Kusserow’s Corner: Favorable OIG Advisory Opinion to Pharmaceutical Direct-to-Patient Product Sales Program

The HHS Office of Inspector General (OIG) issued Advisory Opinion 14-05 that concluded no enforcement action would be taken against a drug manufacturer’s direct-to-patient discounted sales program that operates outside of federal health care programs. The Opinion was in response to questions involving a program under which a brand-name drug manufacturer offers to sell products directly to patients at a heavily discounted fixed cash price.

Recital of Facts

The requester explained that the patients have valid prescriptions for the product and are uninsured, have commercial prescription drug insurance, or are enrolled in Medicare Part D or another federal health care program that provides outpatient prescription drug coverage (e.g., Medicaid, TRICARE, or U.S. Department of Veteran Affairs). The proposed arrangement provides the patents with a means of obtaining the product on an outpatient basis in circumstances where it may not be readily available at retail pharmacies or covered by prescription drug plans, including Medicare Part D plans. The requestor further noted that the drug is either not included on most third party payor formularies due to the availability of generic equivalents, or, where it is covered, it is placed on non-preferred formulary tiers and subject to prior authorization, step therapy, or other coverage and reimbursement restrictions.

Under the discount program, Medicare Part D patients with a valid prescription are able to obtain the drug from an online pharmacy, which dispenses the product on behalf of the manufacturer at a fixed price established by the latter. The manufacturer supplies the product to the pharmacy, under which the manufacturer retains title to the product until the pharmacy dispenses it to patients. The manufacturer pays the pharmacy a fair market value fee for the dispensing services. Neither the pharmacy nor the patient seeks reimbursement for the product from any third party payor, government or private, nor does the manufacturer or the pharmacy discuss or otherwise market any other product or service to patients who have opted into the discount program.

OIG Analysis

In analyzing this program under the Federal Anti-Kickback Statute (AKS), the OIG recognized that the program operates entirely outside of all federal health care programs, meaning that patients obtain the product without using their Medicare Part D benefit or any other federal health care program benefit. Nevertheless, the OIG reasoned that the AKS could be implicated if (1) the discount induced patients to purchase other products marketed by the manufacturer that are reimbursed under federal programs; or (2) the discount induced patients to switch to the product and then, if the manufacturer terminated the discount arrangement, use their Part D plan or other federal program to purchase the product. OIG concluded that that the risk of the first type of inducement was minimized because the manufacturer certified that it would not use the discount as a vehicle to market other federally reimbursable products that it manufactures. With regard to the second type of inducement, if the discount program were terminated, few Part D enrollees would be able to obtain coverage of the product through their Part D plans because of the prevalent coverage exclusions and limitations applicable to the drug, whereas enrollees could easily obtain coverage of generic equivalents.

OIG Findings

  1. The operation operates entirely outside all Federal health care programs and does not involve any payments with those programs.
  1. The dispensing arrangement with the pharmacy did not constitute an unlawful swapping arrangement under the AKS—i.e., a vehicle for the manufacturer to provide fees to the pharmacy for dispensing the product to cash paying patients as an inducement for the pharmacy to recommend the manufacturer’s other drugs that are covered under federal programs.
  1. The fees paid to the pharmacy are fixed and consistent with fair market value in an arm’s-length transaction, and do not take into account the value or volume of referrals or other business generated between the parties.
  1. There is no exclusive distribution arrangement with a pharmacy for the product.
  1. The arrangement does not have the potential to influence Medicare or Medicaid beneficiaries to use the online pharmacy for federally reimbursed products, so that there is minimal risk of a violation of the civil monetary penalty prohibiting beneficiary inducements (42 USC 1320a-7a(a)(5)).

Based upon the facts provided, the OIG concluded that it would not impose administrative sanctions on the Requestor for the arrangement.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.