• OIG Issues Advisory Opinion Regarding Patient Assistance Programs for Part D Beneficiaries
  • May 31, 2006 | Authors: Kimberly J. Kannensohn; Rachel Goldstein Kempler
  • Law Firm: McGuireWoods LLP - Chicago Office
  • On April 18, 2006, the Office of Inspector General of the Department of Health and Human Services (OIG) issued an advisory opinion in which it concluded that a pharmaceutical company’s patient assistance program (PAP) could provide free outpatient prescription drugs to financially needy Medicare Part D beneficiaries without running afoul of the Medicare and Medicaid Anti-Kickback Statute, 42 U.S.C. §1320a-7b (the Anti-Kickback Statute).

    Many pharmaceutical companies offer PAPs to assist qualifying individuals in obtaining expensive medications at reduced or no cost. PAPs have long been a vital source of drug coverage for low income individuals. However, a Special Advisory Bulletin published by the OIG in November 2005 called into question the ability of pharmaceutical manufacturers to include Part D beneficiaries in their PAPs. In the bulletin, the OIG cautioned that drug company PAPs that provide subsidies for Part D drugs “would implicate the anti-kickback statute and pose a substantial risk of program and patient fraud and abuse.” 70 Fed. Reg. 70623, 70625 (Nov. 22, 2005). As a result of the bulletin, many drug companies decided not to expand their PAPs to include individuals enrolled in the Medicare Part D program. This posed a dilemma for lower income Medicare recipients who were forced to choose between enrolling in the Medicare Part D program and foregoing their PAP benefit, or not enrolling in a Part D program and paying a penalty should they need to enroll in the Medicare Part D program at a later date, i.e. subsequent to the May 15, 2006, enrollment deadline.

    Advisory Opinion No. 06-03 should resolve the uncertainty that existed after the Special Advisory Bulletin was published, and provide a measure of comfort to pharmaceutical manufacturers who desire to include Part D beneficiaries in their PAPs. In the advisory opinion, the OIG concluded that the two PAPs proposed by Schering Plough, a pharmaceutical manufacturer, contained sufficient safeguards to substantially mitigate the risk that the free drugs provided to Part D beneficiaries by the PAPs would be used to tie the beneficiaries to particular outpatient prescription drugs payable by the Medicare Part D program, or that such free drugs would result in overutilization and increased costs to the Part D program. Thus, the OIG determined that the PAPs, as structured, could provide free drugs to beneficiaries of the Medicare Part D program without running afoul of the Anti-Kickback Statute.

    According to the OIG, the principal factor minimizing the risk that the PAPs would violate the Anti-Kickback Statute is that the PAPs are operated entirely outside of the Medicare Part D program. This means that beneficiaries obtain the free drugs without using their Part D insurance benefit. No claims for drugs provided by the PAPs are filed with the beneficiary’s Part D plan, and the assistance provided by the PAPs does not count toward the beneficiary’s true out-of-pocket costs (TrOOP) or total Part D spending for any purpose. Schering Plough will ensure that the benefit remains outside of the Part D program by entering into data sharing agreements with the Centers for Medicare and Medicaid Services (CMS) to enable the PAPs to communicate with Part D plans regarding their beneficiaries’ participation in the PAPs. In addition, the PAPs will inform each beneficiary that the free drugs will not be reimbursed by the beneficiary’s Part D plan, and that the drugs do not count toward the beneficiary’s TrOOP.

    Other aspects of the PAPs identified by the OIG as mitigating against the risk of an Anti-Kickback Statute violation under the Medicare Part D program include:

    • Eligibility for PAP assistance for Part D beneficiaries is determined solely on the basis of financial need. An individual qualifies for assistance only if his or her income is below a certain percentage of the federal poverty level (i.e., 325% for one PAP, and 250% for the other PAP), and the individual has already spent 3% of his or her total household income on outpatient prescription drugs for that coverage year. A beneficiary’s choice of Part D plan, the benefit design of the beneficiary’s Part D plan, and where the Part D beneficiary is on his or her Part D plan’s benefit spectrum, are not taken into consideration when determining eligibility for PAP assistance. Finally, the providers, practitioners and suppliers used by the beneficiary or the Part D plan in which such beneficiary is enrolled are not taken into consideration when determining the beneficiary’s eligibility for PAP assistance.

    • Each PAP provides assistance to each beneficiary for the entire Part D coverage year, and each PAP continues to provide assistance even if the beneficiary’s use of the free drug is periodic during the coverage year.

    • The PAPs are operated in compliance with all existing guidance from CMS, and the PAPs maintain accurate and contemporaneous records of the free drugs they provide to Part D beneficiaries.

    • Under certain circumstances, the PAPs distribute free drugs to beneficiaries through the beneficiaries’ physicians, creating a risk of a violation of the Anti-Kickback Statute if the free drugs inure to the economic benefit of the physicians. This risk is reduced by the fact that quantities shipped to a physician are limited to the amount ordered for a designated patient, and in most cases, do not exceed a three-month supply. In addition, the PAP obtains an agreement from the physician to dispense the drugs only to a designated patient and to refrain from billing for the drugs.

    The OIG concluded that the above safeguards minimize the risk that the free drugs provided by the PAPs to Part D beneficiaries would be used to steer or tie Medicare beneficiaries to particular outpatient prescription drugs payable by the Medicare Part D program, or that such free drugs would result in overutilization and the attendant increased costs to the Medicare Part D program. Therefore, the OIG concluded that the operation of Schering Plough’s PAPs, as described, would not violate the Anti-Kickback Statute.

    Although OIG Advisory Opinions are technically binding only upon the requestor, Advisory Opinion 06-03 and the fraud and abuse safeguards highlighted therein should be considered by any pharmaceutical company seeking to extend its PAPs to financially needy individuals enrolled in the Medicare Part D program.