Publication of OIG Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees, 70623-70628 [05-23038]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES
• Office of Inspector General
• Inspector General Office, Health and Human Services Department

[Federal Register Volume 70, Number 224 (Tuesday, November 22, 2005)]
[Notices]
[Pages 70623-70628]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23038]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General


Publication of OIG Special Advisory Bulletin on Patient 
Assistance Programs for Medicare Part D Enrollees

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice.

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SUMMARY: OIG periodically develops and issues guidance, including 
Special Advisory Bulletins, to alert and inform the health care 
industry about potential problems or areas of special interest. This 
Federal Register notice sets forth the recently issued OIG Special 
Advisory Bulletin addressing patient assistance programs for Medicare 
Part D enrollees.

FOR FURTHER INFORMATION CONTACT: Darlene M. Hampton, Office of Counsel 
to the Inspector General, (202) 619-0335.

SUPPLEMENTARY INFORMATION:

Special Advisory Bulletin: Patient Assistance Programs for Medicare 
Part D Enrollees (November 2005)

I. Introduction

    Patient assistance programs (PAPs) have long provided important 
safety net assistance to patients of limited means

[[Page 70624]]

who do not have insurance coverage for drugs, typically serving 
patients with chronic illnesses and high drug costs. PAPs are 
structured and operated in many different ways. PAPs may offer cash 
subsidies, free or reduced price drugs, or both. Some PAPs offer 
assistance directly to patients, while others replenish drugs furnished 
by pharmacies, clinics, hospitals, and other entities to eligible 
patients whose drugs are not covered by an insurance program. Some PAPs 
are affiliated with particular pharmaceutical manufacturers; others are 
operated by independent charitable organizations (such as, for example, 
patient advocacy and support organizations) without regard to any 
specific donor or industry interests.
    Many pharmaceutical manufacturers have historically sponsored PAPs 
that assist patients whose outpatient prescription drugs are not 
covered by an insurance program (including some Medicare 
beneficiaries), in obtaining the manufacturer's products for free or at 
greatly reduced cost. Beginning on January 1, 2006, Medicare Part D 
will offer Medicare beneficiaries who elect to enroll broad coverage 
for outpatient prescription drugs. Accordingly, Medicare beneficiaries 
who enroll in Part D will no longer qualify under traditional PAP 
eligibility criteria. Part D enrollees will incur cost-sharing 
obligations (including deductibles and copayments), although many low-
income beneficiaries will qualify for subsidies that will reduce or 
eliminate their financial obligations.\1\ Pharmaceutical manufacturers 
have expressed interest in continuing to assist Medicare Part D 
enrollees of limited means who do not qualify for the low-income 
subsidy.
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    \1\ See 42 CFR 423.782.
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    OIG is mindful of the importance of ensuring that financially needy 
beneficiaries who enroll in Part D receive medically necessary drugs, 
and OIG supports efforts of charitable organizations and others to 
assist financially needy beneficiaries, as long as the assistance is 
provided in a manner that does not run afoul of the Federal anti-
kickback statute or other laws.\2\ We have been asked whether the anti-
kickback statute will be implicated if pharmaceutical manufacturer PAPs 
\3\ continue to offer assistance to financially needy Medicare 
beneficiaries who enroll in Part D by subsidizing their cost-sharing 
obligations for covered Part D drugs. For the reasons set forth below 
and consistent with extant OIG guidance, we conclude that 
pharmaceutical manufacturer PAPs that subsidize Part D cost-sharing 
amounts present heightened risks under the anti-kickback statute. 
However, in the circumstances described in this Bulletin, cost-sharing 
subsidies provided by bona fide, independent charities unaffiliated 
with pharmaceutical manufacturers should not raise anti-kickback 
concerns, even if the charities receive manufacturer contributions. In 
addition, we believe other arrangements described in this Bulletin, if 
properly structured, may pose reduced risk. Thus, we believe lawful 
avenues exist for pharmaceutical manufacturers and others to help 
ensure that all Part D beneficiaries can afford medically necessary 
drugs.
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    \2\ This Bulletin focuses on the application of the Federal 
anti-kickback statute. Other potential risk areas, including, for 
example, potential liability under the False Claims Act, 31 U.S.C. 
3729-33, or other Federal or State laws, are not addressed here. 
Moreover, this Bulletin focuses on arrangements that involve 
pharmaceutical manufacturers directly or indirectly subsidizing Part 
D cost-sharing amounts. Programs that subsidize Part D premium 
amounts pose risks under the anti-kickback statute that are not 
addressed here. Similarly, PAPs established by health plans that 
subsidize cost sharing or premium amounts under Part D raise 
different issues and may require a different analysis. While this 
Bulletin may provide some useful guidance for other kinds of PAP 
arrangements, such PAPs are not specifically considered here.
    \3\ For purposes of this Special Advisory Bulletin, a 
pharmaceutical manufacturer PAP includes any PAP that is directly or 
indirectly operated or controlled in any manner by a pharmaceutical 
manufacturer or its affiliates (including, without limitation, any 
employee, agent, officer shareholder, or contractor (including, 
without limitation, any wholesaler, distributor, or pharmacy 
benefits manager)). Moreover, for purposes of an anti-kickback 
analysis, we would not consider a charitable foundation (or similar 
entity) formed, funded or controlled by a manufacturer or any of its 
affiliates (including, without limitation, any employee, agent, 
officer, shareholder, or contractor (including, without limitation, 
any wholesaler, distributor, or pharmacy benefits manager)) to be a 
bona fide, independent charity, because interposition of the entity 
would not sever the nexus between the patient subsidies and the 
manufacturer. Indeed, in most cases, the foundation would receive 
all of its funding from the pharmaceutical manufacturer (or its 
affiliates) and would provide subsidies only for the manufacturer's 
products.
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    Given the importance of ensuring continued access to drugs for 
beneficiaries of limited means and the expedited time frame for 
implementation of the Part D benefit, we are issuing this Special 
Advisory Bulletin to identify potentially abusive PAP structures, as 
well as methods of providing assistance that mitigate or vitiate the 
potential for fraud and abuse. This Special Advisory Bulletin draws on 
the government's prior fraud and abuse guidance and enforcement 
experience. However, because the Part D benefit has not yet begun, and 
any assessment of fraud and abuse is necessarily speculative, this 
Bulletin cannot, and is not intended to, be an exhaustive discussion of 
relevant risks or beneficial practices.
    At the outset, it is important to note the following:
     PAPs need not disenroll all Medicare beneficiaries from 
their existing PAPs to be compliant with the fraud and abuse laws. 
Enrollment in Part D is voluntary; therefore, existing PAPs may 
continue to provide free or reduced price outpatient prescription drugs 
to Medicare beneficiaries who have not yet enrolled in Part D. The 
Centers for Medicare & Medicaid Services (CMS) anticipates instituting 
procedures that will help PAPs determine if PAP clients have enrolled 
in Part D.
     Occasional, inadvertent cost-sharing subsidies provided by 
a pharmaceutical manufacturer PAP to a Part D enrollee should not be 
problematic under the anti-kickback statute (e.g., where, despite due 
diligence, a pharmaceutical manufacturer PAP does not know and should 
not have known that a beneficiary has enrolled in Medicare Part D).
     Nothing in the Part D program or in any OIG laws or 
regulations prevents pharmaceutical manufacturers or others from 
providing assistance (e.g., through cash subsidies or free drugs) to 
uninsured patients. Nothing in this Bulletin impacts programs that 
assist uninsured patients.
     Nothing in this guidance should be construed as preventing 
pharmacies from waiving cost-sharing amounts owed by a Medicare 
beneficiary on the basis of a good faith, individualized assessment of 
the patient's financial need (or failure of reasonable collection 
efforts), so long as the waiver is neither routine, nor advertised. 
Financial need-based waivers that meet these criteria have long been 
permitted.\4\ However, a pharmacy has not waived a cost-sharing amount 
if the amount has been paid to the pharmacy, in cash or in kind, by a

[[Page 70625]]

third party (including, without limitation, a PAP).
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    \4\ See, e.g., section 1128A(i)(6)(A) of the Act; OIG Special 
Advisory Bulletin on Offering Gifts and Other Inducements to 
Beneficiaries, August 2002, http:oig.hhs.gov/fraud/docs/
alertsandbulletins/SABGiftsandInducements.pdf. The Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
included a safe harbor specifically incorporating these criteria for 
waivers of cost-sharing amounts for Part D drugs. Additionally, the 
safe harbor protects cost-sharing waivers offered to individuals who 
qualify for the low income subsidy, even if the waivers are routine 
and do not follow an individualized determination of financial need, 
provided they are not advertised. See Section 1860D-42 of MMA, 
codified at 42 U.S.C. 1320a-7b(b)(3)(G).
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II. The Federal Anti-Kickback Statute

    The Federal anti-kickback statute, section 1128B(b) of the Social 
Security Act (the Act),\5\ makes it a criminal offense knowingly and 
willfully to offer, pay, solicit, or receive any remuneration to induce 
or reward the referral or generation of business reimbursable by any 
Federal health care program, including Medicare and Medicaid. Where 
remuneration is paid purposefully to induce or reward referrals of 
items or services payable by a Federal health care program, the anti-
kickback statute is violated. By its terms, the statute ascribes 
criminal liability to parties on both sides of an impermissible 
``kickback'' transaction. For purposes of the anti-kickback statute, 
``remuneration'' includes the transfer of anything of value, directly 
or indirectly, overtly or covertly, in cash or in kind. The statute has 
been interpreted to cover any arrangement where one purpose of the 
remuneration was to obtain money for the referral of services or to 
induce further referrals. Violation of the statute constitutes a felony 
punishable by a maximum fine of $25,000, imprisonment up to five years, 
or both. OIG may also initiate administrative proceedings to exclude a 
person from Federal health care programs or to impose civil money 
penalties for kickback violations under sections 1128(b)(7) and 
1128A(a)(7) of the Act.\6\
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    \5\ 42 U.S.C. 1320a-7b(b).
    \6\ 42 U.S.C. 1320a-7(b)(7); 42 U.S.C. 1320a-7a(a)(7).
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    A determination regarding whether a particular arrangement violates 
the anti-kickback statute requires a case-by-case evaluation of all of 
the relevant facts and circumstances, including the intent of the 
parties. For PAPs, the nature, structure, sponsorship, and funding of 
the particular PAP are necessarily relevant to the analysis.

III. Patient Assistance Programs

    As described more fully below, cost-sharing subsidies provided by 
pharmaceutical manufacturer PAPs pose a heightened risk of fraud and 
abuse under the Federal anti-kickback statute. However, there are non-
abusive alternatives available. In particular, as discussed below, 
pharmaceutical manufacturers can donate to bona fide independent 
charity PAPs, provided appropriate safeguards exist. Moreover, this 
Bulletin discusses several other alternatives that may pose a reduced 
risk of fraud and abuse.
    This section addresses in turn: pharmaceutical manufacturer PAPs, 
independent charity PAPs, manufacturer PAPs that operate ``outside of 
Part D''; ``coalition model'' PAPs, and bulk replacement programs.
A. Pharmaceutical Manufacturer PAPs
    Analytically, pharmaceutical manufacturer PAPs raise two main 
issues in connection with the Part D program: (i) Whether subsidies 
they provide can count toward a Part D enrollee's true out-of-pocket 
costs (known as the TrOOP); and (ii) whether the subsidies implicate 
the Federal anti-kickback statute.\7\
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    \7\ In some cases, a subsidy for Part D cost-sharing obligations 
provided by a pharmaceutical manufacturer may also implicate the 
prohibition on offering inducements to beneficiaries, as set forth 
in section 1128A(a)(5) of the Act, if the subsidy is likely to 
influence the beneficiary's selection of a particular provider, 
practitioner, or supplier, such as a physician or pharmacy. We have 
interpreted ``provider, practitioner, or supplier'' to exclude 
pharmaceutical manufacturers unless they also own or operate 
pharmacies, pharmaceutical benefits management companies, or other 
entities that file claims for payment under the Medicare or Medicaid 
programs. See Special Advisory Bulletin on Offering Gifts and Other 
Inducements to Beneficiaries, supra note 4.
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    As to the first issue, the Part D regulations make clear that 
beneficiaries may count toward their TrOOP assistance received from any 
source other than group health plans, other insurers and government 
funded health programs, and similar third party payment 
arrangements.\8\ The preamble to the Part D regulations explains that 
cost-sharing assistance furnished by a PAP, including a manufacturer 
PAP, will count toward a beneficiary's TrOOP expenditures, even if the 
PAP does not comply with the fraud and abuse laws.\9\ This approach 
relieves beneficiaries of the financial risk of accepting assistance 
from an entity that may be improperly structured or operated.
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    \8\ See 42 CFR 423.100; 42 CFR 423.464; 70 FR 4194, 4239 
(January 28, 2005). We note that CMS is the proper agency to address 
questions about the mechanics of calculating TrOOP. In certain 
circumstances, knowing improper TrOOP calculations may give rise to 
liability under the False Claims Act, 31 U.S.C. 3729-33.
    \9\ See 70 FR 4194 at 4239.
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    As to the second issue, the core question is whether the anti-
kickback statute would be implicated if a manufacturer of a drug 
covered under Part D were to subsidize cost-sharing amounts (directly 
or indirectly through a PAP) incurred by Part D beneficiaries for the 
manufacturer's product. Consistent with our prior guidance addressing 
manufacturer cost-sharing subsidies in the context of Part B drugs,\10\ 
we believe such subsidies for Part D drugs would implicate the anti-
kickback statute and pose a substantial risk of program and patient 
fraud and abuse.\11\ Simply put, the subsidies would be squarely 
prohibited by the statute, because the manufacturer would be giving 
something of value (i.e., the subsidy) to beneficiaries to use its 
product. Where a manufacturer PAP offers subsidies tied to the use of 
the manufacturer's products (often expensive drugs used by patients 
with chronic illnesses), the subsidies present all of the usual risks 
of fraud and abuse associated with kickbacks, including steering 
beneficiaries to particular drugs; increasing costs to Medicare; 
providing a financial advantage over competing drugs; and reducing 
beneficiaries= incentives to locate and use less expensive, equally 
effective drugs.
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    \10\ See, e.g., OIG Advisory Opinion Nos. 02-13 and 03-3 
(unfavorable opinions involving proposals from pharmaceutical 
manufacturer PAPs to subsidize Part B cost-sharing amounts). We note 
that the cost and utilization management features of the Part D 
program, while important, do not sufficiently mitigate the risks.
    \11\ Some in the industry have asserted that cost-sharing 
subsidies for Part D drugs differ from cost-sharing subsidies for 
Part B drugs so long as the subsidies are given to patients who are 
in a Part D ``coverage gap'' (i.e., a benefit period during which 
the beneficiary pays 100% of the cost of the drugs). To support 
their position, they contend either that beneficiaries in the 
coverage gap are functionally ``uninsured'' or that the situation is 
comparable to providing free drugs to financially needy 
beneficiaries so long as no Federal health care program is billed 
for all or part of the drug, a practice we previously permitted in 
the context of subsidies for Part B drugs. See OIG Advisory Opinion 
Nos. 02-13 and 03-3. Under Part D, a ``coverage gap'' is a period of 
insurance coverage. See CMS Frequently Asked Question ID 4855, 
https://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/enduser/std_
adp.php?p_faqid=4855 (regarding prescription drug benefit 
coordination of benefits and TrOOP). During the coverage gap, 
beneficiaries remain enrolled in their Part D plans and have a 
continuing obligation to pay Part D premiums; Part D plans continue 
to receive the monthly per-enrollee direct subsidy from the Medicare 
program. Moreover, subsidies during the coverage gap are not like 
furnishing free drugs where no Federal health care program is 
billed. Sufficient spending during the coverage gap qualifies the 
beneficiary to reach the catastrophic coverage portion of the Part D 
benefit, at which point the Medicare program resumes payment for 
most of the costs of the beneficiary's drugs. In this regard, the 
different structures of the Part B and Part D benefits are crucial 
to the analysis.
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    It is impossible to predict with certainty the way in which abuse 
may occur in a new benefit program that is not yet operational. The 
following are illustrative examples of some types of abuse that may 
occur:
     Increased costs to the program. We are concerned that a 
manufacturer might use beneficiary cost-sharing subsidies, which help 
beneficiaries meet their TrOOP requirement, to increase the number of 
beneficiaries using the manufacturer's product who reach the

[[Page 70626]]

catastrophic benefit in any given coverage year and to hasten the point 
during the coverage year at which beneficiaries reach the catastrophic 
benefit. This is of particular import because Medicare will make cost-
based payments during the catastrophic coverage benefit.\12\ We know 
from experience that cost-based reimbursement is inherently prone to 
abuse, including by vendors that sell products reimbursed on a cost 
basis. Similarly, we are concerned about the use of cost-sharing 
subsidies to shield beneficiaries from the economic effects of drug 
pricing, thus eliminating a market safeguard against inflated prices. 
Inflated prices could have a ``spillover'' effect on the size of direct 
subsidies, reinsurance payments, and risk corridor payments paid by 
Medicare to Part D plans in future years,\13\ potentially resulting in 
higher costs to the Medicare program.
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    \12\ See 42 CFR 423.329. For purposes of calculating payments 
under catastrophic coverage, the cost of a beneficiary's drug is 
based in part on the plan's negotiated price (i.e., a price that is 
set by the plan based on negotiations with pharmaceutical 
manufacturers and pharmacies).
    \13\ See 42 CFR 423.329; 42 CFR 423.336.
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     Beneficiary steering and anti-competitive effects. 
Subsidies provided by traditional pharmaceutical manufacturer PAPs have 
the practical effect of locking beneficiaries into the manufacturer's 
product, even if there are other equally effective, less costly 
alternatives (and even if the patient's physician would otherwise 
prescribe one of these alternatives). Subsidizing Medicare Part D cost-
sharing amounts will have this same steering effect. Moreover, as we 
have previously noted in the Part B context, cost-sharing subsidies can 
be very profitable for manufacturers, providing additional incentives 
for abuse. So long as the manufacturer's sales price for the product 
exceeds its marginal variable costs plus the amount of the cost-sharing 
assistance, the manufacturer makes a profit. These profits can be 
considerable, especially for expensive drugs for chronic conditions. We 
are concerned that pharmaceutical manufacturers may seek improperly to 
maximize these profits by creating sham ``independent'' charities to 
operate PAPs; by colluding with independent charity programs to ensure 
that the manufacturer's contributions only or primarily benefit 
patients using its products (discussed in more detail below); or by 
manipulating financial need or other eligibility criteria to maximize 
the number of beneficiaries qualifying for cost-sharing subsidies.
    These risks are necessarily illustrative, not exhaustive, of the 
potential risks presented by pharmaceutical manufacturer PAPs that 
subsidize Part D cost-sharing amounts.
    Cost-sharing subsidies offered by a pharmaceutical manufacturer PAP 
to the dispensing supplier differ in two important respects from a 
provider's or supplier's unadvertised, non-routine waiver of cost-
sharing amounts based on a patient's financial need, which has long 
been permitted. First, the subsidies result in the dispensing supplier 
receiving full payment for the product and avoiding the risk of non-
collection, thus providing the supplier with an economic incentive to 
favor the subsidized product and a disincentive to recommend a lower-
cost alternative, such as a generic. In addition, the availability of 
PAP assistance is typically advertised and may influence a 
beneficiary's choice of product (through the prescribing physician 
acting on behalf of the beneficiary). Moreover, once a beneficiary is 
enrolled in a pharmaceutical manufacturer PAP, the beneficiary is 
effectively locked into using the pharmaceutical manufacturer's 
product, since the beneficiary risks losing financial assistance if he 
or she switches products, even if an equally effective, but less 
expensive, product would be in his or her best medical interests.
    A definitive conclusion regarding whether a particular manufacturer 
PAP violates the anti-kickback statute would require a case-by-case 
analysis of all of the relevant facts and circumstances, including the 
intent of the parties. However, for the reasons noted above, we believe 
that pharmaceutical manufacturer PAPs that subsidize Part D cost-
sharing amounts raise substantial concerns under the anti-kickback 
statute.
B. Independent Charity PAPs
    Long-standing OIG guidance makes clear that pharmaceutical 
manufacturers can effectively contribute to the pharmaceutical safety 
net by making cash donations to independent, bona fide charitable 
assistance programs.\14\
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    \14\ In-kind donations of drugs to independent charity PAPs pose 
additional risks not yet directly addressed in prior OIG guidance, 
and we have insufficient experience with them to offer detailed 
guidance here. While in-kind donations have the potential benefit of 
increasing the value of donations (because marginal costs of drugs 
are generally low), they also have the effect of creating a direct 
correlation between the donation and use of a particular donor's 
product, thereby weakening important safeguards of an independent 
charity PAP arrangement. Moreover, there would appear to be 
difficult accounting and valuation issues raised by the use of in-
kind product to subsidize Part D cost-sharing obligations, both for 
purposes of calculating TrOOP and for purposes of determining the 
amount of in-kind drug that equals the Part D cost-sharing amount 
owed.
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    Under a properly structured program, donations from a 
pharmaceutical manufacturer to an independent, bona fide charity that 
provides cost-sharing subsidies for Part D drugs should raise few, if 
any, anti-kickback statute concerns, so long as:
    (i) Neither the pharmaceutical manufacturer nor any affiliate of 
the manufacturer (including, without limitation, any employee, agent, 
officer, shareholder, or contractor (including, without limitation, any 
wholesaler, distributor, or pharmacy benefits manager)) exerts any 
direct or indirect influence or control over the charity or the subsidy 
program;
    (ii) The charity awards assistance in a truly independent manner 
that severs any link between the pharmaceutical manufacturer's funding 
and the beneficiary (i.e., the assistance provided to the beneficiary 
cannot be attributed to the donating pharmaceutical manufacturer);
    (iii) The charity awards assistance without regard to the 
pharmaceutical manufacturer's interests and without regard to the 
beneficiary's choice of product, provider, practitioner, supplier, or 
Part D drug plan;
    (iv) The charity provides assistance based upon a reasonable, 
verifiable, and uniform measure of financial need that is applied in a 
consistent manner; and \15\
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    \15\ We recognize that what constitutes an appropriate 
determination of financial need may vary depending on individual 
patient circumstances. We believe that independent charity PAPs 
should have flexibility to consider relevant variables beyond 
income. For example, PAPs may choose to consider the local cost of 
living; a patient's assets and expenses; a patient's family size; 
and the scope and extent of a patient's medical bills.
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    (v) 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.\16\
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    \16\ We have previously approved a bona fide independent charity 
PAP arrangement that included only limited reporting of aggregate 
data to donors in the form of monthly or less frequent reports 
containing aggregate data about the number of all applicants for 
assistance in a disease category and the number of patients 
qualifying for assistance in that disease category. See OIG Advisory 
Opinion No. 02-1. No individual patient information may be conveyed 
to donors. Moreover, neither patients nor donors may be informed of 
the donation made to the PAP by others, although, as required by 
Internal Revenue Service regulations, the PAP's annual report and a 
list of donors may be publicly available. See OIG Advisory Opinion 
No. 04-15. Reporting of data that is not in the aggregate or that is 
patient specific would be problematic, as would reporting of any 
data, whether or not in the aggregate, related to the identity, 
amount, or nature of subsidized drugs.

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[[Page 70627]]

    Simply put, the independent charity PAP must not function as a 
conduit for payments by the pharmaceutical manufacturer to patients and 
must not impermissibly influence beneficiaries' drug choices.\17\
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    \17\ For further guidance on establishing compliant independent 
charity PAPs, see OIG Advisory Opinion Nos. 04-15, 02-1, 98-17, and 
97-1 (favorable opinions issued to bona fide, independent charities 
that accept industry funding).
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    We recognize that some bona fide independent charities reasonably 
focus their efforts on patients with particular diseases (such as 
cancer or diabetes) and that some of these charities permit donors to 
earmark their contributions generally for support of patients with a 
specific disease. In general, the fact that a pharmaceutical 
manufacturer's donations are earmarked for one or more broad disease 
categories should not significantly raise the risk of abuse. However, 
we are concerned that, in some cases, charities may artificially define 
their disease categories so narrowly that the earmarking effectively 
results in the subsidization of one (or a very few) of donor's 
particular products. For example, we would be concerned if disease 
categories were defined by reference to specific symptoms, severity of 
symptoms, or the method of administration of drugs, rather than by 
diagnoses or broadly recognized illnesses or diseases. This type of 
arrangement would present an elevated risk of fraud and abuse because 
of the increased likelihood that the PAP would function as an improper 
conduit for manufacturers to provide funds to patients using their 
specific drugs. To avoid this risk, pharmaceutical manufacturers should 
not influence, directly or indirectly, the identification of disease or 
illness categories,\18\ and pharmaceutical manufacturers should limit 
their earmarked donations to PAPs that define categories in accordance 
with widely recognized clinical standards and in a manner that covers a 
broad spectrum of available products.\19\
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    \18\ Nothing in this Bulletin should be construed as preventing 
a charity from obtaining educational materials from donors that the 
donors generally make available to practitioners or the general 
public (e.g., clinical information about drug products).
    \19\ We recognize that, in rare circumstances, there may only be 
one drug covered by Part D for the diseases in a particular category 
or only one pharmaceutical manufacturer (including its affiliates) 
that makes all of the Part D covered drugs for the diseases in a 
particular category. In these unusual circumstances, the fact that a 
disease category only includes one drug or manufacturer would not, 
standing alone, be determinative of an anti-kickback statute 
violation. Such a determination could only be made on a case-by-case 
basis after examining all of the applicable facts and circumstances, 
including the intent of the parties. We note that it would be 
important for the PAP program to cover additional products or 
manufacturers as they become available.
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C. PAPs Operating Outside Part D
    CMS has issued guidance stating that PAPs may elect to provide free 
drugs to financially needy Medicare Part D enrollees outside the Part D 
benefit.\20\ In these circumstances, the beneficiary obtains drugs 
without using his or her Part D insurance benefit. Beginning when a 
beneficiary's assistance under a PAP became effective, no claims for 
payment for any covered outpatient prescription drug provided outside 
of the Part D benefit may be filed with a Part D plan or the 
beneficiary, and the assistance must not count toward the beneficiary's 
TrOOP or total Part D spending for any purpose. For the reasons noted 
in connection with pharmaceutical manufacturer PAPs discussed above, 
PAPs that provide assistance outside the Part D benefit only during the 
coverage gap (i.e., ``wrapping around'' the Part D benefit) pose a 
heightened risk of abuse. However, while it is difficult to assess the 
application of the fraud and abuse laws to PAPs that operate outside 
Part D absent a specific set of facts, it would appear that PAPs that 
furnish free outpatient prescription drugs entirely outside the Part D 
benefit pose a reduced risk under the anti-kickback statute, provided 
that:
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    \20\ See CMS Frequently Asked Question ID 6153, https://
questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/enduser/std_
adp.php?p_faqid=6153 (regarding PAPs providing assistance with Part 
D drug costs to Part D enrollees outside of the Part D benefit and 
without counting towards TrOOP).
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    (i) 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 costs of the subsidized drug is counted toward any 
beneficiary's TrOOP;
    (ii) The PAP provides assistance for the whole Part D coverage year 
(or the portion of the coverage year remaining after the beneficiary 
first begins receiving the PAP assistance);\21\
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    \21\ We note that our position that PAPs operating outside the 
Part D benefit should provide assistance for the remainder of the 
coverage year is consistent with our observation in several advisory 
opinions that manufacturers ``may provide free drugs to financially 
needy beneficiaries, so long as no Federal health care program is 
billed for all or part of the drugs.'' OIG Advisory Opinion Nos. 02-
13 and 03-3.
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    (iii) The PAP assistance remains available even if the 
beneficiary's use of the subsidized drug is periodic during the 
coverage year;
    (iv) The PAP maintains accurate and contemporaneous records of the 
subsidized drugs to permit the Government to verify the provision of 
drugs outside the Part D benefit;
    (v) Assistance is awarded based on reasonable, uniform, and 
consistent measures of financial need and without regard to the 
providers, practitioners, or suppliers used by the patient or the Part 
D plan in which the patient is enrolled; and
    (vi) The arrangement complies with any then-existing guidance from 
CMS.
    In addition, to promote quality of care, we believe it would be 
important for PAPs that provide free drugs outside the Part D benefit 
to coordinate effectively with Part D plans so that the plans can 
undertake appropriate drug utilization review and medication therapy 
management program activities.
D. ``Coalition Model'' PAPs
    We are aware of nascent efforts by some in the industry to develop 
arrangements through which multiple pharmaceutical manufacturers would 
join together to offer financially needy Part D enrollees a card or 
similar vehicle that would entitle the enrollees to subsidies of their 
cost-sharing obligations for the manufacturers' products, typically in 
the form of discounts off the negotiated price otherwise available to 
the enrollee under his or her Part D plan. It is premature to offer 
definitive guidance on these evolving programs. Although these programs 
would operate so that the manufacturers effectively underwrite only the 
discounts on their own products, we observe that the risk of an illegal 
inducement potentially may be reduced if: (i) The program contains 
features that adequately safeguard against incentives for card holders 
to favor one drug product (or any one supplier, provider, practitioner, 
or Part D plan) over another; (ii) the program includes a large number 
of manufacturers, including competing manufacturers and manufacturers 
of both branded and generic products, sufficient to sever any nexus 
between the subsidy and a beneficiary's choice of drug; and (iii) each 
participating pharmaceutical manufacturer offers subsidies for all of 
its products that are covered by any Part D plan formulary. Other 
safeguards may also be needed to reduce the risk of an improper 
inducement. Moreover, a program under which Part D enrollees pay a 
portion of their drug costs out-of-pocket would tend to reduce the risk 
of abuse by preserving the beneficiary's incentive to locate and 
purchase equally effective, lower cost drugs.

[[Page 70628]]

IV. Bulk Replacement Models

    Bulk replacement'' or similar programs, pursuant to which 
pharmaceutical manufacturers (or their affiliated PAPs) provide in-kind 
donations in the form of free drugs to pharmacies, health centers, 
clinics, and other entities that dispense drugs to qualifying uninsured 
patients, are different from traditional PAPs that provide assistance 
directly to patients. These programs potentially implicate the Federal 
anti-kickback statute if the free drugs are given to a recipient that 
is in a position to generate Federal health care program business for 
the donor manufacturer. Whether a particular bulk replacement program 
complies with the fraud and abuse laws would require a case-by-case 
analysis. In undertaking any analysis, we would consider, among other 
factors, how the program is structured and whether there are safeguards 
in place: (i) To protect Federal health care program beneficiaries from 
being steered to particular drugs based on the financial interests of 
their health care providers or suppliers; (ii) to protect the Federal 
health care programs from increased program costs; and (iii) to ensure 
that bulk replacement drugs are not improperly charged to Federal 
health care programs. Additionally, bulk replacement as a means of 
subsidizing only the Medicare Part D cost-sharing amount potentially 
raises substantial risks related to accounting for the amount of 
replacement drug that would be equivalent to the cost-sharing amount 
owed by the beneficiary; properly attributing that amount to specific 
beneficiaries; and properly calculating TrOOP.

V. Transitioning From Existing Pharmaceutical Manufacturer PAPs

    OIG is mindful of the importance of a smooth, effective transition 
for beneficiaries who are currently participating in pharmaceutical 
manufacturer PAPs and elect to enroll in Medicare Part D. While most 
such enrollees are likely to qualify for the low-income subsidies 
available under Part D, we are concerned that there may not be 
sufficient independent charity PAPs available before the January 1, 
2006 start date of the Part D program to accommodate beneficiaries of 
limited means who may need an alternative PAP arrangement. We recognize 
the importance of not unnecessarily burdening or alarming 
beneficiaries. We believe that manufacturers will play an important 
role in ensuring an effective transition.
    With respect to pharmaceutical manufacturer PAPs that are in 
existence prior to the date of publication of this Special Advisory 
Bulletin, during the initial calendar year of the Part D benefit, OIG 
will take into consideration in exercising its enforcement discretion 
with respect to administrative sanctions arising under the anti-
kickback statute whether the PAP is taking prompt, reasonable, 
verifiable, and meaningful steps to transition patients who enroll in 
Part D to alternative assistance models, such as independent charities.
    In addition to taking steps to transition beneficiaries to other 
programs, pharmaceutical manufacturer PAPs can reduce their fraud and 
abuse exposure by taking one or more of the following steps: (i) 
Adjusting financial need criteria to reflect the lower drug costs 
incurred by Part D enrollees (i.e., liability for premiums and cost-
sharing amounts only, instead of the total cost of the drugs); (ii) 
where possible, subsidizing other drugs in the same class as the 
manufacturer's products covered by the PAP if a beneficiary's physician 
prescribes an alternate product; and (iii) checking CMS eligibility 
files, to the extent available, on a reasonably regular basis to 
determine whether PAP patients have enrolled in Part D and should be 
transitioned to other assistance programs. Occasional, inadvertent 
cost-sharing subsidies provided to a Part D enrollee should not be 
problematic (e.g., where, despite due diligence, a pharmaceutical 
manufacturer PAP does not know and should not have known that a 
beneficiary has enrolled in Medicare Part D). Notwithstanding a 
pharmaceutical manufacturer's compliance with the foregoing, the 
Government will take enforcement action in cases where there is 
evidence of unlawful intent.
    The potential variability of PAPs, the fact that the Part D program 
is not yet operational, and the fact that it is not possible to predict 
all future or potential fraud and abuse schemes with certainty, make it 
difficult to provide comprehensive general guidance on the application 
of the anti-kickback statute to PAPs for Part D enrollees at this time. 
We intend to monitor the situation closely and may issue further 
guidance, if needed. Nothing in this Bulletin should be construed as 
precluding any form of lawful assistance not described in this 
Bulletin.

VI. OIG Advisory Opinion Process

    OIG has an advisory opinion process that is available to 
individuals and entities, including pharmaceutical manufacturers, that 
want assurance that they will not run afoul of the fraud and abuse 
laws.\22\ OIG advisory opinions are written opinions that are legally 
binding on OIG, the Department, and the party that requests the 
opinion. To obtain an opinion, the requesting party must submit a 
detailed, written description of its existing or proposed business 
arrangement. The length of time that it takes for OIG to issue an 
opinion varies based upon a number of factors, including the complexity 
of the arrangement, the completeness of the submission, and how 
promptly the requestor responds to requests for additional information. 
Further information about the process, including frequently asked 
questions, can be found on the OIG Web page at https://oig.hhs.gov/
fraud/advisoryopinions.html.


    \22\ Section 1128D(b) of the Act; 42 CFR part 1008.
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    The Office of Inspector General (OIG) was established at the 
Department of Health and Human Services by Congress in 1976 to 
identify and eliminate fraud, abuse, and waste in the Department's 
programs and to promote efficiency and economy in departmental 
operations. OIG carries out this mission through a nationwide 
program of audits, investigations, and inspections. The Health Care 
Fraud and Abuse Control Program, established by the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA), authorized OIG 
to provide guidance to the health care industry to prevent fraud and 
abuse and to promote the highest level of ethical and lawful 
conduct. To further these goals, OIG issues Special Advisory 
Bulletins about industry practices or arrangements that potentially 
implicate the fraud and abuse authorities subject to enforcement by 
OIG.

Daniel R. Levinson,
Inspector General.
[FR Doc. 05-23038 Filed 11-21-05; 8:45 am]
BILLING CODE 4150-04-P