OIG Issues Favorable Advisory Opinion 14-05 Regarding A Pharmaceutical Manufacturer’s Direct-To-Patient Product Sales Program

by John W. Kaveney

The U.S. Department of Health and Human Services, Office of Inspector General (the “OIG’), on July 21, 2014, issued a favorable advisory opinion regarding a pharmaceutical manufacturer’s (the “Manufacturer”) direct-to-patient product sales program, which allows eligible patients to purchase one of the Manufacturer’s brand name products for a fixed price from an online retail pharmacy vendor outside of any applicable prescription drug insurance benefit (the “Arrangement”).  The OIG decided not to impose administrative sanctions on the Manufacturer pursuant to the civil monetary prohibition on offering inducements to beneficiaries or the Anti-Kickback Statute in connection with the Arrangement.  Although Advisory Opinion 14-05 is limited to only the specific Arrangement of this particular Manufacturer, it is a promising decision for patients in desperate need of discounted brand name products and other pharmaceutical manufacturers with aspirations to establish similar arrangements.

Pursuant to the Arrangement, the Manufacturer sells a brand name product, which is eligible under Medicare Part D, but not included on most third party payer formularies or otherwise placed on non-preferred formulary tiers due to the availability of generic equivalents.  The participants enroll by phone, internet, or mail and purchase the product directly from an online retail pharmacy vendor, who contracted to be the Manufacturer’s dispensing agent.  The Arrangement operates completely outside of all federal health care programs.

The OIG addressed several issues regarding the Arrangement, including:  (1) whether the discount provided under the Arrangement is likely to induce the participants to select the online pharmacy to supply items, for which payment may be made by Medicare, Medicaid, or a State health care program; and (2) whether the Arrangement implicated the Anti-Kickback Statute by providing remuneration to the participants or the online pharmacy.  When deciding whether the Arrangement induced participants in violation of the civil monetary prohibition, the OIG concluded that the availability of a discount was not likely to influence the participants to select the online pharmacy to supply other products, which may be payable under Medicare or Medicaid.  Moreover, the OIG similarly concluded that there was a sufficiently low risk that the Arrangement violated the Anti-Kickback Statute.

Advisory Opinion 14-05 is encouraging for other pharmaceutical manufacturers with ambitions of establishing similar arrangements and patients in need of discounts on brand name products.  However, the OIG acknowledged that its decision might be different if the product has no generic equivalents, is covered by more plan formularies, or is more generously covered by some plan formularies.  The
full text of Advisory Opinion 14-05 can be found here.