OIG Limits Ability of Pharmaceutical Manufacturers to Offer Drug Cost-Sharing Grants | Sheppard Mullin Richter & Hampton LLP

On October 5, 2022, the Office of Inspector General (“OIG”) issued Advisory Notice No. 22-19 (the “Advice”), which limits the ability of pharmaceutical manufacturers to offer cost-sharing to Medicare Part D (“Part D”) beneficiaries through 501(c)(3) charities without violating the federal anti-kickback law (the “AKS”) .

In the notice, the OIG determined that a proposed arrangement under which pharmaceutical manufacturers would: (i) fund, through the claimant,[1] cost-sharing grants for specific to manufacturers oncology drugs covered by Part D; (ii) finance, through the Applicant, specific programs and the health insurance premiums of eligible beneficiaries; and (iii) finance the operating costs of the Applicant, would have violating the AKS if the required intent was present but would not trigger the Civil Monetary Penalty (“CMP”).

Statutes in question

The AKS makes it a criminal offense to knowingly and voluntarily offer, pay, solicit or receive compensation to any person to induce that person to purchase or obtain any reimbursable item or service under a program. federal health care.[2] For the purposes of the AKS, “compensation” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. An arrangement that falls within the AKS may be exempt from liability if the arrangement falls within one of the Safe Harbor regulations Where if the OIG determines that the arrangement presents only a minimal risk of fraud, in which case the agency may exercise its enforcement discretion and decline to impose sanctions.

On the civil side, the Beneficiary Incentives CMP imposes civil monetary penalties on anyone who offers or transfers compensation to a beneficiary of a federal or state health care program that the person knows or ought to know that it is likely to influence the beneficiary’s choice of a particular supplier. , practitioner or provider.[3]

Cost-sharing grants pose the highest risk

After concluding that the arrangement would involve the AKS and would not fall within a safe harbor regulation, the OIG determined that, of the three components of the proposed arrangement, the supply by pharmaceutical manufacturers Part D patient cost-sharing grants pose the highest risk of fraud. Therefore, the OIG concluded that it would be inappropriate for the OIG to exercise its enforcement discretion, despite the fact that many Part D recipients are unable to purchase oncology drugs at current price.

First, OIG asserted that the arrangement constitutes a circumvention of the Part D design envisioned and implemented by Congress, and that it poses the risk of inappropriately increasing costs to federal health care programs. Significantly, the proposed arrangement between the Applicant and all pharmaceutical manufacturers would represent an overwhelming ninety percent (90%) market share of Part D oncology drugs. cost-sharing Part D by manufacturers’ cost-sharing grants for such a large portion of Part D oncology products on the market, the OIG found that manufacturers would effectively replace the statutory framework put in place by the Congress and therefore circumvent the legislative process. In addition, the OIG asserted that the proposed arrangement poses a risk of inflating health care costs because it would remove one of the key price controls from the current legislative framework – exposing beneficiaries to the economic effects of drug prices. set by the manufacturers. Since Part D recipients are, by design, exposed to the list price of a certain drug, drug manufacturers have an incentive to keep costs low in order to remain competitive. But the OIG said that if these manufacturers offered large cost-sharing grants, recipients would continue to buy the drugs, with prices inflated by manufacturers, while federal health programs and ultimately , taxpayers would bear the burden.

Second, the OIG asserted that the arrangement poses the risk of patient referral, anti-competitive effect, and biased clinical decision-making. Specifically, the OIG argued that the proposed arrangement carries the anti-competitive risk of penalizing non-participating manufacturers because Part D patients would likely be diverted from their products to subsidized products offered under the proposed arrangement. In addition, the OIG pointed out that prescribers may be deterred from prescribing a drug from a non-participating manufacturer in favor of a subsidized drug offered under the proposed arrangement, even if it is not in the best interest of the patient.

However, the OIG found that the proposed arrangement would not violate the CMP on inducements to recipients because, while the proposed grants are certainly intended to induce Part D recipients to purchase the oncology products offered under Under the arrangement, cost-sharing grants would be offered to beneficiaries based on the choice of drug, not the choice of “provider, practitioner, or provider”.

Application trend

The advisory extends the scrutiny given to drugmaker cost-sharing grants by clarifying previous OIG bulletins and reflecting current enforcement trends, particularly the use of 501 charities. (c)(3) to fund Part D patient cost-sharing obligations. Readers will recall that over the past four years, the pharmaceutical industry has provided more than $1.5 billion in total DOJ settlements for funding charities that provide co-pay support for the part D to patients.[4]

The advisory clarifies and expands on a 2005 OIG bulletin, which recognized the possibility of a “coalition model” to increase accessibility to expensive drugs for Part D recipients in need.[5] Although the 2005 Bulletin discussed several warranties that could limit AKS liability risk for coalition models, such as manufacturers offering subsidies for everything of their products covered by any Form of Plan D, the OIG ultimately concluded that as of 2005 it was “premature to offer definitive guidance on these evolving programs”. Subsequently, in a 2014 bulletin, the OIG highlighted the risk that “the ability to subsidize co-payments for their own products could encourage manufacturers to raise prices, potentially at additional cost to federal healthcare programs.” of health and beneficiaries who cannot obtain co-payments”.[6]

Additionally, the opinion encompasses reasoning used by the Second Circuit this summer, when a three-judge panel ruled that Pfizer’s plan to provide co-payment assistance to Plan D beneficiaries for an expensive heart drug would violate indeed the AKS.[7]

Take away food

The bulk of the notice focuses on the direct link between the placement of funds with the claimant and the direct transfer of those funds to patients to cover Part D cost-sharing obligations for manufacturers’ own products. The OIG found that the requester’s plan to use an independent third-party “administrator” to operationalize the system and to set up and execute an overall compliance program was not sufficient to offset the risk of fraud. The OIG was also not convinced that there would be little or no communication or publicity regarding the proposed arrangement, or that the exchange of data between the manufacturers and the Administrator would be very limited. Plaintiff has clearly considered the compliance infrastructure that has sprung up as a result of the Department of Justice’s (“DOJ”) enforcement of manufacturer-funded Part D co-payment foundations. However, the aforementioned guarantees were not enough to allay the concerns of the OIG. Although having an independent third party (that’s to say, Administrator) seated between manufacturer and patient, the OIG still concluded that the proposed arrangement raised concerns of inappropriate use, biased decision-making, and competition unfair.

Even amid the current pressure for health equity among executive agencies, the OIG has indicated that it will refrain from relaxing the application of the AKS as a way to increase the access to expensive drugs for Plan D recipients. Given the volume of AKS fraud that has overwhelmed the system in the wake of the pandemic, we will likely see the OIG continue to push for the application of AKS to the towards drug manufacturers.


[1] The plaintiff is a 501(c)(3) healthcare company, whose operations would be funded entirely by pharmaceutical manufacturers. However, the OIG noted that the members of the Claimants Committee would not be employees, directors or officers of a manufacturer and, further, that these members would not have any financial relationship with a manufacturer. [2] 42 USC § 1320a–7b(b). [3] 42 USC § 1320a–7a(a)(5). [4] See DOJ Journal of Federal Law and Practice, Vol. 70, No. 3 (August 2022) at p. 42. [5] See Bulletin 2005, 70 feder. Reg. at 70627. [6] See Bulletin 2014, 79 Fed. Reg. at 31112. [7] See Pfizer, Inc. v. United State Department of Health and Human Services et al., case no. 21-2764 (2nd Cir. 2022).

About John Tuttle

Check Also

Non-pharmacological treatments outperform opioid treatment for patients with chronic non-surgical pain

Updated prescribing guidelines published in 2014 and 2016 may explain a lower opioid use of …