Likely in response to recent controversy and public scrutiny, on 21 May 2014, the Office of Inspector General (OIG) issued a supplemental Special Advisory Bulletin (2014 SAB) regarding independent charitable organizations that provide cost-sharing assistance for prescription drugs, including to federal healthcare program beneficiaries. The 2014 SAB is derived from the experience OIG has gained since 2005, when it issued its first guidance on this topic right after the passage of Medicare Part D, and the 2014 SAB supplements rather than replaces the guidance provided in its earlier Special Advisory Bulletin on patient assistance programs from 2005 (2005 SAB).1

The 2014 SAB expands upon previous guidance in three areas: (1) creation of disease funds; (2) eligible recipients; and (3) the conduct of donors. The 2014 SAB is notable, first, because these two later areas have not previously been addressed in any detail by OIG; and, second, because it explicitly identifies two types of arrangements that will draw OIG scrutiny: (1) disease funds limited to a subset of available products, rather than all approved products for the treatment of the disease state; and (2) disease funds that cover only one product or the products of a single manufacturer that is a significant donor to the fund. 

The 2014 SAB also provides a warning to independent charitable organizations that have received favorable advisory opinions in the past that their arrangements are not protected if “the arrangement does not in practice comport with the facts presented in the advisory opinion.” Moreover, OIG anticipates that some of its previously issued advisory opinions will require modifications to be consistent with the updated guidance. 

A summary of the new guidance in the 2014 SAB follows.

Disease funds

Although OIG continues to acknowledge that independent charitable organizations may focus their efforts on patients with particular diseases, and manufacturers may earmark donations for one or more broad disease funds, OIG expresses substantial concern with the practice of independent charitable patient assistance programs (PAPs) choosing to establish or operate disease funds that limit assistance to a subset of available products. OIG clarifies that the statements in the 2005 SAB indicating concern about disease funds defined by reference to specific symptoms, severity of symptoms, or the method of administration of drugs were meant to be illustrative and not an exhaustive list of improperly narrow approaches to defining disease funds.

Thus, OIG indicates that a fund that is limited to a subset of available products will be subject to more scrutiny.

OIG also notes that when PAPs focus on covering copayments for expensive or specialty drugs, they may steer patients toward costly drugs and away from potentially more beneficial products. This practice also may drive up the cost of drug products. Accordingly, OIG affirmatively states that disease funds that are limited “to a subset of available products, rather than all products approved by the Food and Drug Administration (FDA) for treatment of the disease state(s) covered by the fund or all products covered by the relevant federal healthcare program when prescribed for the treatment of the disease states (including generic or bioequivalent drugs)” will be subject to more scrutiny.2 OIG also warns that if a charitable foundation has obtained a favorable advisory opinion with respect to the use of narrowly defined disease funds, that favorable opinion is based upon certain certifications,3but the arrangement will not be protected by the opinion if it does not in practice align with the facts presented in the advisory opinion.

OIG also indicates that a disease fund covering only one product or the products of a single manufacturer that is a significant donor to the fund will be subject to scrutiny. 

Thus, the 2014 SAB signals a new approach from OIG with respect to disease funds covering only one product or the products of a single manufacturer — circumstances that manufacturers of orphan drugs or drugs for rare diseases often face. The 2005 SAB acknowledged that there may be rare circumstances where there is only one drug covered by Part D for the diseases in a particular disease fund, or only one pharmaceutical manufacturer producing all of the Part D covered drugs for the disease(s) in a particular disease fund. In the earlier guidance, however, OIG concluded that 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.

OIG appears to have refined its view of such circumstances because the 2014 SAB indicates 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.”4 When assessing whether an AKS violation has occurred, OIG indicates it will consider factors such as whether the disease fund is narrowly defined in a manner that favors any of the fund’s donors. OIG notes that limiting or narrowly defining disease funds so as to provide assistance only for expensive drugs increases the likelihood that the donors are improperly using the PAPs to steer patients to their products.

Eligible recipients

In the 2014 SAB, OIG notes that while independent charitable PAPs must determine recipient eligibility using a “reasonable, verifiable, and uniform measure of financial need that is applied in a consistent manner,” PAPs have flexibility to consider variables other than income, such as the local cost of living, in making eligibility determinations. OIG declines to recommend a particular method for assessing financial need, but emphasizes that the cost of a particular drug is not an appropriate stand-alone factor in determining individual financial need. OIG also cautions against overly generous financial need criteria. “[G]enerous 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).”5 

Conduct of donors 

In an acknowledged shift from prior guidance on the conduct of independent charitable organizations, the 2014 SAB addresses for the first time the conduct of donors who support PAPs.

OIG warns that actions on the part of donors to correlate their funding of PAPs with support for their own products may signal a donor’s intent to use the PAP as a conduit to support copayments for its own products, and that such actions would implicate the AKS.