of a delay in the insurance coverage determination process; (4) the Program is unlikely to influence prescribers to choose the Drug over alternative therapies, because the patients and prescriber likely assume that the Drug will be covered under the patient’s insurance; (5) the prescriber receives no financial benefit under the arrangement as they have no opportunity to bill for the free Drug or its administration; (6) no patient, pharmacy, payor, or other third party is billed for the free Drug; and (7) patients are not obligated to continue obtaining the Drug nor any other item or service from the pharmacy after receiving the free Drug.

Notwithstanding, the OIG warned that it may have reached a different conclusion had the arrangement been used as a marketing tool or if the manufacturer were providing the free Drug outside of the context of a legitimate delay in insurance coverage.

As to whether the free Drug Program violates the Beneficiary Inducements Statute, OIG found that the Program was not likely to induce a beneficiary’s selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program. The OIG stated, as it has reiterated in prior guidance, that a pharmaceutical manufacturer is not a “provider, practitioner, or supplier” for purposes of the Beneficiary Inducements Statute unless it owns and/or operates, directly or indirectly, pharmacies, pharmacy benefits management companies (PBMs), or other entities that file claims for payment under Medicare or Medicaid. Here, the manufacturer does not own or operate the pharmacy. However, the OIG warned that remuneration offered by a manufacturer to a beneficiary that the manufacturer knows or should know is likely to influence a beneficiary to select a particular supplier (i.e. the pharmacy) implicates the Beneficiary Inducements Statute. However, because the pharmacy is the only pharmacy that dispenses the Drug, irrespective of Program eligibility, the OIG found it unlikely that the free Drug would influence beneficiaries’ selection of the pharmacy. Moreover, the OIG found it unlikely that the possibility of receiving a free 14 day supply of the Drug due to coverage delays would influence a patient to purchase other federally reimbursable products from the pharmacy in the future.

What Does This Mean for Free Drug Programs

Importantly, manufacturers and the pharmacies that dispense pursuant to manufacturer sponsored programs should remain cognizant that free prescription drug programs implicate the AKS and Beneficiary Inducements Statute due to the remuneration provided to patients who purchase prescriptions reimbursable under federal health care programs. Notwithstanding this favorable OIG opinion, stakeholders must note that (i) OIG advisory opinions may only be relied upon by the requestor of the specific opinion, and (ii) OIG’s interpretation of other free drug programs may be limited in scope and applicable only in extenuating situations (i.e. where a patient has a demonstrable need for a specific medication for which there is no alternative medication, and the patient is experiencing a delay in approval due to an insurer’s coverage determination processes). When developing free drug programs, the sponsor of the program and the pharmacy that administers the program must ensure that any free or discount drug program is not a disguised “seeding program” through which manufacturers provide free drugs in order to persuade patients onto the drug so that subsequent refills of the drugs are billed to Federal health care programs.

How Frier Levitt Can Help

Pharmaceutical manufacturers contemplating free or discount prescription drug models or pharmacies that are approached to administer these programs must be aware of the regulatory risks and obtain competent healthcare counsel to evaluate the implications of a specific program. If you are developing or administering a free or discounted prescription drug program, contact Frier Levitt to speak with an experienced healthcare attorney about the regulatory compliance of your model.