OIG Proposes Antikickback Law Safe Harbors and CMP Rules that Would Offer Additional Protections for Pharmaceutical and Device Manufacturers

October 13, 2014

By Alan M. Kirschenbaum & David C. Gibbons

On October 3, 2014, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) published a Proposed Rule to amend the safe harbor regulations under the Federal health care program antikickback statute (“AKS”) (42 U.S.C. § 1320a-7b(b)),  and to establish exceptions to the Civil Monetary Penalty (“CMP”) statute  (42 U.S.C. § 1320a-7a).   The Proposed Rule would change existing safe harbors and add new ones, and would add new exceptions to the beneficiary inducement CMP.  We describe these changes below, with particular focus on those of most interest to drug and device manufacturers.

Proposed Changes to the AKS Safe Harbors

Cost-sharing waivers by pharmacies:  The OIG would add a safe harbor implementing, and essentially tracking, a statutory exception that was added to the AKS by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) (see 42 U.S.C. § 1320a-7b(b)(3)(G)).  The safe harbor would protect the waiver or reduction by a pharmacy of Medicare Part D cost sharing if: (1) the waiver or reduction is not advertised or part of a solicitation; (2) the pharmacy does not routinely waive the cost-sharing; and (3) the pharmacy either makes a good faith determination of the patient’s financial need or fails to collect the cost-sharing after a reasonable effort to do so.  Conditions (2) and (3) need not be met if the individual is eligible for a Part D subsidy.  Note that this safe harbor protects only the waiver of co-insurance by a pharmacy.  It would not, by its terms, protect the subsidization of a patient’s co-insurance by a third party, such as a drug manufacturer, and there is no indication in the proposed rule or preamble that the OIG would interpret the safe harbor broadly enough to protect such third party subsidies.

Medicare Coverage Gap Discount Program:  To implement another existing exemption in the AKS — one that was added in 2010 by section 3301 of the Patient Protection and Affordable Care Act (“ACA”) – the OIG would add a safe harbor protecting brand drug discounts provided by drug manufacturers to Part D enrollees in the coverage gap under the Medicare Coverage Gap Discount Program.  (We previously described this Program during its early stages of implementation.)

Local transportation:  The OIG would establish a new safe harbor protecting free or discounted local transportation made available to patients by an “Eligible Entity” under certain conditions.   The preamble makes clear, however, that Eligible Entities do not include entities that supply health care items, such as pharmaceutical companies and durable medical equipment (DME) suppliers.  This limitation reflects OIG’s concern that drug manufacturers and DME suppliers “would use transportation arrangements to generate business for themselves by steering transported patients to those [providers] who order their products.”  Laboratories are also excluded from the definition of “Eligible Entity”.

Other safe harbors:  In addition, the OIG proposes to:

  • Establish a new safe harbor protecting waivers of cost-sharing or deductible amounts owed to ambulance services owned and operated by a state or political subdivision of a state.
  • Implement an existing statutory exemption protecting remuneration between a federally qualified health center and a Medicare Advantage organization (see 42 U.S.C. 1320a-7b(b)(3)(H)).

Changes to the Beneficiary Inducement CMP Statute

The beneficiary inducement CMP (42 U.S.C. § 1320a-7a(a)(5)) prohibits an individual or entity from offering or transferring remuneration to a Medicare or Medicaid beneficiary that such individual or entity knows or should know is likely to influence such beneficiary to order or receive from a particular provider, practitioner, or supplier any item or service for which payment may be made, in whole or in part, under Medicare or Medicaid.  The Proposed Rule would add several exceptions to the beneficiary inducement CMP:

Access to care/low risk of harm:  In the preamble (but not in the Proposed Rule itself), the OIG proposes to establish an exception to the beneficiary inducement CMP for remuneration that promotes access to care and poses a low risk of harm to patients and Federal health care programs.  OIG proposes to define the term “promotes access to care” to mean that the remuneration improves a particular beneficiary's ability to obtain medically necessary health care items and services. However, the OIG solicits comments on whether this phrase should be interpreted more broadly to include encouraging, supporting, or helping patients to access care, or making access to care more convenient for patients.  OIG also seeks comments on whether “access to care” should encompass not only clinical care but also nonclinical care that is reasonably related to a patient’s medical care, such as social services.

OIG proposes to interpret the phrase “low risk of harm to Medicare and Medicaid beneficiaries and the Medicare and Medicaid programs” as meaning that the remuneration: (1) is unlikely to interfere with, or skew, clinical decision-making; (2) is unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (3) does not raise patient-safety or quality-of-care concerns.  The preamble identifies items used to record and report health data, such as scales or blood pressure cuffs, as items that would qualify for this exception, as long as they are not conditioned on a patient obtaining other items or services from a particular provider or supplier.  On the other hand, the OIG expresses concern about gifts offered in connection with  marketing activities, and also about rewards offered by providers or suppliers to patients for compliance with a treatment regimen.  The OIG solicits comments on whether the latter type of incentive should be protected, and, if so, what safeguards should be required. 

Free or discounted items where financial need exists:  To implement a statutory provision added by the ACA (see 42 U.S.C. § 1320a-7a(i)(6)(H)), the OIG proposes to exempt from the definition of “remuneration” under the beneficiary inducement statute “the offer or transfer of items or services for free or at less than fair market value after a determination that the recipient is in financial need and meets certain other criteria.”  These “items or services” cannot include cash or instruments convertible to cash.  The Proposed Rule sets out four requirements that must be met to protect such remuneration:  (1) the items or services may not be offered as part of any advertisement or solicitation; (2) they may not be tied to the provision of other items or services reimbursed in whole or in part by Medicare or Medicaid; (3) there must be a reasonable connection between the items or services and the medical care of the individual; and (4) there is a good faith determination of financial need.  The “reasonable connection” requirement would have a financial component, so that an item with a value that is disproportionate to the benefit — for example, a smart phone loaded with an app for management of blood sugar levels – would not be considered to have a “reasonable connection” to medical care.  Financial need would not be defined, but the preamble explains that a good faith determination requires use of a reasonable set of income guidelines, uniformly applied.  Financial hardship need be limited to indigence.

The preamble provides examples of items or services that may qualify as reasonably connected to medical care under this proposed exception. These include:

  • protective helmets and safety gear to hemophiliac children
  • pagers to alert patients with chronic medical conditions to take their drugs
  • free blood pressure checks to hypertensive patients
  • free nutritional supplements to malnourished patients with end-stage renal disease
  • provision of air conditioners to asthmatic patients

Nothing in the proposed rule or preamble suggests that items or services provided by a drug or device manufacturer would be ineligible for this exclusion, as long as the four conditions of the rule were met.  Note, however, that free or discounted items conditioned on the use of a particular manufacturer’s drug or device would probably be considered to violate requirement (2), above (no tie to other reimbursable items).

Coupons or rewards from a retailer:  To implement another exception to the beneficiary inducement CMP added by the ACA, the OIG would exclude from the definition of “remuneration” a coupon, rebate, or reward offered by a retailer, if it is offered on equal terms available to the general public regardless of health insurance status, and if it is not tied to the provision of other items or services reimbursed under Medicare or Medicaid.  The preamble indicates that a coupon offered by a retailer that could only be used only to reduce cost-sharing on the purchase of a federally reimbursable drug or device would not meet the “no-tying” limitation, but a coupon that could be redeemed on anything purchased in the store, including cost-sharing on federally reimbursed items, would be permissible.

Other CMP provisions:  In addition, the Proposed Rule would:

  • Implement a statutory exception to the definition of “remuneration” in the beneficiary inducement CMP for a waiver by a Part D Plan sponsor of the copayment owed by enrollees for the first fill of covered generic drug.
  • Implement another statutory exception to the definition of “remuneration” for reductions in copayment amounts for covered hospital outpatient department services.
  • Implement a statutory prohibition on gainsharing arrangements (see 42 U.S.C. § 1320a-7a(b)), but the OIG solicits comments on whether certain types of “reduction[s] or limitation[s] of services” should be exempted to permit initiatives to improve the quality and efficiency of care.

Comment Deadline

Comments on the Proposed Rule are due by December 2, 2014.  Drug and device manufacturers should consider commenting on the provisions identified above that could protect manufacturer programs that enhance treatment or access to care without adversely affecting Federal programs – particularly the proposed beneficiary inducement CMP exception for items and services that promote access and have a low risk of harm and the financial-need-based exception.

Categories: Health Care