Recently, an increasing number of pharmaceutical manufacturers have sought to provide limited free supplies of their drugs to patients initiating therapy, including those who experience delays in obtaining insurance coverage. A significant question facing those manufacturers has been whether to exclude federal healthcare program beneficiaries from such programs to minimize risk under the federal anti-kickback statute. In Advisory Opinion 15-11,1 issued on August 12, 2015, the Office of Inspector General (OIG) approved a "quick start” program for the first time, concluding that although the program could potentially generate prohibited remuneration under the federal anti-kickback statute, OIG would not impose sanctions based on the program under either the anti-kickback statute or the beneficiary inducement provisions of the civil monetary penalties law. The OIG’s reasoning relies heavily on the narrow tailoring of the program, as well as on several unique aspects of the drug itself. As the Advisory Opinion itself acknowledges, OIG might well reach a different conclusion regarding a free supply program that did not include the same requirements, limitations, and scope as the program addressed in the Advisory Opinion.

The Drug

The Advisory Opinion emphasizes several unique characteristics of the drug provided through the requesters’ program. The drug is approved to treat two serious and potentially fatal diseases. The Food and Drug Administration (FDA) designated the drug as a “breakthrough therapy,” a designation given only to drugs (1) intended to treat a serious or life-threatening disease or condition (alone or in combination with one or more other drugs) and (2) for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. 

The drug is taken orally and obtained through specialty pharmacies, so physicians cannot bill either for the drug itself or for its administration.  In addition, the drug is indicated only as a second-line therapy, i.e., it is prescribed only after another therapy has been tried and failed.  While other on-label treatments exist as a second-line therapy for patients with the diseases, most of those alternative treatments have serious potential side effects, including some that have led the FDA to impose so-called black box warnings on the labels of some of the alternative drugs. However, there is no clinical barrier to switching a patient from the drug to alternative therapies, and the typical response time to the drug is under two months. 


The Free Supply Program

In addition to the unique characteristics of the drug itself, the Advisory Opinion also lays out considerable eligibility requirements and other restrictions that sharply limit the scope of the requesters’ program, which OIG refers to as the Free Supply Program.

Basic Eligibility Requirements. To be eligible to receive free products under the program, a patient must have received a prescription for the drug, for an on-label diagnosis, and be insured (either by a public or private payer). 

Delay in Insurance Coverage Determination. A patient is eligible for the program only if he or she experienced a delay of at least five business days in obtaining an insurance coverage determination. In practice, the patient submits a prescription for the drug to his or her pharmacy, and if the pharmacy does not receive a determination from the patient’s insurer within five business days, the patient’s prescriber or pharmacy may submit a request for a free supply of the drug under the program to a contracted pharmacy responsible for dispensing drug under the Free Supply Program. 

No Commercial Role for Contracted Pharmacy. The contracted pharmacy verifies eligibility and requests that the patient’s prescriber provide a new prescription solely for the purpose of dispensing the free drug supply.  The contracted pharmacy only dispenses drug for purposes of the Free Supply Program and other special programs, and is not otherwise involved in commercial distribution and dispensing of the drug. Thus, if the patient’s insurance eventually approves the drug, any future orders outside the Free Supply Program must be dispensed by another pharmacy selected by the patient or physician.  
Limited Supply. If eligible for a free supply, patients initially receive one 30-day supply. If the insurance coverage delay persists or the insurer has denied coverage but the patient is diligently pursuing appeal rights, the patient may receive one additional 30-day refill.  After these two supplies are exhausted, the patient may not receive additional free drug supply under the program, regardless of the status of insurance coverage or appeal.

No Billing. Participants in the program are informed that no patient, pharmacy, or payer may be billed for the free supplies. If the patient is a Medicare Part D beneficiary, the contracted pharmacy notifies the Part D plan that the free supply of the drug should not be counted toward the patient’s true out-of-pocket (TrOOP) costs and that no claim should be submitted to the Part D plan sponsor for the free supply. OIG notes that applicable Part D formulary and coverage determination rules make it unlikely that many Part D beneficiaries will be eligible for the program in any case.

No Direct-to-Consumer Advertising. Another significant characteristic of the program is that the requesters certified they will not advertise the program directly to consumers or through third party media, though they will provide information about the program on their own websites and to healthcare providers. 

Low-Volume Use of the Program. Finally, the actual volume of patients obtaining free drug supply through the program has been small. Since the program began, 0.0008% of all shipments of the drug were shipped under the program, of which about one third went to Medicare or Medicaid beneficiaries.

OIG’s Analysis

In concluding that it would not impose sanctions based on the program under the anti-kickback statute, OIG relies heavily on many of the specific facts and circumstances of the drug and the program laid out above.  This highly fact-specific analysis reinforces the extremely narrow scope of the Advisory Opinion’s endorsement of this type of free supply program. 

OIG’s most significant point of emphasis appears to be the distinction between the Free Supply Program and other programs in which the manufacturer offers free or reduced-price drug to steer patients to use that drug and obtain other items billable to federal health care programs. OIG cites the following factors to support its conclusion that there is minimal risk of such steering or “seeding”:

  • The program is not actively marketed to patients;
  • The actual volume of patients using the program has been very low;
  • Treatment alternatives for the drug are limited; and
  • Patients will incur significant cost-sharing if they choose to remain on the drug.

These factual circumstances appear to have been essential to OIG’s analysis. Indeed, OIG underscores the limited scope of its approval by explicitly advising that it might reach a different conclusion on different facts, particularly “if the Arrangement were used as a marketing tool or if the Arrangement appeared to be used at a greater rate than would be expected based on typical insurance approval rates.”

OIG also cites other case-specific factors in approving the program. For example, OIG emphasizes the small patient population for the drug, the stringent insurance coverage delay requirement, and the maximum 60-day supply to support its conclusion that the program limits the risk of overutilization. Likewise, OIG cites several factors supporting its conclusion that participants have no opportunity to gain a financial benefit, including that prescribers cannot bill for the drug or its administration, that the contracted pharmacy dispensing the free supply cannot obtain further orders from patients outside the program, and that no party (including federal government payers) may be billed for the free supplies.


Advisory Opinion 15-11 is significant in that it represents OIG’s first approval of a program providing free supply of drug for patients experiencing insurance coverage delays. However, because OIG’s analysis and conclusion rely to a significant extent on facts particular to the drug and the program at issue in the opinion, manufacturers should continue to carefully analyze the risks raised by such programs.

If you have any questions related to the new OIG advisory opinion, please contact one of the lawyers listed in this client alert, or the Hogan Lovells lawyer with whom you normally work.