OIG denies proposed manufacturer-sponsored copay support program for Medicare beneficiaries

On September 23, the HHS OIG published Advisory Opinion No. 20-05, advising that OIG found “highly suspect” a manufacturer’s proposal to create a copay subsidy program to help certain financially eligible Medicare beneficiaries pay for the bulk of their out-of-pocket costs for two of the manufacturer’s pharmaceutical products. OIG’s response is consistent with its previous guidance, suggesting there are lawful avenues for pharmaceutical manufacturers and others to help ensure all Part D beneficiaries can afford medically necessary drugs, including properly structured arrangements with independent charities providing financial assistance. But citing concerns with perceived high costs of the products at issue, OIG ultimately concludes there was "more than a minimal risk" that the proposed arrangement would improperly induce beneficiaries to purchase the manufacturer’s products in violation of the Anti-Kickback Statute (AKS). This negative advisory opinion marks the latest turn in the national debate about whether manufacturer patient support programs contribute to rising drug costs.

The products and the proposed subsidy program

The products at issue are two forms of a drug approved to treat an unidentified disease and are the only approved pharmaceutical treatments for the disease. The majority of patients with the disease are Medicare beneficiaries. The list price for the products is $225,000 per year, which for Medicare beneficiaries enrolled in the standard Part D benefit amounts to approximately $13,000 in annual out-of-pocket expenditures. In its request for an advisory opinion, the manufacturer explained that these out-of-pocket costs are a financial impediment for a substantial portion of the Medicare population, preventing them from purchasing the products.

To address this impediment, the manufacturer proposed a copay Subsidy Program that would cap out-of-pocket expenses for eligible patients at $35 per fill. Eligibility for the Subsidy Program would have been limited to Medicare Part D beneficiaries who met financial eligibility criteria, set as a household income between 500% and 800% of the Federal Poverty Level (FPL).[1] The Subsidy Program would cover 100% of the beneficiary’s cost-sharing obligations for the manufacturer’s products, above the monthly copayment of up to $35 per fill. The manufacturer further proposed to operate the Subsidy Program in a manner consistent with current commercial copay assistance programs, with a third-party vendor support hub responsible for confirming patient eligibility and conducting benefits investigations and alternative funding searches. Once eligibility and enrollment were confirmed, beneficiaries would receive a physical copay card and/or a personal identification number that the beneficiary would use at the point of sale to receive cost-sharing assistance when purchasing products from one of certain dispensing pharmacies authorized by the manufacturer.

OIG remains concerned that manufacturer support for Medicare beneficiary’s cost-sharing obligations removes important safeguard against rising drug costs

In addition to the information the manufacturer submitted about the proposed Subsidy Program, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) took the unusual step of considering public information about the manufacturer’s products, with an emphasis on public information about their cost and the potential impacts of that cost on the Medicare program. OIG noted a common theme in its decision and recent enforcement actions involving manufacturer relationships with independent charitable foundations – namely, the government’s concern that pharmaceutical manufacturers blunt the impact of patient cost sharing to induce patients to fill prescriptions for costly medications, which in turn, removes a potential downward pressure on the price of the drugs.

Consistent with previous analyses on this topic, OIG concluded that the proposed Subsidy Program would operate as a quid pro quo in violation of the AKS – the manufacturer would offer remuneration, in the form of copay assistance, to the beneficiary in return for the beneficiary purchasing one of the manufacturer’s products. OIG rejected the manufacturer’s argument that, because the copay assistance is available only after an on-label prescription is made, the Subsidy Program does not improperly induce the underlying prescribing decision. Rather, OIG reasoned that the removal of the financial impediment, which the manufacturer acknowledged served as a barrier for many beneficiaries to purchasing the product and that influenced physician’s choice in treatment, constituted both remuneration and an inducement to the beneficiary in potential violation of the AKS.

In support of this conclusion, OIG explained that the Subsidy Program presents many of the traditional risks of fraud and abuse that the AKS is designed to prevent, including:

  • Risk of improper increased costs to the Medicare program. OIG acknowledged that the fact a new treatment will generate costs to the Federal health care programs is not relevant to the analysis. But in taking into account what it considered to be the high cost of the products in question, OIG noted that "where the projected costs are derived from pricing terms that necessitate the subsidization of cost-sharing obligations for beneficiaries, information about the projected costs is directly relevant to our analysis." Thus, OIG concluded that the Subsidy Program could improperly increase overall costs to the Medicare program by insulating Medicare beneficiaries from the significant economic effects of the cost of the products, thereby abrogating a market safeguard that Congress included in Part D to protect against inflated drug prices. OIG also calculated that approximately 91% of Medicare beneficiaries have a household income below 800% of the FPL, which is the upper income threshold of the proposed Subsidy Program. Taken in conjunction with the manufacturer’s free product program for beneficiaries below 500% FPL and the Medicare Program’s Low Income Subsidy for a subset of those patients, these financial eligibility criteria mean all but approximately 9% of Medicare beneficiaries who are prescribed one of the manufacturer’s products would be able to purchase it without incurring any significant out-of-pocket costs. For a product with a $225,000 per year price tag, OIG explained that removing these financial barriers – which would otherwise serve as a check on high drug prices – would create the risk of improper increased costs to the Medicare program.

  • Risk of patient steering and anti-competitive effects. OIG also expressed concerns that patients and treating physicians would consider the cost of the manufacturer’s products, as well as the availability of the Subsidy Program, when considering treatment options. That the manufacturer’s products are the only FDA-approved therapies for the disease, or that the alternatives were either not feasible options for many beneficiaries (in the case of organ transplants), or had even higher list prices (for the two off-label pharmacological treatments), did not alleviate any of OIG’s concerns about the Subsidy Program. OIG concluded that the Subsidy Program would present more than a minimal risk of steering beneficiaries to, and locking them into, the manufacturer’s products, thus creating anti-competitive effects against alternative treatments and potential alternative pharmaceutical products when those become available.

  • Potential effects on clinical decision making. For similar reasons, OIG observed that some, if not most, physicians would consider a patient’s out-of-pocket costs when deciding whether to prescribe the manufacturer’s products, and the availability of the Subsidy Program could mean those physicians would prescribe the manufacturer’s products over alternative treatments.

OIG concluded Subsidy Program does not implicate Beneficiary Inducement Law

OIG also analyzed the Subsidy Program under the Beneficiary Inducements Civil Monetary Penalty (CMP). First, OIG concluded that although the Subsidy Program is remuneration to a beneficiary, Beneficiary Inducement CMP does not apply to the manufacturer because pharmaceutical manufacturers are not typically “providers, practitioners, or suppliers” within the meaning of the CMP unless they also own or operate pharmacies, pharmacy benefit management companies, or other entities that submit claims to the Medicare or Medicaid programs. Second, OIG concluded that because the Subsidy Program would be available to any beneficiary regardless of treating physician, it would not influence the choice of provider or practitioner. Similarly, Subsidy Program eligibility would not be contingent upon the use of a particular pharmacy, and the OIG found adequate the program’s safeguards to ensure the allocation of prescriptions to pharmacies would be based solely on beneficiary or plan preference, or random assignment. For these reasons, although the OIG found the proposed Subsidy Program would be in violation of the AKS, it did not also present problems under the Beneficiary Inducements CMP.


If you have any questions on this advisory opinion or manufacturer-sponsored copay support programs more generally, please contact any of the authors of this alert or the Hogan Lovells attorney with whom you work most closely.


Authored by Ron Wisor, Eliza Andonova, Tom Beimers, David Thiess, and Laura Hunter


[1] Under the proposed program, beneficiaries with income below 500% FPL who are not eligible for other financial assistance, including the Medicare Low Income Subsidy Program, would remain eligible for the manufacturer’s free product patient assistance program


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