Can a pharmaceutical manufacturer provide free items or services to financially needy Medicare and Medicaid beneficiaries without running afoul of the Beneficiary Inducements Civil Monetary Penalty (CMP) or the Anti-Kickback Statute (AKS)? The unsatisfying answer is: It depends. Although the Department of Health and Human Services Office of the Inspector General (OIG) utilizes a predictable analysis, weighing many of the same key factors over and over, the outcome for any given proposal is fact-dependent. Nonetheless, with each advisory opinion, the OIG sheds additional light on how it approaches these difficult questions. Its latest advisory opinion is no exception.
Advisory Opinion 19-02, issued on January 24, applies the “Promotes Access to Care Exception” of the Beneficiary Inducements CMP and advises that, under certain circumstances, a pharmaceutical manufacturer can loan financially needy patients a smartphone in connection with their use of the manufacturer’s digital medication. Although limited to the particular circumstances presented, this advisory opinion has implications for manufacturers of digital medicines, as well as for more traditional manufacturers, providers and suppliers that seek to assist needy patients.
Background and Proposed Arrangement
The requestor of the advisory opinion is an unnamed affiliate of a global pharmaceutical manufacturer that developed an FDA-approved drug and recently received FDA approval for a “digital medicine” version of the drug. The digital medicine version of the drug consists of a tablet of the drug embedded with a sensor that, when ingested, transmits a mild electrophysiological signal to a wearable sensor on the patient’s abdomen. The wearable sensor records data such as whether the patient ingested the drug and also certain indicators regarding the patient’s rest and activity patterns. That information is then sent via Bluetooth to an application on the patient’s smartphone and is uploaded to a secure, cloud-based server. With the patient’s consent, the patient’s health care providers and/or caregivers can access the information through web-based portals.
Because proper use of the digital medicine requires the patient to possess a smartphone capable of running the application, the requestor proposed to loan refurbished, older-model smartphones with limited functionality to certain financially needy patients who did not have the technology necessary to receive the data from the sensor. The requestor carefully structured the proposed loaner program with various safeguards to limit both the smartphone’s independent value to the patient and its potential to induce referrals. For example, the patients participating in the loaner program would have to have a prescription for an on-label use, and they would also have to meet certain objective financial necessity standards. The smartphone’s functionality would be deactivated except to run the application and to make domestic telephone calls, which are necessary for patients to access support for the digital medicine system. Patients would use the loaner device for no more than two 12-week treatment periods. In addition, the manufacturer would not advertise the availability of a loaner smartphone to patients. Rather, as part of the manufacturer’s regular provider education about the digital medicine, it would give information to potential prescribers regarding how to screen potential applicants appropriately. The prescribers would complete enrollment forms on behalf of previously screened patients. Finally, the prescribers would not receive any remuneration or reimbursement for their role in prescribing the digital medicine or onboarding patients into the proposed loaner program.
The OIG concluded that, even though most of the smartphone’s features would be disabled, the device still had the ability to make domestic calls and, therefore, provided something of value to patients, implicating both the Beneficiary Inducements CMP and the AKS.
Beneficiary Inducements CMP
The Beneficiary Inducements CMP imposes civil penalties on a person who offers remuneration to a Medicare or Medicaid beneficiary if the person knows or should know that the remuneration is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier. The OIG acknowledged that it does not typically consider a drug manufacturer to be a “provider, practitioner or supplier” for purposes of the Beneficiary Inducements CMP, but concluded that the provision was still implicated because the loaner program could be likely to influence a patient to select the particular prescriber or pharmacy involved in helping the patient to obtain the loaner phone. The OIG then determined that the proposed arrangement as structured satisfied all the criteria of the “Promotes Access to Care Exception” to the Beneficiary Inducements CMP.
The CMP defines “remuneration” as “transfers of items or services for free or for other than fair market value.” Under the “Promotes Access to Care Exception,” the term “remuneration” does not include:
Items or services that improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, and pose a low risk of harm to Medicare and Medicaid beneficiaries and the Medicare and Medicaid programs by – (i) Being unlikely to interfere with, or skew, clinical decision making; (ii) Being unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (iii) Not raising patient safety or quality-of-care concerns[.]
42 C.F.R. § 1003.110 (2017) (defining “remuneration”).
The advisory opinion addressed each of the relevant factors. First, the OIG found that the proposed arrangement would improve access to items payable by Medicare or Medicaid because the digital medicine requires a device capable of running the relevant application and, thus, the loaner device would improve the patient’s ability to access the full scope of the digital medicine’s benefits. Second, the OIG concluded that the arrangement would not interfere with clinical decision making, as a limited-use smartphone to transmit drug-related data would not skew a prescribing decision. Third, the OIG concluded that the arrangement would not be likely to drive overutilization or inappropriate utilization, as the provision of a limited-use smartphone to certain low-income patients would not likely be the determining factor in choosing a digital medication over a lower-cost alternative. And fourth, the OIG found that the arrangement would not pose patient safety or quality-of-care concerns, as the loaner device would, in fact, have the opposite effect by enabling the patient and prescriber to track adherence.
The OIG also considered whether the proposed arrangement could influence a person to select an item or service reimbursable by the federal health care programs in violation of the AKS. The OIG concluded that, although this additional risk was not specifically addressed in its analysis of the “Promotes Access to Care Exception” of the CMP, the same analysis applies. The OIG highlighted that “the Loaner Device would be integrally related to the  Drug and would be available, on a temporary basis, only to those patients for whom their provider deemed the  Drug necessary and who otherwise would not be able to use the  Drug because they lack compatible technology.” Moreover, the proposed arrangement would not be advertised to patients so it would be unlikely that patients would self-refer for the purpose of obtaining a loaner phone. Given those safeguards, the OIG concluded that it would not subject the manufacturer to administrative sanctions under the AKS based on the circumstances described.
This advisory opinion offers a potential path forward for manufacturers of digital medicines as they develop programs to help needy patients access the appropriate technology needed to benefit from cutting-edge products and therapies, as well as for more traditional manufacturers, providers and suppliers that seek to assist needy patients more generally.
When considering providing a free service or product to a beneficiary, manufacturers, suppliers and providers should consider whether the proposed arrangement can be structured in a way to fall within the “Promotes Access to Care Exception” to the Beneficiary Inducements CMP.
Even if the “Promotes Access to Care Exception” applies, parties must still carefully consider the potential AKS implications because the exception does not necessarily apply in the AKS context. Therefore, the proposed arrangement must also be sufficiently low risk under the AKS (or meet the requirements of an AKS safe harbor).
Kate A. Stanley, Judith L. O'Grady and Jan P. Levine are members of Pepper Hamilton’s Health Sciences Department, a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.