Featured Expert Contributor—Life Sciences and Medtech Regulation

Matt Wetzel is a partner in the Washington, DC office of Goodwin Procter LLP.  Prior to joining Goodwin, Matt served as Chief Compliance Officer of a Silicon Valley biotech start-up and was the Vice President & Deputy General Counsel of the world’s largest medical technology trade association in Washington, DC, AdvaMed.

* * * * 

On July 25, 2022, the U.S. Court of Appeals for the Second Circuit affirmed a lower court’s decision to support the government’s finding that drug company Pfizer’s planned copay subsidy program ran afoul of the Anti-Kickback Statute.  The program would have offered financial assistance to qualifying patients (including Medicare beneficiaries).  This assistance would have covered their drug copays and, in turn, helped these patients gain access to expensive prescription medication.    

The medication at issue in Pfizer is the company’s breakthrough drug, Tafamidis, which treats a rare heart condition affecting approximately 100,000 to 150,000 Americans.  The drug costs $225,000 on average, which translates into approximately $13,000 per year for Medicare patients in copay obligations. 

To counter the financial challenge patients might face in meeting their copay obligations for Tafamidis, Pfizer had planned to initiate a “Direct Copay Assistance Program” for financially eligible patients.  Under the program, a patient would pay $35 per month, the company would cover the $13,000 copay, and the Medicare program would cover the rest of the annual cost. 

To support its proposed program, Pfizer sought an advisory opinion from the U.S. Department of Health & Human Services Office of Inspector General (“OIG) as to whether the program would violate the Anti-Kickback Statute, if implemented.  OIG responded unfavorably.

The government’s long-expressed belief is that cost-sharing obligations like copays are good for patients and for Medicare beneficiaries in particular.  According to the government, cost sharing creates a natural economic limit on the healthcare market.  If patients have “skin in the game,” the government’s thinking goes, they will take a cautious approach before purchasing expensive brand name drugs, especially in the event that there is a cheaper alternative. 

The government posits that waiving co-pay requirements for Medicare beneficiaries amounts to an inappropriate inducement under the Anti-Kickback Statute, which makes it a felony to:

‘knowingly and willfully [solicit, receive, offer, or pay] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overly or covertly, in cash or in kind’ in return for ‘the furnishing or arranging for the furnishing of any item or service’ or ‘purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering’ any item or service paid by a Federal health care program (like Medicare or Medicaid). 

See 42 U.S.C. § 1320a-7b(b).  According to OIG in its advisory opinion, because copay support may eliminate this natural economic financial barrier, it is remuneration that can encourage a patient to opt for a more expensive product, without making a thoughtful decision that accounts for aspects of treatment, including cost.  In other words, according to OIG, the remuneration offered by a drug company (i.e. the copay assistance) to eligible Medicare beneficiaries would induce the beneficiary to purchase the drug by “removing the financial impediment.”  OIG concludes that this would “present more than a minimal risk of fraud and abuse under the Federal anti-kickback statute.” 

Pfizer, in its challenge to the OIG’s conclusion, highlights the needs of middle income Medicare patients—i.e. those who do not qualify for government-subsidized copay assistance and who may not be able to afford the expensive drug.  Under the proposed program, almost all of a Medicare beneficiary’s co-pay for Tafamidis would be covered, provided that the patient met financial need criteria (here, patients whose income fell between 500-800% of the Federal Poverty Line would qualify).  OIG noted, however, that this proposal would have covered approximately 91% of the Medicare population.

The Second Circuit’s July 25th decision focuses mostly on the interpretation of the Anti-Kickback Statute and whether a “corrupting influence” or “ill motive” is required for an Anti-Kickback Statute violation.  Pfizer argued, in part, that the Anti-Kickback Statute’s prohibition on providing “any remuneration . . . to induce” means that there must be a quid pro quo “designed to corrupt the recipient’s behavior” as part of the arrangement.  The copay assistance program, according to the company, “must be administered with a ‘corrupt’ intent”—i.e. a quid pro quo that improperly or corruptly “skews the patient’s decision-making”—for there to be a violation.  Pfizer asserts that the word “induce” itself implies a “corrupting influence or ill motive” and that “willful” implies that an action is one taken with a “bad purpose.”  

The court disagreed, noting that not every quid pro quo arrangement is inherently corrupt and that the concept of an “inducement” is neutral with respect to good or bad intent.  Rather, any inducement can violate the Anti-Kickback Statute, according to the Second Circuit, even if the parties paying or accepting the inducement have positive motives, such as alleviating the cost burden on patients to access their medications.

The court does not opine on the validity or appropriateness of a drug company’s copay support program; however, the decision does mean that OIG Advisory Opinion 20-05 will stand for now. 

Does the Second Circuit’s decision spell the end of drug manufacturer-supported patient assistance programs?  No, but it does emphasize the risks of including Medicare beneficiaries in a copay support program’s eligible patient pool.  HHS has released multiple guidance documents that detail how pharmaceutical companies can appropriately fund and support patient’s financial needs in accessing expensive drugs, whether this comes in the form of co-pay subsidies (like Pfizer had proposed) or support for independent charity patient assistance programs.  For decades, OIG has informed providers, pharmacies, drug makers, charitable patient programs, and others how they can support financially needy patients without running afoul of the Anti-Kickback Statute’s restrictions.  OIG’s position can be found across dozens of advisory opinions on the topic, and three “Special Advisory Bulletins” addressing cost-sharing and copay waivers.  In addition, drug companies can find important direction for how to establish internal controls that pass muster under OIG’s standards in the numerous integrity agreements with drug companies and independent patient support charities that have settled kickback cases over recent years.  OIG has gone so far as to revise and update past advisory opinions related to PAPs to keep track with its own evolving guidance. 

The Second Circuit’s decision is one data point in a broader dynamic between the drug industry and HHS on the high cost of drugs: 

  • On one hand, the government uses its regulatory authority to push drug makers to lower costs. The Inflation Reduction Act of 2022 includes manifold provisions that permit the government to negotiate pricing for the highest cost drugs and that cap Medicare beneficiaries’ cost-sharing obligations.  The law will require drug companies to pay additional rebates to the government if a drug’s price increases faster than the rate of inflation.  The law would also further delay a rule that would have eliminated Anti-Kickback Statute safe harbor protection for price reductions paid to pharmacy benefit managers.  All of this will require new Medicare price regulations from HHS, which will likely endure many rounds of complex and contentious rulemaking.
  • On the other hand, the government also embraces a free market theory of natural economic controls to argue against drug makers providing financial support to eligible Medicare patients.

Drug makers continue to have options with respect to supporting financially needy patients, even after the Second Circuit’s decision.  That support needs to be mindful of Medicare rules (not to mention rules that commercial payors and health plans might also have with respect to copay and cost-sharing support) and should be coupled with well-defined internal controls.