Recent OIG Advisory Opinions Involving Benefits Provided to Patients Are of Special Interest to Drug and Device Manufacturers

By David C. Gibbons & Alan M. Kirschenbaum –

The U.S. Department of Health and Human Services Office of Inspector General (“OIG”) has recently issued two Advisory Opinions involving patient benefits provided by drug and device manufacturers.  Advisory Opinion 15-11, posted today, involves a manufacturer’s short-term free-drug program.  The other, Advisory Opinion 15‑07, which was posted in June, concerned a device manufacturer’s subsidies for products and services provided to clinical trial subjects.  We bring these to our readers’ attention because they both involve manufacturer programs addressing problems that are not uncommon in the industry.

Free Drug Supply Program for Coverage Delays (Advisory Opinion 15-11)

The requestors in this Advisory Opinion are pharmaceutical manufacturers who co-promote an oral oncology drug that was FDA-approved for various antineoplastic indications under FDA’s Breakthrough Therapy Designation for which limited alternative therapies are available.  The drug can be obtained only through specialty pharmacies.

To deal with delays in coverage determinations for individual prescriptions for the drug, the manufacturers have implemented a free drug supply program for this product (the “Program”).  A third-party vendor operates the Program through a single specialty pharmacy (the “Program Pharmacy”) that does not fill prescription orders for the general public or bill third-party payors, but only dispenses drugs under various contract supply programs, including the Program.

To receive the drug through the Program, patients are required to satisfy certain eligibility requirements.  The patient must:

1. be a “new” patient;
2. have received a prescription for the drug;
3. have a diagnosis consistent with a labeled indication;
4. have health insurance that covers prescription drugs (including private, commercial, or government health insurance programs); and
5. have experienced a delay in a coverage determination of at least five business days.

If the patient’s pharmacy does not receive a coverage determination from the patient’s insurer within five business days, then either the patient’s pharmacy or the prescriber can submit a request for the drug to the Program Pharmacy.  Once the Program Pharmacy confirms eligibility, a separate prescription for the drug is obtained from the prescriber to cover the drug’s dispensing under the Program.

The manufacturers provide up to two free 30-day supplies of the drug under the Program.  Eligible patients receive their first fill and potentially one refill if the coverage determination delay persists beyond 30 days or if the patient has been denied coverage but files a timely appeal with their insurer.

The OIG concluded that, although the arrangement has the potential to generate improper remuneration under the federal health care program anti-kickback statute (“AKS”), 42 U.S.C. § 1320a–7b(b), the OIG would not seek administrative sanctions against the manufacturers because the Program presents a low risk of fraud and abuse.  The HHS OIG cited several reasons for this conclusion:

• The risk of overutilization of the drug product is limited.  Only on-label patients whose insurers do not make a coverage determination within five business days are eligible for the program.  In addition, no more than two 30-day supplies of the drug are provided. 

• The arrangement is distinguishable from “seeding” arrangements in which a pharmaceutical manufacturer offers a product for free or at a substantially reduced cost to induce a patient to use the drug, which will subsequently be reimbursed under a federal health care program.  The Program is not “actively marketed” (i.e., no direct-to-consumer advertising) to patients and information about the Program is available primarily on the manufacturers’ websites.  The manufacturers certified that only 0.0008% of drug “shipments” have been made under the Program, approximately one-third of which were made to beneficiaries of federal healthcare programs.

• Prescribers receive no remuneration under the Program and no fee for administration of the drug.  Thus, there is no inducement to prescribers to purchase or prescribe the drug.

• There are no costs to a federal healthcare program since no third-party payor is billed for free drug provided under the Program, and no part of the costs associated with the drug provided under the Program count towards a patient’s true out-of-pocket (“TrOOP”) expenses under Medicare Part D.

• There is little risk of beneficiary inducement to obtain other federally reimbursed prescription drugs from the Program Pharmacy, since patients cannot obtain future refills of the drug product from the Program Pharmacy and the Program Pharmacy does not dispense to the general public outside of contract supply programs.

The OIG also concluded that the arrangement would not violate the beneficiary inducement civil monetary penalty, 42 U.S.C. § 1320a–7a(a)(5), which prohibits the offer of remuneration to a Medicaid or Medicare beneficiary that the offeror knows or should know is likely to influence the beneficiary to use a particular “provider, practitioner, or supplier” for federally reimbursed items or services.  After reiterating its long-standing interpretation that an inducement to use a particular manufacturer’s drug does not violate the statute because pharmaceutical manufacturers are not “providers, practitioners, or suppliers,” the OIG reasoned that beneficiaries could not be influenced to use the Program Pharmacy to dispense federally reimbursed drugs, since the Program Pharmacy does not dispense drugs to the general public or bill third party payors.

This Advisory Opinion, like others, is limited in its applicability to the specific requestors under the particular set of facts provided.  For example, the opinion might have been less favorable if the Program Pharmacy had the capacity to continue dispensing the product to the patient after the free drug was used up, if the prescriber received a drug administration fee, if off-label patients were eligible to receive the free drug, or if the manufacturers actively promoted the Program.  However, this Advisory Opinion provides a blueprint for pharmaceutical manufacturers to provide assistance where it is important for patients to obtain urgently needed therapy pending reimbursement delays.

Copay Subsidies in Clinical Trial (Advisory Opinion 15-07)

In this Advisory Opinion, the OIG approved of a device manufacturer’s subsidies covering copayments owed by clinical trial subjects.  The trial was a prospective, randomized, double-blind, placebo-controlled study of percutaneous image-guided lumbar decompression (“PILD”) procedures for patients with lumbar stenosis, which was to be sponsored by the manufacturer of devices (the “System”) used in the procedure.  Patients in the control arm of the study would receive a “sham” procedure (i.e., no therapeutic treatment would be performed), but would be able to elect have the PILD procedure after the primary endpoint was reached at six months post-procedure.  CMS had determined to cover the study under its Coverage with Evidence Development (CED) Program.  For subjects in the control arm, Medicare would not cover expenses of the sham procedure, since no therapy would be provided.  For those in the treatment arm, Medicare would cover the facility and professional costs of the PILD procedure, but those subjects would still owe copayments.  The manufacturer faced the problem that, if subjects in the control arm were not charged any payments but subjects in the treatment arm were charged copayments, both would know which arm of the study they were in, thus breaking the blind.  Therefore, the manufacturer proposed to subsidize the copayments owed by the treatment arm subjects by paying the copayments directly to the providers.  The manufacturer would also subsidize all of the costs of the control subjects who, after the endpoint had been reached, elected to have the PILD procedure.

The OIG found that this arrangement presented  minimal risk of fraud and abuse, for several reasons.  First, the study had been designed in consultation with CMS, which would use the results to determine whether PILD should be covered under Medicare.  Second, the Program was necessary to enable a properly designed study to be conducted, and was “a reasonable means of achieving the Study’s goals because it both encourages necessary patient enrollment in the Study and allows for the true impact of the PILD using the System on patient health outcomes to be isolated and assessed.”  In other words, the subsidies were necessary both to keep financial considerations from inhibiting enrollment or causing drop-outs, and to maintain the blind.

The OIG also noted that compensation paid to investigators was fair market value, thus not designed to induce physicians to use the System, and that overutilization would not be a problem because of the small number of subjects, the requirement that investigators follow the study protocol, and the oversight of an IRB.

This Advisory Opinion addresses the infrequent situation where a study has been approved by CMS for coverage under CED.  However, it contains certain considerations that may have wider applicability.  Device and drug manufacturers conducting blinded non-inferiority studies comparing an investigational product to an approved, marketed product sometimes face the predicament described in this Advisory Opinion.  The marketed comparator product may be covered by third party payors, but the associated copayments may be sufficient to cause lower-income patients to drop-out or fail to enroll in the first place, and may also undermine the blind by making patients aware that they are in the comparator arm.  One solution is for the sponsor to provide the comparator product to subjects at no charge, but it is sometimes not possible for the sponsor to obtain the product, or, even it is possible, purchasing it and providing it to subjects might be cost-prohibitive, depending on the product and the size of the study. 

Although CMS’s approval of the study in the Advisory Opinion was clearly an important factor to the OIG, it was not the only one.  The OIG also recognized that the subsidies were necessary both to encourage patients to enroll and remain in the study regardless of their income, and to maintain the blind.  This is not the first Advisory Opinion to recognize this problem.  See, e.g., Advisory Opinions 00-05 (“waiving copayments is a reasonable means of enhancing patient compliance with study requirements and retaining patients for the entire study period.  Waiving copayments will also ensure that economically disadvantaged patients are not precluded from the study”) and Advisory Opinion 98-06.  Although it is somewhat perilous to extrapolate OIG conclusions in one Advisory Opinions to different situations, we would hope that the OIG would take a similar view of copay subsidies in other types of well designed non-inferiority studies where they are intended to ensure the integrity of the clinical trial, and not intended as inducements to purchase or prescribe products.