HHS OIG Issues Well-Received Advisory Opinion Re: Exempt Health Care and Federal Anti-Kickback Statute

I hardly know anything about the Federal Anti-Kickback Law that has implications for nonprofit health care.  I first came across such laws when I was Associate Counsel at the University of Florida, which has a sprawling medical school complete with associated teaching hospitals. I did some work on hospital joint ventures with physician practice groups.  I understand the concern only in very simple terms because I focused on the tax rules. 

Here is a nutshell example.  An exempt healthcare organization receives donations from drug companies with which it makes grants to patients.  The patients use the grants to pay for prescriptions; sometimes those prescriptions are manufactured and sold by the drug company that made the grants.  It's the part about using the grant to buy prescription drugs from the grant-maker that implicates kickback concerns.  In tax jurisprudence, we might call this private benefit.  Because if a donor transferred money to a charity with  the expectation that the charity or its beneficiaries will turn around and patronize the donor, the charity might be operated for private benefit.  Apparently, there are reams of HHS regulations on this issue. The anti-kickback experts who read this blog can fill in the details. 

Here is how the law is summarized in what is apparently a significant and well-received HHS OIG advisory opinion:

The Federal anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a Federal health care program.6 The statute’s prohibition also extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program.7 For purposes of the Federal anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.

. . . 

And then here is how the HHS OIG summarized its enforcement posture:

OIG has long recognized that patient assistance programs (“PAPs”), including programs sponsored predominantly by drug manufacturers, can provide important safety net assistance to patients, especially patients who cannot afford their cost-sharing obligations for prescription drugs. OIG also recognizes that prescription drug costs have increased dramatically in recent years, exacerbating this financial challenge for some patients. OIG supports efforts of charitable organizations and others to assist financially needy beneficiaries, as long as the assistance is provided in a manner that does not run afoul of the Federal anti-kickback statute or other laws. PAPs organized by purportedly independent charitable organizations, which OIG has in the past referred to as “independent charity PAPs,” can provide meaningful and important safety net assistance to patients with financial need. Nevertheless, independent charity PAPs that rely heavily on donations from pharmaceutical manufacturers present significant fraud and abuse risks. OIG has consistently warned that, in order to reduce fraud and abuse risks, independent charity PAPs should be independent of pharmaceutical manufacturer influence and “not function as a conduit for payments by the pharmaceutical manufacturer to patients.”

In recent years, OIG’s substantial enforcement experience, various OIG appraisals of the administration of the Medicare Part D program, increasing drug prices, and recent peer-reviewed economic analyses have amplified our understanding of how these PAPs operate and the risks they pose to Federal health care programs. Our enforcement experience involving the “independent charity PAP” model reinforces that the model both implicates the Federal antikickback statute and is susceptible to abuse. The risks OIG has identified in connection with cost-sharing subsidies funded by manufacturers include: the potential for improperly increased drug prices, which could result in improperly increased costs to Federal health care programs and certain patients; the possible steering of Part D enrollees to certain drugs, which could result in enrollees taking drugs that are not as safe and efficacious for them as other drugs; and the prospect of anti-competitive effects.

From this, the Agency concluded that one such "patient assistance program" (PAP) would not be subjected to enforcement action because it is administered with enough safeguards to reduce or eliminate the possibility that grants would be used to funnel revenues back to drug manufacturers:  

First, the Disease Funds vary substantially in the proportion of funds spent to support the purchase of the donors’ drugs. Disease Funds that spend a larger proportion of their contributions to support their donors’ own drugs present a greater risk of fraud and abuse because the Disease Funds are more likely to function as conduits between their donors and patients taking their donors’ drugs. Taken as a whole, however, the Arrangement includes many of the features OIG has highlighted in the past as reducing fraud and abuse risk in independent charity PAPs, including: (i) defining Disease Funds based on established disease states; (ii) awarding assistance without regard to the treatment regimen prescribed for a particular patient; (iii) limitations on the sharing of information with donors; and (iv) application of a financial eligibility process.

Second, Requestor’s Disease Funds provide assistance to financially needy patients with rare disorders. Given the increasing cost of prescription drugs generally, Requestor’s Disease Funds provide assistance that could be highly impactful for those patients. In addition, while less than one-third of funds spent under the Arrangement support the purchase of the drugs manufactured by donors through cost-sharing subsidies, more than two-thirds of the funds spent under the Arrangement are in the form of other categories of assistance, including cost sharing for other items and services (i.e., not drugs), medical assistance, premium support, and emergency relief.

darryll k. jones