On March 18, the Office of Inspector General (OIG) issued a favorable Advisory Opinion No. 21-01 (Opinion) regarding a free drug program sponsored by a pharmaceutical manufacturer of a personalized cell and gene therapy (Product) providing the Product to qualified patients (Program), including patients insured under state or federal healthcare programs. In issuing its Opinion, the OIG relied on many of the same factors it relied upon in Advisory Opinions 20-05, 18-14, and 15-11. These key factors include risks associated with seeding,  overutilization, influencing patients to select a certain provider or practitioner, and providing benefits to the prescriber. Because the Product is administered in specified healthcare facilities, the Opinion does not address risks for pharmacies administering free drug programs.

Facts about the Free Drug Program

The Product covered by the Program is a personalized medicine made from the patient’s own cells and is intended to be a one-time, potentially curative treatment. Due to patient safety risks, the Food and Drug Administration (FDA) has required the drug manufacturer to implement a Risk Evaluation and Mitigation Strategy (REMS), which includes elements to assure safe use (ETASU). As required by the REMS with ETASU, the Product can only be administered at a healthcare facility that is certified by the drug manufacturer to meet certain safety requirements and can only be prescribed by a physician trained to meet the requirements of the REMS with ETASU. As a result, only a limited number of physicians and facilities prescribe and administer the Product. The drug manufacturer does not own or operate any of the facilities where the Product is administered or a pharmacy that dispenses the Product.

The Program provides the Product for free to insured patients that meet specific financial need criteria. No healthcare facility or prescribing physician submits any claims for payment to any federal healthcare program for the cost of the Product.

Risks under the Anti-Kickback Statute (AKS)

When analyzing the Program under the AKS, the OIG determined that while the provision of the free drug constituted remuneration and implicated the AKS, it ultimately presented a low risk of fraud and abuse under the AKS, in part, relying on similar criteria used to analyze other free drug programs.

Limited Risk of Seeding

The Product is potentially curative, generally administered only once, limited to on-label use, and “individually manufactured” for the specific patient using the patient’s own cells. Thus, the OIG concluded that the Program presented little risk of seeding. Unlike an arrangement whereby a manufacturer would offer an initial dose of a drug for free to a chronic patient to induce the patient to continue to purchase the drug, which would later be billed to a federal healthcare program, the Product typically only involved one dose – presenting a low risk for inducements for future referrals payable by a federal healthcare program.

Availability of Free Drug Regardless of Clinical Indication

The Program was available to patients for both of the drug’s two FDA-approved indications. Therefore, the OIG found that the Program was distinct from a suspect arrangement whereby a manufacturer only offers a free drug for one clinical indication while continuing to receive high reimbursement from federal healthcare programs for the drug’s other indication(s).

Availability of Free Drug Regardless of Care Setting

The Program provides the Product to eligible patients regardless of whether the drug is administered inpatient or outpatient, which the OIG concluded helped mitigate the risk that the availability of the Product would inappropriately steer patients to one care setting over another.

Limited Risk of Overutilization and Prescriber Incentive

While the OIG acknowledges that the facilities and prescribers may receive financial benefit under the Program from fees for providing ancillary services (e.g., professional service fees, facility fees, etc.), the risk of overutilization is mitigated because the Product is a potentially curative, one-time drug that is only available on-label as a “treatment of last resort.”

Free drug arrangements in which drug manufacturers route prescriptions to a limited network of specialty pharmacies for dispensing would not meet the “availability regardless of care setting” safeguard, as these limited networks direct patients to a subset of providers by design.

Risk under the Civil Monetary Penalty (CMP) Law

Similarly, the OIG determined that the Program does not constitute grounds for sanctions according to the CMP Law.

In Opinions 20-05 and 15-11, the OIG concluded that because the pharmaceutical manufacturers were not “providers, practitioners, or suppliers” nor did they own or operate (directly or indirectly), pharmacies, pharmacy benefit management companies, or other entities that file claims for payment under Medicare or Medicaid, the manufacturers in those arrangements did not implicate the CMP Law. However, in the Opinion, the OIG clarified that the CMP Law can apply to pharmaceutical manufacturers even if they do not own or operate an entity that files claims for payment if the pharmaceutical manufacturer offers remuneration to a patient that the manufacturer knows or should know is likely to influence that patient to select a particular provider, practitioner, or supplier. Accordingly, “a pharmaceutical manufacturer…can be the offeror or transferor of remuneration that implicates (and violates)” the CMP Law.

The OIG concluded, though, that the Program did not implicate the CMP Law, as the “remuneration” offered by the manufacturer was not likely to influence a patient to select a particular provider, practitioner, or supplier to administer the Product because the Program did not make eligibility for the free drug dependent on the patient’s use of a particular healthcare facility or prescribing physician. Although patients are limited to a set list of facilities and physicians (that is, certified facilities and certified prescribing physicians), these limitations are based on the drug’s REMS with ETASU, as required by the FDA.

Key Takeaways for Specialty Pharmacies and Healthcare Providers

In issuing the Opinion, the OIG continues to highlight risks associated with seeding, overutilization, influencing patients to select a certain provider, and providing benefits to the prescribers as key factors in determining whether a free drug program poses risk under the AKS and CMP Law. The Opinion also clarifies that pharmaceutical manufacturers can potentially have liability pursuant to the CMP Law if the pharmaceutical manufacturer is directing or influencing a patient to select a particular provider, practitioner, or supplier.

Since the Product is administered in healthcare facilities, the Opinion does not squarely address risks for pharmacies administering free drug programs. When assessing opportunities to participate in manufacturer-sponsored free drug programs or evaluating existing relationships, specialty pharmacies and other healthcare providers should consider to the applicability of the Opinion and other similar OIG Advisory Opinions to their specific facts and circumstances.

If you have any questions about the Opinion or how it could impact your business, please contact one of the authors.