On October 5, the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services published Advisory Opinion No. 22-19, finding that a proposal by an entity funded entirely by manufacturers of oncology drugs to provide cost-sharing assistance to Medicare Part D beneficiaries for the funding manufacturers’ own drugs, as well as certain other assistance (the Proposed Arrangement), could violate the federal Anti-Kickback Statute (AKS). This unfavorable advisory opinion follows the U.S. Court of Appeals for the Second Circuit’s opinion finding against Pfizer with respect to Pfizer’s AKS challenge involving its direct copayment assistance program and is noteworthy because it appears to foreclose another potential avenue for pharmaceutical manufacturers to provide cost-sharing assistance for their own drugs.
The Arrangement
Requestor is a C-corporation that has applied for 501(c)(3) status. Requestor’s board of directors (Board) comprises individuals with expertise in healthcare policy, management, and operations who have no financial relationships with any funding manufacturers.
Under the Proposed Arrangement, the funding manufacturers, through Requestor, would subsidize cost-sharing amounts for the funding manufacturers’ products as well as health insurance premiums for eligible Part D beneficiaries. Part D beneficiaries would be eligible for cost-sharing assistance if they have a cancer diagnosis, have a household income between 150-300% of the federal poverty level (FPL), and have been prescribed an oncology drug manufactured by a funding manufacturer that is covered by their Part D plan.
Qualifying Part D beneficiaries would pay $35 per month for branded drugs and $10 per month for generic drugs, as well as between 10-25% of the coinsurance due during the catastrophic phase, depending on their income. Part D beneficiaries would be eligible for health insurance premium subsidies if they have a cancer diagnosis and a household income between 150-300% of the FPL. The health insurance premium subsidies would be available to such Part D beneficiaries regardless of whether they have been prescribed an oncology drug manufactured by a funding manufacturer.
All manufacturers of branded or generic oncology drugs covered under Part D would be eligible to participate in the Proposed Arrangement and Requestor estimated that manufacturers representing approximately 90% of existing Part D oncology utilization would participate.
Participating manufacturers would reimburse Requestor for the following:
- The amount of cost-sharing subsidies attributable to their own products.
- Their share of the premium subsidy amounts and Requestor’s operating costs, which Requestor would calculate by assigning the manufacturers to various tiers based on their Part D oncology market shares.
OIG’s Analysis
OIG began its analysis by stating that beneficiary access to medically necessary oncology drugs “is of paramount concern,” and by noting that the agency is required by statute to issue an advisory opinion analyzing whether the Proposed Arrangement would generate prohibited remuneration under the AKS if the requisite intent were present. OIG went on to note that, although some federal healthcare program beneficiaries are unable or unwilling to access medically necessary oncology drugs due to high out-of-pocket costs, those costs are largely driven by the drugs’ list prices, which the pharmaceutical manufacturers set.
OIG also prefaced its analysis with a discussion of the 2005 Special Advisory Bulletin on Patient Assistance Programs (2005 Bulletin), upon which Requestor certified it relied when crafting the Proposed Arrangement. In the 2005 Bulletin, OIG recognized the industry’s “nascent efforts” to develop a coalition of pharmaceutical manufacturers to subsidize Part D beneficiaries’ cost-sharing amounts for the coalition members’ products. Although OIG offered examples of safeguards that might reduce the fraud and abuse risks such a “coalition model” would pose, including a large enough number of manufacturers to sever any nexus between the cost-sharing assistance and a beneficiary’s choice of drug, the agency cautioned in the 2005 Bulletin that it was “premature” to offer definitive guidance regarding such a model given the then-recent creation of the Part D benefit.
After outlining its statutory obligations and summarizing the guidance it provided in the 2005 Bulletin, OIG analyzed each of the Proposed Arrangement’s categories of costs and associated remuneration streams and concluded that the Proposed Arrangement, as a whole, would generate unlawful remuneration under the AKS if the requisite intent were present.
OIG first found that the cost-sharing “likely would influence” the beneficiaries’ decisions regarding whether to purchase the funding manufacturer’s drug. OIG then recognized it had acknowledged the possibility of a “coalition model” in the 2005 Bulletin but stated that its enforcement experience in the intervening decades had led it to conclude that allowing manufacturers to subsidize copayments for their own drugs may encourage manufacturers to increase their list prices—among the pillars of OIG’s traditional concerns when evaluating an advisory opinion request.
OIG noted that the oncology drugs covered by the Proposed Arrangement are a protected class of drugs that plans must include on their formularies and that the Proposed Arrangement effectively would permit Requestor and the funding manufacturers to redesign Medicare Part D’s cost-sharing structure for the manufacturers’ drugs by circumventing an essential pricing control, which could result in increased drug prices. Finally, while OIG noted that the Proposed Arrangement could reduce the risk of beneficiary steering by covering a large percentage of Part D oncology drugs, it stated that risk could not be eliminated because prescribing physicians might be dissuaded from prescribing a drug for which a beneficiary would be responsible for the full cost-sharing amount. Consequently, OIG concluded that the Proposed Arrangement’s cost-sharing subsidies could inappropriately increase costs to the federal healthcare programs, interfere with or skew clinical decision-making, and result in beneficiary steering.
OIG separately addressed the funding manufacturers’ contributions for premium subsidies and Requestor’s operating costs. Although OIG noted that these remunerative streams also would implicate the AKS, the agency did not include a detailed analysis of the fraud and abuse risks they posed because they are intertwined with the manufacturers’ cost-sharing subsidies and because the Proposed Arrangement, as a whole, presents more than a minimal risk of fraud and abuse under the AKS.
Finally, OIG found that the Proposed Arrangement would not constitute grounds for the imposition of sanctions under the Beneficiary Inducement CMP (the CMP) because the remuneration that would be provided to beneficiaries would not be likely to influence their selection of a particular provider, practitioner, or supplier, as pharmaceutical manufacturers are not considered providers, practitioners, or suppliers for purposes of the CMP.
Key Takeaways
While Advisory Opinion 22-19 is yet another blow to manufacturer and charity creativity in the cost-sharing assistance space, the timing of new legislation may offer some future relief.
The history that precedes Advisory Opinion 22-19 is substantial. Manufacturers, foundations, and the government have openly struggled with the competing concerns of soaring drug prices, patient access to those drugs, and manufacturer-sponsored cost-sharing subsidies since before the Part D program even paid its first dollar. What began with OIG’s 2005 Bulletin discussing potential avenues for patient assistance programs (PAPs) evolved into numerous favorable advisory opinions protecting certain manufacturer donations to bona fide PAPs. After widespread investigations and over $1 billion in settlements involving alleged manufacturer control over charitable donations to PAPs, OIG course-corrected by updating the 2005 Bulletin and modifying the outstanding PAP-related advisory opinions.
In June 2020, Pfizer sued OIG in the U.S. District Court for the Southern District of New York (SDNY) after OIG had informed Pfizer that its request for an advisory opinion involving a direct copayment subsidy program would be unfavorable. Specifically, OIG concluded that the direct subsidy program would involve prohibited remuneration under the AKS because Pfizer would provide a copayment subsidy card to eligible Medicare beneficiaries, which would induce the beneficiaries to purchase its drug by removing the financial impediment of the cost-sharing obligation. Pfizer challenged OIG’s reading of the AKS, arguing that its program did not have a “corrupt” intent and thus could not violate the AKS. The Second Circuit affirmed the SDNY’s decision granting summary judgment in favor of OIG’s broader interpretation of the AKS, finding that the AKS does not require an element of corruption.
After its recent appellate success, OIG disposed of another twist on the PAP model with Advisory Opinion 22-19. Although OIG had suggested that a coalition model might be low risk in the 2005 Bulletin, OIG looked to the aforementioned 15 years of enforcement history and backtracked, all but closing the door to coalition PAPs.
While 22-19 represents a resounding “no” to the coalition PAP model from OIG, Medicare Part D beneficiaries will likely find relief soon. Congress recently enacted the Inflation Reduction Act of 2022, Public Law 117-169 (IRA), which restructures Medicare Part D beneficiary cost-sharing requirements. In particular, the IRA eliminates Medicare Part D enrollees’ 5% cost sharing in the catastrophic phase beginning in 2024 and caps their annual out-of-pocket costs for Part D drugs at $2,000 beginning in 2025. As patient out-of-pocket costs plummet, fewer beneficiaries may need to rely on PAPs to help them with their cost-sharing obligations.
Consequently, the IRA’s overhaul of the Part D benefit design will likely change how manufacturers donate to PAPs in the future. Manufacturers and foundations that feel constrained by existing advisory opinions protecting PAP donations may wish to revisit or seek a modification of these opinions following the implementation of the IRA, as treatment of the risks and safeguards may need adjustment.
Please contact the authors if you have any questions about this topic.