May 2024 Legal Intelligencer/Law.com article by Lamb McErlane attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The HHS Office of Inspector General (“OIG”) issued Advisory Opinion No. 24-02 (“Opinion”) on April 8, 2024 regarding patient assistance funds associated with twelve (12) specific diseases (“Disease Funds”) operated by the “Requestor.” Specifically, the Requestor inquired as to whether the proposed “Arrangement,” as discussed below, would warrant sanctions under Sections 1128A(a)(7), 1128B(b) 1128A(a)(5), 1128(b)(7) of the Social Security Act (“SSA”), as they relate to the federal Anti-Kickback Statute[1] (“AKS”) and the Beneficiary Inducements civil monetary penalties (“CMP”).

Effective from the date of issuance to January 1, 2027 (the “Effective Period”), the Opinion concludes that (i) although the proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present), the OIG would not impose administrative sanctions on the Requestor; and (ii) the Arrangement does not constitute grounds for imposition of sanctions under the Beneficiary Inducements CMP.

Factual Background & Proposed Arrangement

Requestor, a nonprofit eligible to receive tax-deductible charitable contributions, provides financial support to patients with certain medical conditions and demonstrated financial need through various patient assistance programs. Requestor’s Disease Funds are intended to assist patients with out-of-pocket costs associated with the treatment of the disease, as well as side effects of treatment. Each Disease Fund has a single pharmaceutical manufacturer donor that manufactures or markets a drug to treat the relevant disease.

Patients can apply for enrollment in a Disease Fund via Requestor’s website, by phone, or by email, and the application process requires documentation of financial and medical eligibility. Financial eligibility is based on a plethora of factors, including income, assets, number of dependents, burden of cost-sharing obligations for expensive prescription drugs, other costs associated with necessary care, and other aspects surrounding the patient’s financial circumstances. Medical eligibility requires a certification of medical necessity signed by the patient’s physician. Patients who meet the eligibility criteria are accepted on a first-come, first-served basis so long as funding is available. Assistance is awarded for up to twelve (12) months with the possibility of renewals. Requestor certifies that a patient’s eligibility is not contingent on the selection of a particular treating provider or treatment approach, or based upon whether the patient is insured, either privately or by a Federal health care program.

1. Overview of Spending.

The Arrangement provides for various categories of support including (i) cost-sharing subsidies for prescription drugs and other items or services; (ii) financial support to cover, in whole or in part, medical expenses not covered by insurance; (iii) subsidies for insurance premiums; and (iv) emergency relief. In 2021, Requestor spent over $4.7 million across the Disease Funds, with cost-sharing subsidies representing 41% of the expenditure (with no limitation or restriction to any particular drug), medical assistance representing approximately 39% of the overall spending, insurance premiums representing approximately 18% of the expenditures, and emergency relief representing less than 2% of the overall spending.[2] The OIG’s Opinion assumed that this 2021 data will continue to be generally representative of the relative proportion of different categories of financial support in the Disease Funds during the Effective Period, but noted that if these proportions materially change, this Opinion will be without force and effect.

1. Relationship with Donors.

Requestor engages with each donor pursuant to a written agreement which specifies that the donor will not exert directly or indirectly exert any influence or control over the identification, delineation, establishment, or modification of any specific Disease Fund operated by Requestor. Donors may not dictate (i) which Disease Funds are established, (ii) which categories of assistance to provide within each Disease Fund, (iii) nor which drugs, items or services will receive donor contributions. Furthermore, the identities of donors are not provided to patients or providers. Likewise, donors are not provided with individualized information, information about how funds are distributed, or information that would enable a donor to correlate the amount or frequency of its donations with the number of aid recipients who use its products or services or the volume of those products supported by the Disease Fund.

The Law

1. Federal Anti-Kickback Statute.

The AKS[3] makes it “a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for… any item or service reimbursable under a Federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a Federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and/or up to 10 years of jail time, as well as exclusion from Federal health care programs and potential imposition of fines by the OIG.

1. Beneficiary Inducements CMP.

The Beneficiary Inducements CMP imposes CMPs against any person who offers or transfers remuneration (i.e., items or services for free or less than fair market value) to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or receipt of any item or service, for which payment may be made by such health care programs.

Legal Analysis

1. OIG’s Guidance on Independent Charity Patient Assistance Programs (“PAPs”).

While the OIG recognizes that PAPs organized by independent charitable organizations (“independent charity PAPs”) can provide meaningful and important safety net assistance to patients with financial need, independent charity PAPs that rely heavily on donations from pharmaceutical manufacturers tend to present significant fraud and abuse risks. The risks OIG has identified in connection with cost-sharing subsidies funded by manufacturers include: the potential for improperly increased drug prices, which could result in improperly increased costs to Federal health care programs and certain patients; the possible steering of Medicare Part D enrollees to certain drugs, which could result in enrollees taking drugs that are not as safe and efficacious for them as other drugs; and the prospect of anti-competitive effects. The OIG has consistently warned that independent charity PAPs should be independent of pharmaceutical manufacturer influence and not function as a conduit for payments by the pharmaceutical manufacturer to patients.[4]

1. The Effective Period.

The OIG indicated that its opinion will only be effective from the date of issuance to January 1, 2027 because Congress enacted legislation that restructures the cost sharing imposed on Medicare Part D enrollees. Specifically, the new law eliminates Medicare Part D enrollees’ 5% cost sharing in the catastrophic phase beginning in 2024 and also caps enrollees’ annual out-of-pocket costs for Part D drugs at $2,000 beginning in 2025 (with the cap annually updated thereafter). The OIG noted that this reduction in cost-sharing obligations could ease demand for the type of cost-sharing subsidies provided under the arrangement, and therefore could alter the OIG’s assessment of the balance of benefits and risks under the Arrangement. Accordingly, the OIG’s opinion and the prospective immunity conferred thereby will expire on January 1, 2027, 2 years after full implementation of the $2,000 out-of-pocket cap on Part D cost-sharing obligations.

1. Evaluation of the Arrangement.

The OIG evaluated the Arrangement as it operates under the current Part D cost-sharing structure (i.e., before implementation of the out-of-pocket caps). The OIG noted that because the Arrangement does not influence an enrollee’s selection of a particular provider, practitioner, or supplier for the order or receipt 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 Arrangement does not implicate the Beneficiary Inducements CMP.

On the other hand, the Arrangement implicates the AKS because drug manufacturers, through Requestor, provide various categories of remuneration to patients, including Federal health care program beneficiaries, who have been diagnosed with a disease that can be treated by a drug the donor manufactures. This could induce the purchasing or ordering, or the arranging for the purchase or order, of a prescription drug reimbursable by a Federal health care program. For the following reasons, the OIG determined that it will not impose administrative sanctions on Requestor related to the AKS in connection with the Arrangement.

First, the proportion of funds spent to support the purchase of the donors’ drugs vary substantially with each Disease Fund. Disease Funds that spend a larger proportion of their contributions to support their donors’ own drugs present a greater risk of fraud and abuse. However, the Arrangement, taken as a whole, includes many of the features the OIG has previously highlighted that reduce fraud and abuse risk in independent charity PAPs, including: (i) defining Disease Funds based on established disease states; (ii) awarding assistance without regard to the treatment regimen prescribed for a particular patient; (iii) limitations on the sharing of information with donors; and (iv) application of a financial eligibility process.

Second, Requestor’s Disease Funds provide assistance that could be highly impactful for financially needy patients with rare disorders. The OIG noted that while less than one-third of funds spent under the Arrangement support the purchase of the drugs manufactured by donors through cost-sharing subsidies, more than two-thirds of the funds are in the form of other categories of assistance, including cost sharing for other items and services, medical assistance, premium support, and emergency relief.

Conclusion and Limitations

The OIG concluded that, during the Effective Period, (i) although the proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present), the OIG would not impose administrative sanctions on Requestor in connection with the Arrangement under sections 1128A(a)(7) or 1128(b)(7) of the SSA; and (ii) the Arrangement does not constitute grounds for the imposition of sanctions under the Beneficiary Inducements CMP.

It is important to note that the Opinion, which is effective until January 1, 2027, is limited in scope to the specific Arrangement and is not to be relied upon by any person other than the Requestor. The opinion is also subject to any additional limitations set forth at 42 C.F.R. Part 1008. While the Opinion may not be specifically relied upon for other arrangements, the reasoning stated therein is useful to keep in mind when considering different marketable avenues in which to provide products and services.

 

[1] See Section 1128B(b) of the SSA.

[2] Requestor certifies that certain safeguards are implemented with regard to medical assistance and emergency relief expenditures. For example, Requestor distributes funds directly to the person or entity furnishing the item or service rather than to the patient, where possible. Annual per-patient caps on medical assistance are also established for each Disease Fund. Additionally, before covering any travel expense, Requestor requires proof of a medical appointment from the health care provider with whom the appointment is scheduled.

[3] 42 U.S.C. § 1320a-7b(b).

[4] See 2005 Bulletin, 70 Fed. Reg. at 70,627; 2014 Bulletin, 79 Fed. Reg. at 31,121.

Read the article on Law.com here.

____________________________________

Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., who contributed to this article, is a practicing attorney at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This alert is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, or any other health law topics, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.