On August 13, 2015 the Office of Inspector General (OIG) issued a favorable Advisory Opinion (Opinion) regarding a free drug program sponsored by pharmaceutical manufacturers1 in which a specialty pharmacy dispenses free drugs to patients experiencing delayed insurance verification (Program), including patients insured under state or federal healthcare programs.2 The OIG indicated that it will not impose administrative sanctions on the manufacturer or specialty pharmacy under the federal anti-kickback statute nor the civil monetary penalty law regarding beneficiary inducement based on the facts described.

The Program at issue is unique, and the particular facts of the Program appear to be material to the OIG’s conclusion. For example, the specialty pharmacy involved in the Program does not dispense to the public; and instead solely dispenses under manufacturer sponsored patient support programs. As a result, a traditional specialty pharmacy that dispenses to the public cannot precisely mirror the fact pattern of this Opinion. Additionally, the Program drug has limited and lifesaving approved indications; also, very few patients are eligible for the Program due to wide insurance coverage–facts which may not hold true for all free drug programs.

Regardless of the uncommon facts giving rise to the Opinion, it does provide insight on how the OIG may view similar programs administered by traditional specialty pharmacies. Based on this Opinion, specialty pharmacies should consider the following aspects of manufacturer sponsored free product programs in which they are involved.

  • Overutilization. Does the program incentivize or result in the overutilization of drugs reimbursed by state and federal healthcare programs? Would the physician prescribe and/or would the patient take the drug if not for the program?
  • Rejection of Alternative Therapies. Does the program influence patients to take the program drug over alternative therapies? Are the programs advertised to patients?
  • Prescriber Benefit. Does the program induce physicians to prescribe the drug? Are physicians paid a dispense or administration fee?
  • Cost to Patients. Does the program result in costs to state or federal program beneficiaries?

And perhaps most material for specialty pharmacies:

  • Incentive to Use Specialty Pharmacy. Does the program induce the patient to use a particular specialty pharmacy? Does the specialty pharmacy dispense to the general public? Is it the only specialty pharmacy in the program? Does the drug have multiple or high cost adjunctive therapies reimbursed by state or federal health care programs that the patient is likely to fill at the program specialty pharmacy? Does the disease state require multiple drugs reimbursed by state or federal health care programs that the patient is likely to fill at the program specialty pharmacy?

Because the Opinion is based on specific and unique facts, it is advisable that specialty pharmacies involved with free drug programs become familiar with the details of the Opinion, consider their existing program relationships, and seek competent healthcare regulatory counsel prior to structuring or participating in such programs.

The Facts

The Program Drug
The Program drug is an antineoplastic approved by the FDA for four indications. For certain indications, the drug was approved through the FDA’s Breakthrough Therapy Designation, meaning it presents a substantial improvement over current therapies for serious or life-threatening diseases or conditions.3   Moreover, the drug is used only after a prior therapy has failed. Other on-label treatments exist for the same indications, but most have boxed warnings. There is no clinical barrier to switching patients from the Program drug to an alternative. The median time to first response for patients receiving the Program drug for on-label indications is under two months.

The Program Specialty Pharmacy
The Program’s specialty pharmacy does not fill prescriptions for the general public; it dispenses drugs only for various manufacturer patient support programs. The specialty pharmacy is paid a fair market value dispensing fee for Program drug.

The Program
To be eligible for the Program, patients must meet all of the following five requirements.

  • be a new patient;
  • have received a prescription for the drug;
  • have an on-label diagnosis;
  • be insured (by, for example, a commercial insurer or a federal healthcare program); and
  • have experienced a delay in a coverage determination of at least five business days.

Patients are referred to the specialty pharmacy through prescribers, the patient’s traditional pharmacy (whether or not specialty), or an affiliated benefits investigation/patient assistance hub. If the patient is eligible, the specialty pharmacy dispenses the Program drug. Patients enrolled in the Program can only receive the free Program drug from the specialty pharmacy. Once the patient is no longer eligible for the Program, all dispenses of the drug are filled by the patient’s regular pharmacy.

Patients are initially eligible for one free 30-day supply under the Program, but may qualify for one other 30-day refill in certain circumstances. No further Program drug is dispensed regardless of the status of the appeal.

If a Medicare Part D beneficiary participates in the Program, the specialty pharmacy notifies the patient’s Part D plan sponsor that the drug is being provided to the patient outside the Part D benefit, meaning that no claim will be submitted and no part of the costs of the drug provided under the Program should be counted toward the patient’s true out-of-pocket costs. Part D beneficiary participants stay on the drug after receiving the free supply are responsible for substantial cost-sharing amounts. However, it is expected that not many Part D beneficiaries will use the Program. Since the drug was first approved and the Program began, only 0.0008 percent of all shipments of the drug have been under the Program, approximately one-third of which went to Medicare or Medicaid beneficiaries.

The Program is not and will not be advertised to potential patients. The Program is described on the manufacturer’s websites, and sales representatives distribute approved printed materials about the Program to healthcare providers.

The Law and Analysis

The OIG analyzed the Program under the federal anti-kickback statute (AKS) and civil monetary penalty law (CMP Law). The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program.4 The CMP provides for the imposition of monetary penalties against any person who offers or transfers remuneration to a Medicare or State healthcare program (including Medicaid) beneficiary that the benefactor knows or should know is likely to influence the 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 healthcare program (including Medicaid).5


The Opinion sets forth five primary safeguards upon which the OIG relied in finding the arrangement to be low risk under the AKS. The safeguards offer specialty pharmacies insight on how the OIG may interpret different aspects of their manufacturer sponsored free drug programs.

1.) Limited Risk of Overutilization. The OIG found that the Program was not prone to result in the overutilization of the Program drug because of the limited indication for the drug, that the Program was limited to on-label use; only patients with a five day or more delay in insurance coverage would receive the free drug, and the Program was limited to, at most, two 30-day supplies of the drug.

Many of the factors cited by the OIG would be present in most manufacturer sponsored free product programs. For example, programs are typically limited to on-label use, are only available after a delay in insurance coverage is confirmed and limited in duration. However, the required time of delayed insurance and duration of program eligibility often vary by program. It is not clear to what extent the variability of these factors would result in an unacceptable risk of fraud and abuse. Also, it is not clear whether the OIG would have considered the Program to have an unacceptable risk of overutilization if the drug had a wider indication or was not a second waive drug.

2.) Unlikely to Influence Patients to Choose Drug over Alternative Therapies. The OIG distinguished the Program from “seeding programs” that offer a drug for free to induce a patient into choosing a particular drug because the Program is not actively marketed to patients, only 0.0008 percent dispenses had been through the Program; patients and prescribers assume that insurance will cover the drug when it is prescribed; and the patient is subject to applicable cost-sharing for non-Program drug.

Manufacturers will likely control this aspect of risk in free drug programs. However, specialty pharmacies should be attuned to the Opinion’s guidance on this issue. For example, specialty pharmacies should not directly advertise the programs to patients. Notably, the OIG highlighted that prescribers and patients expected insurance to cover drug therapy. Manufacturer sponsored free drug programs for drugs that are not on formulary or where there is typically a lengthy prior authorization process may be viewed differently by the OIG, particularly if the alternative therapies tend to have wider insurance coverage. That is because, in those instances, the availability of free initial drug coverage may assuage prescriber concerns about coverage and/or time to initial dispense.

3.) No Benefit to Prescriber. The OIG noted that because the drug is self-administered and dispensed directly to the patient, prescribers do not have an opportunity to earn any kind of administration fee in connection with the drug.

While this concern is likely to be more material for manufacturers, specialty pharmacies should pay careful attention to potential inducement of referral sources arising from manufacturer sponsored free drug programs.

4.) Unlikely to Induce Use of the Program Pharmacy. The OIG noted that because the Program Pharmacy’s dispensing is limited to manufacturer programs, it is unlikely that the Program would induce the patient to obtain other federally reimbursable drugs from the pharmacy.

The specialty pharmacy in the Opinion is unlike a traditional specialty pharmacy in that it does not dispense to the public. Thus, most specialty pharmacies cannot take comfort in this aspect of the Opinion. However, this does not necessarily mean that the OIG would find a similar program to result in an unreasonable risk of fraud and abuse if administered by a traditional specialty pharmacy. Certain arrangements may raise more concerns than others. For example, if a specialty pharmacy acts as the sole program pharmacy dispensing program drug, a regulator may find that the program induces patients to use the pharmacy for drugs reimbursed by federal programs. This concern may be heightened if the program drug has multiple adjunctive therapies covered by federal healthcare programs or if the applicable disease state is associated with multiple therapies covered by federal health care programs. If a manufacturer would like to use a pharmacy as its exclusive dispenser for a free drug program, specialty pharmacies may want to consider only dispensing the program drug under the free drug program and foregoing traditional dispenses.

5.) No Cost to Federal Healthcare Programs. The OIG found there was little risk that the Program would result in cost to federal healthcare programs. This is because no patient, pharmacy, payor or other third party is billed for the free Program drug, and the specialty pharmacy notifies the beneficiary’s Part D plan sponsor that it is providing the drug to the patient outside of his or her Part D benefit so that no claim should be submitted to the Part D plan sponsor for the free drug.

If specialty pharmacies engage in manufacturer sponsored free drug programs that do not exclude federal program beneficiaries, they should ensure Medicare Part D plan sponsors are notified of the free drug dispense to ensure that the beneficiary does not incur any costs. Typically, patients do not incur costs in such programs. Specialty pharmacies should pay close attention to contracting terms allocating the risk of the manufacturer’s decision to include federal program beneficiaries in their free drug program.


The Opinion found that it was unlikely that the Program would induce beneficiaries to use the Program specialty pharmacy for drugs reimbursed under state or federal healthcare programs because it only dispenses the free drug as part of manufacturer patient support programs. In other words, there could be no inducement of drugs reimbursed by state or federal programs because there is no reimbursement for free drug. Further, the OIG reasoned that the specialty pharmacy does not dispense drugs to the general public; thus, it is not likely that the Program would influence a beneficiary to select the Program specialty pharmacy for other products.

The Opinion offers little guidance for traditional specialty pharmacies that dispense to the general public on the risk under the CMP law. As with the AKS analysis above, the Opinion does not necessarily indicate that the OIG would find a similar program run by a specialty pharmacy that dispenses to the public to result in an unreasonable risk of fraud and abuse if administered by a traditional specialty pharmacy. However, the Opinion does highlight the need for specialty pharmacies to consider patient inducement concerns associated with free drug programs.

In approaching opportunities to participate in manufacturer sponsored free drug programs, or evaluating existing relationships, specialty pharmacies should pay close attention to contract terms establishing responsibility and liability for program eligibility requirements. Also, while programs that exclude state and federal program beneficiaries are likely to pose less of a risk of fraud and abuse, even those programs need to be reviewed carefully and in light of all services provided to patients and on behalf of the manufacturer. The Opinion offers insight into key factors that a regulator is likely to analyze if a free drug program comes under its review. Specialty pharmacies should familiarize themselves with the reasoning of the OIG and apply it to existing and future relationships.

Specialty Pharmacy Times published this article on August 19, 2015. The publication may be accessed with a free login by visiting Specialty Pharmacy Times.

1 The drug is cobranded; thus the Opinion appears to be requested by two manufacturers.

2 AO 15-11, August 12, 2015. Available athttp://oig.hhs.gov/fraud/docs/advisoryopinions/2015/AdvOpn15-11.pdf.

3 This designation is only available only for drugs: “(1) intended to treat a serious or life-threatening disease or condition (alone or in combination with one or more other drugs); and (2) for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.” AO 15-11, citing 21 U.S.C. § 356(a).

4 See 42 U.S.C. 1320a–7b.

5 See Section 1128A(a)(5).

6 The OIG reiterated its position that manufacturers are not “providers, practitioners, or suppliers” for purposes of the Beneficiary Inducements CMP; thus, the Program does not implicate the statute with respect to the Requestor manufacturers.