Pharmaceutical manufacturers challenging Federal Anti-Kickback Statute
Pharmaceutical manufacturers are challenging the breadth of the Federal Anti-Kickback Statute (“AKS”) in federal court, arguing that the government is harming the very vulnerable patients it aims to serve by prohibiting cost-sharing subsidies for life-saving oncology drugs. In October, we discussed the Office of Inspector General’s (“OIG”) Advisory Opinion No. 22-19 (the “Advisory Opinion”), which declared that a charitable organization funded by manufacturers would violate the AKS if it offered certain cost-sharing subsidies under Medicare Part D (“Part D”), even if the organization was independently run and patients had equal access to discounts for 90% of drugs on the market. On November 9, 2022, the Pharmaceutical Coalition for Patient Access (“PCPA”), presumably the organization behind the Advisory Opinion, filed a lawsuit against OIG, seeking declaratory judgment that its cost-sharing program is legal under the AKS and that the Advisory Opinion violates the Administrative Procedure Act (“APA”) and the First Amendment.
The AKS prohibits bribes, kickbacks, and other illegal payments to or from entities that receive reimbursement from federal health care programs. The AKS is broadly written to cover remuneration—defined as essentially anything of value—paid to induce or received in return for patient referrals or purchases of items and services covered by a federal health care program.
OIG made clear in its Advisory Opinion that cost-sharing subsidies by pharmaceutical companies for Part D beneficiaries—even through an independent, charitable coalition with no direct patient or provider contact—would generate prohibited remuneration if the requisite intent were present, thus constituting a violation of the AKS and warranting the imposition of sanctions. In its Advisory Opinion, OIG focused on the direct tie between placement of funds by manufacturers with the charitable coalition and the direct pass-through of those funds to patients to cover Part D cost-sharing obligations for the funding of manufacturers’ own products. The Advisory Opinion also discussed the intent element in both analysis and footnotes, citing specifically that while OIG does not make a determination on intent, OIG does focus on intent being broad enough to cover mere “intent to influence a decision about medical care or purchases[.]”
PCPA is a 501(c)(3) organization that is fully funded by pharmaceutical manufacturers that make and sell oncology drugs reimbursed by Part D. PCPA seeks to use this funding to provide subsidies to lower-income Medicare patients with cancer for covered drugs and related services. Patients, in consultation with their independent providers, are free to choose any treatment option they like, but if their treatment drug is one manufactured by a member of the PCPA, that manufacturer would subsidize the patient’s out-of-pocket costs for the drug. The members of PCPA manufacture 90% of the oncology drugs covered by Part D, so only 10% of available drugs would not be eligible for a cost-sharing subsidy under PCPA’s proposal.
The Complaint: PCPA’s Legal Arguments
In its complaint filed in the Eastern District of Virginia, PCPA explains that out-of-pocket costs under Part D and other insurance programs are associated with many patients abandoning treatment, reductions or delays in treatment following a new diagnosis, delays in prescription refills, and earlier discontinuation of treatment. A Part D patient who requires a new oncology medicine will often be required to pay thousands of dollars a year, making treatment an inaccessible option for many low-income patients. PCPA cites a study that found that half of all Medicare Part D and other patients with cancer abandon their medications when they are obligated to pay more than $2,000 out-of-pocket and that more than 40% abandon their medications if their out-of-pocket cost is between $100.01 and $500.39.
Against this backdrop, PCPA presents three primary reasons that the Advisory Opinion is contrary to law. First, PCPA contends that its proposed program cannot, as a matter of law, satisfy the “in return for” and “to induce” requirements of the AKS. PCPA argues that the AKS should be read narrowly to cover only remuneration constituting a quid pro quo, i.e., corrupt remuneration, not charitable giving without a guaranteed benefit to the giver. PCPA argues that its program is “agnostic” to the treatments selected independently by a patient’s medical provider, given that a beneficiary may receive assistance for any one of a broad range of drug and non-drug cancer services after a course of treatment that independently has been approved by the patient’s medical doctor. The cost-sharing subsidy thus lacks the corrupt intent that the AKS requires.
Second, PCPA argues that the Advisory Opinion is arbitrary and capricious under the APA because OIG has provided safe harbors and prior favorable Advisory Opinions permitting (1) other charities to secure funding from manufacturers to support patients using those manufacturers’ products and (2) other providers to reduce or even completely waive copayments for their own patients. Consequently, PCPA argues that OIG treats PCPA in a fundamentally different fashion and for no justifiable reason. PCPA also relies heavily on a 2005 OIG Special Advisory Bulletin that PCPA claims contradicts the current Advisory Opinion because it specifically approved financial assistance to patients if provided by a “coalition”-style group of manufacturers with certain safeguards in place. PCPA alleges that it built its current model to align with the 2005 Special Advisory Bullet.
Finally, PCPA argues that the Advisory Opinion violates PCPA’s First Amendment rights. As a charitable entity, PCPA claims it has certain rights when engaging in solicitation of funds and in the protected speech it would make in securing funds and then dispensing assistance. In addition, PCPA asserts that OIG reads the AKS so broadly that it improperly criminalizes “innocuous, or even beneficial” conduct that is itself protected by the First Amendment, an industry concern that was documented even in the original rulemaking process.
OIG appears to want to have its cake and eat it, too. The Centers for Medicare & Medicaid Services (“CMS”)—the federal agency within HHS that administers Medicare, among other things—states that its mission is “to strengthen and modernize the Nation’s health care system, to provide access to high quality care and improved health at lower costs.” Of course, OIG’s mandate is to protect the integrity of the HHS programs that taxpayers fund. Unfortunately, however, when you have a hammer, everything can look like a nail. Here, OIG interprets the AKS to potentially criminalize beneficial cost-sharing subsidies from independent charitable organizations like those proposed by PCPA by stretching the definition of intent to cover all the fail-safes that PCPA has put into place to ensure independence and propriety.
OIG in its Advisory Opinion frames the proposed subsidies as altering the cost-sharing obligations (i.e., that patients remain responsible for a portion of their treatment costs) inherent to Part D. It then defers to Congress to rework these cost-sharing obligations via legislation. OIG ignores HHS’s authority to create safe harbors—authority it has already exercised to create a safe harbor for similar subsidies by hospitals and health plans, among others.
In effect, OIG creates a sort of strict liability rule by finding that, by removing a financial barrier keeping low-income patients from obtaining treatment, PCPA’s cost-sharing program would illegally induce those patients to obtain the discounted treatment in violation of the AKS. That is, if the reason a Part D enrollee would not fill a prescription is the enrollee’s financial inability to pay the drug’s out-of-pocket costs, OIG reasons that remuneration removing that barrier would necessarily influence the patient’s purchasing decision. This reasoning would seem to forbid any financial assistance that opens doors to treatment options a patient could not otherwise afford. OIG instead relies on the glacial-at-best pace of a historically divided Congress to make it happen—an unfortunate result for health equity, primarily impacting the most vulnerable populations in the country.
To be sure, pharmaceutical manufacturers are for-profit enterprises, but they are also the most charitable of all industries in the United States. Despite enforcement in charitable giving over the past decade or so by DOJ, charitable giving remains one of the most effective avenues for the industry to help support financially needy patients in government health programs. Remember, commercially insured patients have access to manufacturer-provided copay programs—federal health care program beneficiaries do not. It would be shortsighted not to take advantage of areas where the interests of pharmaceutical companies and the American people align, especially where an innovative proposal like PCPA’s has been introduced into the conversation and could make life-saving medications available to more than just those higher on the socioeconomic spectrum.
The courts may not be the place for this alignment to materialize, but cases in the District of Massachusetts and another awaiting certiorari from the Supreme Court will continue to shed light on how to determine intent under the AKS. HHS may be better suited to craft a safe harbor or exception to the AKS for cost-sharing programs like PCPA’s, and to draw any lines around such an exception necessary to protect the integrity of the Medicare program. HHS has acknowledged that Congress intended that safe harbors evolve over time to reflect changing business practices in the health care industry. Now is just such a time when HHS could consider exercising its authority to update them, and provide much-needed financial relief to the taxpayers it serves.
 Complaint for Declaratory Judgment and Injunctive Relief, Pharmaceutical Coalition for Patient Access v. United States, et al., Case No 3:22-cv-714 (E.D. Va. Nov. 9, 2022).
 Complaint for Declaratory Judgment and Injunctive Relief at 26, Pharmaceutical Coalition for Patient Access v. United States, et al., Case No 3:22-cv-714 (E.D. Va. Nov. 9, 2022).
 Liz Szabo, As Drug Costs Soar, People Delay Or Skip Cancer Treatments, NPR (Mar. 15, 2017).
 Jalpa A. Doshi et al., Association of Patient Out-of-Pocket Costs with Prescription Abandonment and Delay in Fills of Novel Oral Anticancer Agents, 36 J. of Clinical Oncology 5 (Feb. 10, 2018).
 Complaint for Declaratory Judgment and Injunctive Relief at 62, Pharmaceutical Coalition for Patient Access v. United States, et al., Case No 3:22-cv-714 (E.D. Va. Nov. 9, 2022).
 Id. at 64-65.
 See 2005 Bulletin, 70 Fed. Reg. at 70627.
 Complaint for Declaratory Judgment and Injunctive Relief at 67-68, Pharmaceutical Coalition for Patient Access v. United States, et al., Case No 3:22-cv-714 (E.D. Va. Nov. 9, 2022).
 Appendix B: Operating and Staff Divisions and Their Functions, U.S. Department of Health and Human Services (last reviewed Sep. 2, 2015).
 About OIG, HHS Office of Inspector General (last visited Nov. 17, 2022).
 See, e.g., 42 C.F.R. § 1001.952(k), (l).
 Tanza Loudenback, 25 of the most generous companies in America, Insider (Jun. 23, 2016).
 67 Fed. Reg. at 60203 (2002).
Sheela Ranganathan also contributed to this article.
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 325