Second Circuit Agrees that Copay Assistance Programs May Violate the Anti-Kickback Statute

In a recent decision, the Second Circuit upheld the HHS Office of the Inspector General (OIG)’s position that Pfizer’s proposed copay assistance program for its high-cost heart treatment would violate the Federal Anti-Kickback Statute (AKS).  Pfizer, Inc. v. U.S. Department of Health and Human Services et al., July 25, 2022.  In the course of explaining its decision, the Court interpreted several aspects of AKS, including:

• The meaning of “induce” (according to the Court, it is persuading someone to take an action, with or without “bad motives”);
• The meaning of “willfully” (it is voluntarily and intentionally violating a known legal duty);
• Whether corrupt intent is required for a violation (it isn’t);
• Whether “remuneration” is limited to kickbacks, bribes, and rebates (it isn’t); and
• Whether the Beneficiary Inducement Statute (BIS) is relevant to interpreting the AKS (essentially, no).

Background

Pfizer manufactures tafamidis, a breakthrough treatment for a rare, progressive heart condition known as transthyretin amyloid cardiomyopathy.  Pfizer set the price of tafamidis at $225,000 for each one-year course of treatment.  Under Medicare’s pricing formula, beneficiaries who take tafamidis are responsible for a copay of approximately $13,000 per year.  Recognizing that this out-of-pocket cost still represents a significant financial barrier for many patients, Pfizer proposed a Direct Copay Assistance Program for Medicare Part D beneficiaries using tafamidis.  On June 27, 2019, Pfizer sought an OIG advisory opinion to ensure that its proposal would not run afoul of federal law.

Under the proposed program, Pfizer would directly cover nearly all of a Medicare Part D beneficiary’s copay for tafamidis, subject to certain eligibility criteria, including financial need.  Eligible patients would be responsible for only $35 per month, and Pfizer would cover the rest of the approximately $13,000 annual copay.  The Medicare program would pay the remainder of the $225,000 annual cost.

Pfizer emphasized to OIG that it would not offer this copay assistance as part of any advertisement or solicitation for tafamidis.  In its request to OIG, Pfizer argued that “offering co-payment assistance to help eligible patients afford a clinically-appropriate medication, when such medication is the only approved medication for the disease and the principal reason that patients would not fill their prescription is the inability to pay their out-of-pocket costs, does not improperly induce the underlying prescribing decisions.”

OIG disagreed.  In September 2020, the Agency issued an unfavorable advisory opinion to Pfizer, concluding that the proposal was “highly suspect” under the AKS “because one purpose of the [proposed program]—perhaps the primary purpose—would be to induce Medicare beneficiaries to purchase [Pfizer’s] federally reimbursable Medications.”  OIG argued that copay assistance “induces” a beneficiary to purchase a medication when the assistance removes a financial barrier, even if the medication is one that the beneficiary needs and would have purchased if they had the financial means to do so:

“[W]here a Medicare beneficiary otherwise may be unwilling or unable to purchase the Medications due to his or her cost-sharing obligations, which are driven by the list price of the Medications, the [proposed program] would induce the beneficiary to purchase the Medications by removing the financial impediment, and the Medicare program would bear the costs for the Medications.”

Pfizer challenged the Agency’s interpretation as contrary to law under the Administrative Procedure Act (APA) in the Southern District of New York.  That court granted summary judgment to the government on the APA claim and rejected Pfizer’s narrower reading of the AKS, which would require an element of “corrupt” intent to impose AKS liability.  Pfizer appealed to the Second Circuit.

The Second Circuit’s Interpretation of the Anti-Kickback Statute

The AKS makes it a criminal felony to knowingly and willfully offer or pay any remuneration (including a kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to induce a person to, inter alia, purchase, or arrange for the purchase of, a drug reimbursed in whole or in part by a federal healthcare program, such as Medicare Part D.

In affirming the district court’s decision, the Second Circuit held that Pfizer’s proposed program “falls squarely within the AKS’s prohibitions” because it “is specifically designed to induce Medicare beneficiaries to purchase Pfizer’s tafamidis, a federally reimbursable drug.”  In line with the district court, the Second Circuit concluded that the plain meaning of the terms “remuneration” and “induce,” as used in the AKS, describe a payment that persuades another to take a certain course of action.  The Court expressly stated that that “the plain meaning of ‘remuneration’ is clearly broader than a kickback, bribe, or rebate,” referencing Congress’s 1977 statutory expansion of the AKS to cover “any remuneration” (emphasis added).

In relying on the plain meaning of the term “induce,” as the district court had done, the Second Circuit clarified the definition as:  to “entice or persuade another person to take a certain course of action” (internal brackets omitted).  Contrary to Pfizer’s contention that the term implies a corrupt intent, the Court found it to be “neutral with regard to intent—one can persuade another to take an action with good or bad motives.”

Similarly, the Court drew on the plain meaning of “willfully” to reject Pfizer’s argument that the term suggests “an element of corruption.”  The Court instead concluded that the term, as used in the AKS, is “more accurately understood as a voluntary, intentional violation of a known legal duty…the mens rea element goes no further” (internal quotations omitted).  Consistent with the district court, the Second Circuit likewise “found nothing in the text of the AKS” indicating that corrupt intent is a required element of an AKS violation.  On the contrary, referring to the statement in the statute itself that “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of this section,” the Court concluded that a person can “willfully violate the AKS as long as he knows that his conduct is illegal, even if he is not aware of the exact statutory provision that his conduct violates.”

Lastly, in rejecting Pfizer’s argument that the AKS should be read more narrowly than the BIS, the Second Circuit found “no reason to interpret the AKS by reference to the text of the BIS…[A]lthough the two statutes have similar subject matter, they prohibit different activities.” Further, “there is little utility in comparing the language of the BIS to that of the AKS.”

The Lesson of this Case

We have blogged before about the OIG’s longstanding view that drug manufacturer copay subsidies violate the AKS, and the Department of Justice has followed suit with a number of cases challenging manufacturer copay subsidies under the AKS and the Federal False Claims Act.  Most of these cases have settled out of court (see, for example, Actelion Pharmaceuticals, 2018; Astellas Pharma and Amgen, 2019; Gilead Sciences, 2020).  Lilly, on the other hand, sought vindication of its copay program in court, possibly because Lilly thought the facts of the case painted a picture that seemed to show anything but corrupt or bad intent.  After all, Lilly offered access to treatment for critically ill patients in financial need who would otherwise have to forego treatment or be saddled with a $13,000 per year copay.  The decision in this case is a stark reminder that, however serious the disease and however beneficial a copay assistance program might be to patient access to treatment, manufacturer copay programs that include government beneficiaries are at high risk under the AKS.