In a Special Advisory Bulletin (Bulletin) published November 22, 2005, in the Federal Register, the OIG raises concerns about the relationship between pharmaceutical manufacturer Patient Assistance Programs (PAPs) and Medicare Part D. The notice explains that although manufacturer PAPs have long provided important safety net assistance to patients of limited means who do not have health insurance for drugs, such programs may be at odds with the federal fraud and abuse laws with the commencement of Medicare Part D.

The Bulletin describes PAPs as offering cash subsidies, free or reduced-price drugs, or both. The Bulletin encompasses all PAPs, including those that offer assistance directly to patients and others that replenish drugs that are furnished by pharmacies, clinics, or hospitals.

With respect to fraud and abuse issues, the OIG states its general conclusion that pharmaceutical manufacturer PAPs that subsidize Part D cost-sharing amounts present a heightened risk under the antikickback statute. In analyzing pharmaceutical manufacturer PAPs, the OIG identifies two main issues in connection with Part D: (i) counting the subsidies toward a Part D enrollee's true out of pocket cost (TrOOP); and (ii) implicating the federal antikickback statute. Since CMS allows Part D beneficiaries to count any assistance received from any source toward their TrOOP, including a manufacturer PAP's assistance, this may relieve beneficiaries of their financial risk and could increase costs to Medicare. Second, since the subsidies would constitute something of value given to the beneficiaries in return for their use of a particular product, they squarely are prohibited by the statute according to the OIG. The OIG's chief concern is that such subsidies could steer beneficiaries to particular drugs, increase costs to Medicare, and provide a financial advantage over competing drugs. Specifically, with regard to TrOOP, the OIG is concerned that a manufacturer might use the beneficiary cost-sharing subsidies to help beneficiaries meet their TrOOP and increase the number of beneficiaries using the manufacturer's product. By allowing patients to get through their TrOOP faster, the subsidies would help patients reach their catastrophic benefit more quickly, thus potentially increasing costs to the Medicare program.

Notwithstanding the potential risks of manufacturer PAPs, the Bulletin notes certain arrangements, if structured appropriately, could provide assistance to patients. First, the OIG specifically advises pharmaceutical manufacturers that they need not disenroll all Medicare beneficiaries from their existing PAPs in order to be compliant with the fraud and abuse laws. Any Medicare beneficiary who has not voluntarily enrolled in Medicare Part D may still participate in PAPs. Further, inadvertent cost-sharing subsidies provided to a beneficiary with Part D coverage will not be problematic under the antikickback statute either, as long as the PAP did not know and should not have known that the beneficiary was enrolled in Medicare Part D. PAPs also may continue to provide assistance to uninsured patients. Finally, PAPs also may continue to provide financial need assessments and waive cost-sharing amounts based on those assessments. Such waivers may not be routine or advertised.

Those methodologies set forth in the Bulletin are the following:

Independent charity PAPs
Coalition model PAPs
Bulk replacement models
PAPs operating outside of Part D

Under the Independent Charity PAP model, the OIG suggests that pharmaceutical manufacturers contribute to patients by making cash donations to independent bona fide charities. The OIG says that such bona fide charities should not raise questions under the antikickback statute as long as the following five conditions are met:

Neither the pharmaceutical manufacturer nor any affiliate of the manufacturer exerts any direct or indirect influence or control over the charity or the subsidy program.
The charity awards assistance in a truly independent matter that severs any link between the pharmaceutical manufacturer's funding and the beneficiary.
The assistance is without regard to the pharmaceutical manufacturer's interest and without regard to the beneficiary's choice of product, provider, practitioner, supplier, or Part D drug plan.
The charity provides assistance based upon a reasonable verifiable and uniform measure of financial need that is applied in a consistent matter.
The pharmaceutical manufacturer does not solicit or receive data from the charity that would facilitate the manufacturer in correlating the amount or frequency of its donations with the number of subsidized prescriptions for its products.

In the coalition model PAPs, multiple pharmaceutical manufacturers join together to offer financially needy Part D enrollees a card or similar vehicle that entitles them to subsidized cost-sharing obligations. Although the OIG believes it's premature to offer definitive guidance on these programs, as they are still evolving, it suggests that risks may be reduced if the programs meet three conditions:

The program contains features that adequately safeguard against incentives for card holders to favor one drug product over another.

The program includes a large number of manufacturers, including competing manufacturers and manufacturers of both branded and generic products.

Each participating pharmaceutical manufacturer offers subsidies for all of its products that are covered by any Part D Plan formulary.

Under bulk replacement models, pharmaceutical manufacturers provide in-kind donations to pharmacies, health care centers, clinics, and other entities to dispense to qualifying uninsured patients. The OIG states that in reviewing such programs it will look at whether there are appropriate safeguards in place to:

Protect federal health care program beneficiaries from being steered to particular drugs;

Protect the federal health care programs from increased program costs; and

Ensure that bulk replacement drugs are not improperly charged to federal health care programs.

The OIG's last suggestion is for PAPs that continue to operate outside Part D. The OIG acknowledges that CMS has issued guidance which allows PAPs to provide free drugs to financially needy Medicare beneficiaries outside of the Part D benefit. Further, subsequent to the OIG's Bulletin, HHS Secretary Michael Leavitt, in a letter dated February 9, 2006, reiterated that PAPs outside of Medicare Part D remain appropriate. The OIG explains that in such circumstances, the beneficiary can obtain the drugs without using his or her Part D insurance. Claims for such drugs may not be filed with the Part D insurer. In addition, the assistance cannot count towards the beneficiary's TrOOP or total Part D spending for any purpose. The conditions under which the OIG believes that such a program would reduce the risk of fraud and abuse are as follows:

The PAP includes safeguards that ensure that Part D plans are notified that the drug is being provided outside the Part D benefit, so that no payment is made for the subsidized drug by any Part D plan and no part of the cost of the subsidized drug is counted toward any beneficiary's TrOOP.

The PAP provides assistance for the whole Part D coverage year or the remaining portion of the year.

The PAP assistance remains available even if the beneficiary's use of the subsidized drug is periodic during the coverage year.

The PAP maintains accurate and contemporaneous records of the subsidized drugs in order for the government to verify the provision of the drugs outside of the Part D benefit.

Assistance is awarded based on reasonable uniform and consistent measures of financial need.

The arrangement complies with any existing guidance from CMS.

Although the OIG has taken great lengths to highlight the potential issues and problems with pharmaceutical manufacturer PAPs, at the same time, the OIG is concerned about the burden that the dissolution of PAPs might place on beneficiaries. Thus, the OIG implores pharmaceutical manufacturers to play an important role in the effective transition of beneficiaries out of PAPs currently in existence. The OIG is giving pharmaceutical manufacturers one year from the date of the Special Advisory Bulletin to transition their patients to alternative assistance programs. Further, the OIG suggests that if a pharmaceutical manufacturer wants to question whether a particular program would run afoul of the antikickback statute, the manufacturer should submit an Advisory Opinion request to the OIG.