United States: Industry Fights Back Against Government Restrictions On Pharmaceutical Manufacturers' Ability To Offer Drug Cost-Sharing Subsidies

This year, the Office of Inspector General ("OIG") and at least two federal courts have taken a clear stance against pharmaceutical manufacturers' attempts to offer cost-sharing subsidies to Medicare beneficiaries for certain drugs, despite the increasingly creative methods by which these subsidies are being offered. The OIG's stated concerns are: (1) consistently increased risk of fraud, (2) inappropriate usurpation of the legislative function, and (3) price inflation.

However, industry is fighting back. Pharmaceutical manufacturers and lobbying groups are pushing back against these administrative restrictions in an attempt to increase access to life-saving medications.

The Pfizer Saga

In 2019, Pfizer petitioned the OIG regarding its proposed Copay Assistance Programs (the "Programs"). Under the Programs, Pfizer would offer cost-sharing subsidies to Medicare Part D ("Part D") beneficiaries for its medication in one of two ways – (1) through a copay card or coupon provided directly to the patient (the "Direct Copay Assistance Program"), or (2) by funding a 501(c)(3) charity that would provide copay assistance to Part D patients to access Pfizer's drug (the "Independent Charity Program").1 The OIG maintained that the proposed arrangement would violate the Federal Anti-Kickback Statute (the "AKS").

A. OIG Treatment of Pfizer's Proposed Programs

Although the OIG declined to comment on the legality of the Independent Charity Program, due to an investigation that was pending at the time,2 the OIG orally informed Pfizer of its determination that the Direct Copay Assistance Program would, in fact, run afoul of the AKS.3 The OIG reached this conclusion despite the fact that the Direct Copay Assistance Program implemented multiple safeguards to prevent fraud and abuse.4

The precise reasoning behind the OIG's conclusion was not made publicly available, but it was consistent with the OIG's long-standing position that pharmaceutical manufacturers' practice of providing cost-sharing subsidies directly to Medicare patients poses "a substantial risk of program and patient fraud and abuse."5

B. Pfizer's Response

After exhausting its avenues for agency review, Pfizer filed a complaint in the Southern District of New York, asking the court to issue a declaratory judgment confirming the legality of both proposed Programs.6 Pfizer challenged the OIG's interpretation on the grounds that (i) the Programs do not implicate the AKS, as Pfizer does not have the requisite intent to defraud; and (ii) the OIG's position, with respect to the Independent Charity Program, raises significant First Amendment concerns as it restricts Pfizer's communications with, and donations to, independent charities that provide assistance to Medicare patients.7

In September 2021, the Southern District of New York issued an unfavorable opinion for Pfizer, ruling that (i) Pfizer's Programs would, in fact, violate the AKS; and (ii) the court lacked jurisdiction to determine the First Amendment claim.8 On appeal this summer, the ruling was upheld by a three-judge panel in the Second Circuit.9 Most recently, despite the fact that Pfizer's appeal to the U.S. Supreme Court came armed with an amicus brief from the Pharmaceutical Research and Manufacturers of America, the Court, without explanation, decided not to take the case.10 But the legal battle continues elsewhere in the courts.11

OIG's October Advisory Opinion

On October 5, 2022, one week before Pfizer petitioned the Supreme Court, the OIG posted Advisory Opinion No. 22-19 (the "Opinion"), which determined that a proposed arrangement under which pharmaceutical manufacturers would fund, through a nonprofit corporation, cost-sharing subsidies for the manufacturers' own Part D oncology drugs would run afoul of the AKS if the requisite intent were present.

In support of the Opinion, the OIG expressed concerns that the arrangement: (1) circumvents the statutory structure contemplated and implemented by Congress because it purports to replace the current Part D cost-sharing obligations with the manufacturers' cost-sharing subsidies for a large portion of Part D oncology products on the market; (2) poses a risk of inflated healthcare costs because it would remove one of the key pricing controls of the current statutory framework–exposing beneficiaries to the economic effects of drug prices set by manufacturers; (3) carries the anti-competitive risk of penalizing manufacturers who do not participate because Part D patients would likely be steered away from their products in favor of subsidized products; and (4) poses a risk that prescribers could be dissuaded from prescribing a drug from a non-participating manufacturer, even if not in the patient's best interest.

So, on November 9, the Pharmaceutical Coalition for Patient Access ("PCPA"), the presumed requestor behind the Opinion, filed a lawsuit against the OIG in the Eastern District of Virginia, seeking a declaratory judgment confirming the legality of its cost-sharing program.12 PCPA's primary arguments mirrored those posed by Pfizer in its 2020 complaint, described above.13

Enforcement Trend

Recent administrative opinions and judicial decisions have, not surprisingly, upheld the long-standing position that the AKS is implicated when drug manufacturers provide cost-sharing subsidies directly to Medicare patients for the manufacturer's own drug. However, these recent administrative opinions and judicial decisions have highlighted a new, targeted enforcement concern – drug manufacturers' provision of cost-sharing subsidies to Medicare patients indirectly through charitable organizations. Readers will recall that, over the past four years, the pharmaceutical industry has provided over $1.5 billion in total DOJ settlements over funding of charities that provide Part D copay support for patients.14

As part of this heightened focus on manufacturers' indirect provision of cost-sharing subsidies, the OIG's October Opinion clarifies and expands upon a 2005 OIG Bulletin, which acknowledged the possibility of a "coalition model" to increase accessibility to certain drugs for financially-needy Part D beneficiaries.15 Although the 2005 Bulletin discussed several safeguards that might limit the risk of AKS liability for coalition models, the OIG has now concluded that the coalition model still encompasses too high a risk of fraud. This recent clarification of the 2005 Bulletin is especially significant because both Pfizer's 2020 complaint and PCPA's 2022 complaint lean on the 2005 Bulletin as justification for the proposed cost-sharing arrangements.

Takeaways

Recent administrative discourse and enforcement actions scrutinizing cost-sharing subsidies provided indirectly through charitable organizations have focused on the direct tie between manufacturers' placement of funds with the charitable organization and the direct pass-through of those funds to patients to cover Part D cost-sharing obligations for the manufacturers' own products. Especially given the OIG's unwillingness to work with Pfizer in crafting a structure that might comply with the AKS, it seems that the OIG, and now federal courts, will continue to prohibit pharmaceutical manufacturers from providing cost-sharing subsidies to Medicare patients through charitable organizations unless the donations to these charitable organizations are made without strings attached.

The decisions made by the OIG and the Second Circuit stand tantamount to a strict liability standard for the AKS. For that very reason, pharmaceutical manufacturers launched litigation on this pivotal issue. Despite Pfizer's setback in the U.S. Supreme Court, if the Fourth Circuit decides differently, the door may still be open for the pharmaceutical industry to realize a complete change in the scope of cost-sharing subsidies that they may legally provide to Medicare patients, especially those subsidies delivered through charitable organizations. There is no doubt that 2023 will continue a hot trend in this space.

Footnotes

1 See Press Release, No. 18-686, Dept. of Justice (May 24, 2018).

2 See Complaint for Declaratory Judgment, Pfizer Inc. v. United States, et al., Case No 1:20-cv-04920 (S.D.N.Y. June 6, 2020).

3 See id. at 34.

4 See id.

5 See 70 Fed. Reg. 70,623-03, at 70,625 (Nov. 22, 2005).

6 See Pfizer Complaint at 35.

7 See id. at 5, 7.

8 See Opinion and Order, Pfizer, Inc. v. United States, et al., Case No 1:20-cv-04920 (S.D.N.Y. Sept. 30, 2021).

9 See Opinion and Order, Pfizer, Inc. v. HHS, Docket No. 21-2764-cv (2d Cir. July 25, 2022).

10 See Petition for Writ of Certiorari, Pfizer, Inc. v. HHS, No. 22-339 (U.S. Oct. 12, 2022); Amicus Brief, Pfizer Inc. v. HHS, No. 22-339 (U.S. Nov. 14, 2022).

11 See Petition at 46a.

12 See 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).

13 Id. at 46, 60.

14 See DOJ Journal of Federal Law and Practice, Vol. 70, No. 3 (Aug. 2022) at p. 42.

15 See 2005 Bulletin, 70 Fed. Reg. at 70627.

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