On May 21, 2014, the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) released a supplemental Special Advisory Bulletin (SAB) regarding independent charity patient assistance programs (PAPs).1 This SAB provides additional guidance and identifies areas of risk under the Anti-Kickback Statute (AKS)2 and Beneficiary Inducement Statute,3 based on OIG’s experience since issuance of the 2005 SAB on PAPs for Medicare Part D Enrollees.4 OIG states that this guidance is not intended to replace the 2005 PAP SAB or other relevant guidance, such as the 2002 OIG SAB on Offering Gifts and Other Inducements to Beneficiaries.

OIG continues to recognize that independent charities can help financially needy beneficiaries with their health care expenses, and pharmaceutical manufacturers can donate to these charities. However, OIG cautions that charities that are not sufficiently independent from drug manufacturer donors may operate PAPs that harm patients and Federal healthcare programs and may, depending on the facts, violate fraud and abuse laws. Specifically, the SAB focuses on three areas of risk: disease funds, eligible recipients and the conduct of donors.

A. Disease Funds

In the 2005 SAB, OIG recognized that charity PAPs could focus their efforts on patients with particular diseases and that manufacturers’ donations earmarked for one or more disease funds should not significantly raise the risk of fraud and abuse. At the same time, OIG warned against charities defining their disease funds so narrowly that the earmarking effectively resulted in a donor subsidizing its own products.

In the supplemental SAB, OIG reiterates its 2005 warning against charity PAPs becoming “conduit[s] for payments” from manufacturers to patients, and notes that it has become aware that some charity PAPs are, in fact, establishing narrowly defined disease funds and covering a limited number of drugs within those funds. OIG asserts that “[a] charity with narrowly defined disease funds may be subject to scrutiny if the disease funds result in funding exclusively or primarily the products of donors or if other facts and circumstances suggest that the disease fund is operated to induce the purchase of donors’ products.”5 In a footnote, OIG clarifies that this risk exists even if the charity has obtained a favorable advisory opinion because “favorable advisory opinions related to PAPs typically are based upon the charity’s certifications” that: (1) no donor has exerted any direct or indirect influence over the charity; (2) the charity will define its disease funds in accordance with widely recognized clinical standards and in a manner that covers a broad spectrum of available products; and (3) the charity’s disease funds will not be defined by reference to specific symptoms, severity of symptoms, or the method of administration of drugs. If the arrangement does not in practice comport with the facts presented in the advisory opinion, then the arrangement is not protected by the opinion.6

In short, OIG reiterates that disease funds should be defined in accordance with widely recognized clinical standards and in a manner that covers a broad spectrum of products; disease funds should not be defined for the purpose of limiting the drugs for which the Independent Charity PAP provides assistance.

Below is a summary of particular fund attributes addressed by the supplemental SAB:

  1. Funds Limited to Specialty Therapeutics 

OIG notes its increasing concern about charity PAPs that choose to establish disease funds that limit assistance to a subset of available products, such as expensive or specialty drugs. OIG states: “Although we recognize that a patient prescribed an expensive drug may have a greater need for financial assistance than a patient prescribed a less expensive alternative, we are concerned that limiting PAP cost-sharing support to expensive products may steer patients in a manner that is costly to Federal healthcare programs and may even facilitate increases in drug prices.”7 Thus, OIG states its intent to subject a fund limited to expensive drugs to more scrutiny than if it covered all products approved by the FDA for treatment of the disease state or all products covered by the relevant Federal healthcare program (including generic and bioequivalent drugs).

Note that this position moves away from a number of previously published advisory opinions declining to impose sanctions on charity PAPs with funds limited to specialty therapeutics – costly medications with particular features that complicate their use (i.e., physician administration, special handling, require significant patient education).8

  1. Single Product Funds

The 2005 SAB noted that, in the unusual circumstance where there is only one drug or one manufacturer making drugs covered by Part D for a particular disease, the fact that a disease fund includes only one drug or drugs made by one manufacturer would not, standing alone, be determinative of an AKS violation. However, in the supplemental guidance, OIG makes clear that “a disease fund that covers only a single product, or the products made or marketed by only a single manufacturer that is a major donor to the fund, will be subject to scrutiny.”9 When determining whether an AKS violation has occurred, OIG will consider, among other factors, whether the disease fund in question appears to be narrowly defined in a manner that favors any of the fund’s donors.

  1. Assistance for Off-Label Uses

In a footnote, OIG states that charity PAPs are not required to provide assistance for drugs prescribed off-label. However, OIG opined that it would expect a “truly independent charity to treat all its funds equally. Thus, if the Independent Charity PAP offered assistance for all drugs covered by Medicare in Fund A, but limited assistance offered for Fund B to FDA-approved uses, the funds could be subject to scrutiny to determine whether either coverage determination was made to benefit a donor.”10

B. Eligible Patients

  1. Medicare-Only Funds

In the supplemental SAB, OIG provides its general approval of funds that provide financial assistance only to Federal healthcare program beneficiaries, stating that it does not believe such a limitation increases risks to Federal healthcare programs and citing to Modification of Advisory Opinion No. 07-06, which provided a favorable opinion of limiting assistance to Medicare beneficiaries. OIG notes that safeguards regarding defining disease funds and recipient eligibility described in the 2005 SAB and this supplement, when properly implemented, should sufficiently protect Federal healthcare programs.

  1. Financial Need Requirements

OIG reiterates that charity PAPs must determine eligibility according to a reasonable, verifiable, and uniform measure of financial need that is applied in a consistent manner. While charity PAPs have the flexibility to consider relevant variables beyond income (such as local cost of living and extent of patient’s total medical bills), OIG emphasized that “the cost of the particular drug for which the patient is applying for assistance is not an appropriate stand-alone factor in determining individual financial need.”11 Further, “generous financial need criteria, particularly when a fund is limited to a subset of available drugs or the drugs of a major donor, could be evidence of intent to fund a substantial part of the copayments for a particular drug (or drugs) for the purpose of inducing the use of that drug (or those drugs), rather than for the purpose of supporting financially needy patients diagnosed with a particular disease.”12

C. Conduct of Donors

Finally, OIG notes that previously issued favorable advisory opinions focus on charities that request the opinions – not the donors. For instance, OIG relies on certifications from charities that they will not give a donor any information that would enable a donor to correlate the amount or frequency of its donations with the number of aid recipients who use its products or services or the volume of those products supported by the PAP. While those opinions do not address actions by donors to correlate their funding of PAPs with support for their own products, OIG warns that such actions may be indicative of a donor’s intent to channel its financial support to copayments of its own products, which would implicate the AKS.

D. Conclusion

At the conclusion of the supplemental SAB, OIG recognizes the fact that some charity PAPs have received favorable advisory opinions that may include features that are discouraged in this guidance. OIG is writing to all independent charity PAPs that have received favorable opinions to explain how OIG intends to work with them to ensure that approved arrangements are consistent with current guidance. OIG also notes that it anticipates that some opinions will need to be modified. Modifications will be posted to OIG’s website consistent with current practice.