Because No One is Immune to the Law
February 07, 2023 - FDA, Regulatory, Pharma, Healthcare, United States

Supreme Court Denies Review of Cost Sharing Assistance Program

De Novo Classification Final Rule to Take Effect Next Year

The U.S. Supreme Court recently declined to review a Second Circuit decision that blocked Pfizer from implementing a cost sharing assistance program. Pfizer had sought to cover out-of-pocket expenses for financially eligible Medicare patients who need tafamidis, the only approved drug by the Food & Drug Administration (FDA) to treat a rare heart condition. In 2019, Pfizer sought an advisory opinion from the Department of Health and Human Services (HHS) regarding the subsidy program, and in September 2020, HHS advised Pfizer that the program “plainly would” involve prohibited conduct under the Anti-Kickback Statute (AKS) because it would induce Medicare patients to purchase this medication. Pfizer brought a suit to challenge the determination, which ended with the Supreme Court’s denial of certiorari. The decision has special implications for the pharmaceutical industry and potentially impacts any entity that conducts business with federal health care programs.

Covering copays potentially encouraged Medicare patients to seek Pfizer’s drug, implicating the Anti-Kickback Statute.

The AKS, 42 U.S.C. § 1320(a)-7b(b), aims to prevent fraud in federal health care programs and financial “renumerations” (including kickbacks, bribes, or rebates) for inducing the purchase of particular health care products or services. AKS violations can carry felony criminal liability with up to 10 years’ imprisonment. In addition, HHS has the authority to exclude any individual or entity from federal health care programs if it determines they have violated the AKS.

The HHS Office of Inspector General (HHS-OIG) issued a special advisory bulletin in 2005 that first alerted companies how patient assistance programs may violate the AKS. The bulletin stated that manufacturers’ programs could implicate the AKS because “the manufacturer would be giving something of value (i.e., a subsidy) to beneficiaries to use its product.” 70 Fed. Reg. 70, 623 (Nov. 22, 2005). The bulletin explained that these programs induce patients to seek specific drugs and “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.” Id. at 70,625.

In 2019, Pfizer sought an HHS-OIG advisory opinion regarding a proposed Direct Copay Assistance Program for eligible Medicare patients that need tafamidis. Pfizer wanted to cover the majority of the approximately $13,000 annual cost sharing obligations, and eligible patients would only pay $35 a month. Pfizer was concerned that many “middle-income” Medicare patients are unable to afford the annual cost sharing obligations and that even if they were to cut the price of tafamidis in half, the patient annual cost sharing obligations would be approximately $8,000, which still remains a significant financial barrier for many patients. Pfizer pointed to one study that indicated 49% of cancer patients failed to refill prescriptions when there was a $2,000 copay. Pfizer emphasized that it would not provide financial incentives to physicians to favor tafamidis or use the program to solicit new patients.

In 2020, HHS-OIG issued an unfavorable opinion that found Pfizer’s proposed program would involve conduct prohibited under the AKS. The opinion specified the program would induce a beneficiary to purchase tafamidis by “removing the financial impediment, and the Medicare program would bear the costs.” HHS-OIG Advisory Opinion No. 20-05. HHS-OIG held that the program “plainly would involve remuneration to an individual to induce that individual to purchase an item for which payment may be made under a Federal health care program.” As a result, HHS-OIG concluded that the program could violate the AKS because it presented some of the same concerns of fraud and abuse associated with kickbacks that it alerted the public to in its 2005 bulletin – increased costs to Medicare, beneficiary steering and anti-competitive effects, and interference with or skewing clinical decision-making.

Pfizer argued that violating the AKS requires “corrupt intent,” but the district court and Second Circuit disagreed.

Pfizer sued in federal court under the Administrative Procedure Act to challenge the HHS-OIG determination. The district court agreed with HHS-OIG, granted summary judgment for the government and the Second Circuit affirmed in a unanimous decision. The Second Circuit explained “Pfizer’s primary argument was that the Direct Copay Assistance Program must be administered with a ‘corrupt intent’ to violate the AKS, and Pfizer defines ‘corrupt’ intent as a quid pro quo that ‘improperly or corruptly’ skews the patient’s decision-making.” The district court and the Second Circuit examined the plain language of the AKS which prohibits “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to purchase . . . any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.” Because nothing in the text of the AKS requires a “corrupt intent,” the courts sided with the government because the Direct Program would persuade or induce Medicare beneficiaries to purchase the drug.    

The Supreme Court’s denial fits into a broader government crackdown on high-cost medications.

Pfizer sought review of the Second Circuit decision, using the same argument that corrupt intent to improperly skew patient decision-making was a required element in an AKS violation. The Supreme Court denied review earlier this month.

The Second Circuit decision remains in effect and will likely reinforce the Department of Justice’s efforts to target programs designed to help patients pay for high-cost medications, netting the federal government over $1 billion in settlements between 2017 and 2021. These enforcement efforts coincide with a federal and state legislative efforts to reduce drug prices, including new sweeping requirements of the Inflation Reduction Act that, among other things, require the federal government to negotiate prices for some Medicare Part B and D drugs, require drug companies to pay rebates to Medicare if prices rise faster than inflation, cap out-of-pocket spending for Part D enrollees and limit monthly cost sharing for insulin. Targeting the overall cost of prescription drugs, including high-cost medications, clearly remains a priority for regulators in many levels of government, and the AKS is another tool with a legal standard that favors regulators.

Takeaway: Seek advice early because even companies with good intentions can unintentionally violate the AKS.

Pfizer’s strategy to seek an HHS advisory opinion on the proposed program was prudent, even if it did not end with the desired result. Pharmaceutical manufacturers are under special scrutiny when providing any financial benefit related to their own drugs, even if it is aimed at helping patients that are in special need. The Department of Justice and other regulators are likely to continue the broader push to enforce cost-control functions within Medicare and other federal programs and scrutinize any programs associated with high-cost medications. Thus, it is similarly prudent for any health care company to seek advice early when designing financial assistance programs that may implicate federally funded programs like Medicare or Medicaid.