On November 16, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) published Advisory Opinion 21-16, approving an arrangement under which a pharmaceutical manufacturer provides free trial units of a long-acting antipsychotic drug to certain hospitals for inpatient use (Arrangement). With this favorable opinion, OIG offers insight into how it distinguishes beneficial free drug programs that manufacturers provide to hospitals exclusively for inpatient use from potentially problematic “seeding” arrangements that could steer patients to the manufacturers’ products.

The Arrangement


The requestor pharmaceutical manufacturer (Requestor) manufactures a long-acting injectable (LAI) antipsychotic drug (Drug) that the U.S. Food and Drug Administration approved for the treatment of adults with certain disorders (Disorders). Various peer-reviewed articles indicate that patients with the Disorders often do not adhere to their prescribed medication regimens, which can lead to worse outcomes, including increased rates of hospitalization and longer lengths of hospital stays.

Requestor also cited various peer-reviewed studies supporting the use of LAIs for patients with the Disorders, including a study that demonstrated that, after a hospital discharge, patients with the Disorders treated with LAIs had a significantly lower likelihood of rehospitalization after 60 days than those treated with oral antipsychotic medications, which must be taken daily.

Healthcare providers may inject the Drug in either an inpatient or an outpatient setting. When administered in the inpatient setting, the Drug generally is not separately reimbursable by a federal healthcare program.  he Drug’s labeling requires patients to receive concurrent treatment with their daily oral antipsychotic medications for 14 days after receiving an initial injection of the Drug.

Free Trial Units

Under the Arrangement, Requestor permits hospitals that do not accept prescription drug samples to request up to 60 free units of the Drug per year, per prescriber, to be used for hospital inpatients diagnosed with a Disorder. Hospitals may receive up to two free units per eligible patient, per year, up to a maximum of 360 free units of the Drug per year.

Participating hospitals must agree to comply with Requestor’s various terms and conditions, including each of the following:

  • Neither the participating hospital nor the administering practitioner may bill any patient or third party payor for the free Drug or any administration services.
  • The participating hospital and its pharmacy must segregate the free Drugs and track the units provided to each patient under the Arrangement.
  • Prescribing decisions must be in the patients’ best interests.

For a patient to be eligible to receive the free Drug, the patient must have been diagnosed with a Disorder, and the practitioner must have prescribed the Drug after independently determining that the Drug is clinically appropriate and likely to result in a positive treatment outcome. Neither the participating hospital nor the prescribing practitioner is obligated to use or continue using the Drug as a condition of participation.

Requestor certified that patients are not obligated to continue using the Drug after discharge, and that no known clinical barriers would prevent patients from transitioning from the Drug to either another LAI or an oral antipsychotic medication.

OIG’s Analysis

OIG noted that the Arrangement implicates the federal Anti-Kickback Statute because the free Drug units are remuneration that Requestor offers to referral sources and that no safe harbor protects the Arrangement. However, OIG concluded that the Arrangement poses a sufficiently low risk of fraud and abuse for the following reasons:

  • Low Risk of Steering: OIG noted that the average length of an inpatient hospital stay for patients with the Disorders ranges from 7.6 to 10.5 days. Because the Drug’s labeling requires patients to receive concurrent treatment with their daily oral antipsychotics – which are not provided for free under the Arrangement – the participating hospitals and prescribing physicians would, in many cases, receive no financial benefit from prescribing the Drug. In addition, patients would face no known clinical barriers to switching from the Drug to another LAI or oral antipsychotic medication after discharge, when the Drug would be separately federally reimbursable.
  • Low Risk of Overutilization: The Arrangement requires prescribers to independently determine that the Drug is clinically appropriate and that immediate onsite treatment increases the likelihood of a positive clinical outcome and does not give prescribers a financial incentive to prescribe the Drug over therapeutic alternatives.
  • Unlikely to Inappropriately Increase Costs to the Federal Healthcare Programs: Peer-reviewed studies indicate that the Drug reduces the rate of medication non-adherence and the risk of adverse outcomes, including hospitalizations, which could decrease aggregate costs to the federal healthcare programs over time.
  • Other Safeguards: OIG cited a number of the Arrangement’s other safeguards that serve to mitigate the risks of fraud and abuse, including the cap on the number of units of free Drug the hospitals may receive, the requirement that prescribers act in accordance with professional standards and the patients’ best interests, and the fact that neither the participating hospitals nor the prescribers are obligated to use or continue using the Drug as a condition of receiving the free units.

Takeaways for Hospitals

OIG has issued favorable advisory opinions with respect to a number of arrangements under which drug manufacturers provide free drugs directly to patients; however, each of those opinions involved outpatient drugs. More recently, in Advisory Opinion 18-14, OIG opined unfavorably with respect to a drug company’s proposal to provide free product to hospitals for the hospitals to use exclusively to treat inpatients diagnosed with one particular condition. Although the arrangement described in Advisory Opinion 21-16 may, at first blush, seem to share many of the same characteristics as the arrangement detailed in Advisory Opinion 18-14, the two arrangements contain critical differences.

Most importantly, the arrangement OIG approved in Advisory Opinion 21-16 does not relieve participating hospitals of a significant financial obligation; does not function as a problematic “seeding” arrangement, in which a manufacturer offers free drugs with the goal of having the patient obtain subsequent supplies that would be billed to federal healthcare programs; and does not result in steering patients to the Drug.

Hospitals that wish to participate in free drug programs for inpatients may look to the safeguards described in Advisory Opinion 21-16 when evaluating the risks associated with such arrangements. Finally, while OIG’s perspective certainly is important, any arrangement under which a manufacturer provides free drugs to a referral source also should be evaluated for compliance with any applicable state anti-kickback provisions.

If you have any questions about Advisory Opinion 21-16 or drug arrangements, please contact the author.