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March 01, 2019

Patient Assistance Programs: History and Pharmaceutical Settlements

Danielle Trostorff, Baker Donelson Bearman Caldwell & Berkowitz, P.C., New Orleans, LA


Patient assistance programs (PAPs) have been around for years, and the government has expressed concern about them for a while, but there has been a recent uptick in enforcement.

PAPs are offered to help defray the costs of drugs for patients of limited means who do not have health insurance coverage for drugs.  These patients often have chronic illnesses, and the cost of the drugs for these illnesses tends to be high.  PAPs typically are offered directly or indirectly by a pharmaceutical manufacturer.  The PAP may be directly or indirectly operated or controlled by a pharmaceutical manufacturer or its affiliates, which may include any employee, agent, officer, shareholder or contractor (including without limitation, any wholesaler, distributor, or pharmacy benefit manager). Many pharmaceutical manufacturers have sponsored PAPs that assist patients whose outpatient prescription drugs were not covered by insurance. This is considered a safety net to patients who otherwise would not be able to pay for and thus would not have access to the prescription drug essential to their care.  The pharmaceutical manufacturer would either provide (1) the drug free or at a reduced cost,  (2) product coupons, or (3) copayment assistance.

With the introduction of Part D coverage in 2006, patients could enroll in Part D and would no longer qualify for PAP since they had insurance coverage.  However, since patients under Part D do incur cost-sharing (including deductibles and copayments), low income financially needy beneficiaries can still qualify for subsidies that will reduce or eliminate their financial obligation.1  As it relates to Part D and other Medicare programs, such as Part B,  Medicare Supplementary health Insurance ("Medigap") and Medicare Advantage, beneficiaries may count assistance from any source other than group health plans, other insurers and government funded health programs, and similar third party payment arrangements toward their true out of pocket costs (known as TrOOP).  However, where the manufacturer offers subsidies tied to its products, the federal Anti-Kickback Statute (AKS) is implicated.  Likewise, subsidies provided by manufacturers can have the effect of locking a beneficiary to a product even if there is a less costly alternative. This kind of steering is also problematic under the AKS.

OIG Provides AKS Guidance

The Department of Health and Human Services’ Office of Inspector General (OIG) issued a Special Advisory Bulletin in November 2005 on PAPs for Medicare Part D enrollees (Advisory Bulletin).2 The Advisory Bulletin made clear that neither the Part D Program  (not yet implemented) or any OIG laws or regulations prevented pharmaceutical companies or others from providing assistance to uninsured patients through cash subsidies or free drugs.  Nor did it prevent pharmacies from waiving cost-sharing amounts based on good faith, or an individualized assessment of financial need (or failure of reasonable collection efforts) so long as the waiver is neither routine or advertised.

The OIG sought to provide guidance for methods of providing assistance that would "mitigate or vitiate the potential for fraud and abuse."3  It made clear that PAPs offering cost-sharing subsidies did fall under heightened scrutiny under the AKS based on the concern that these sorts of arrangements could be construed as inducement to purchase drugs paid for by the federal healthcare programs or have the result of steering patients to particular providers, suppliers or practitioners who would prescribe the pharmaceutical manufacturers drugs, increasing cost to the Medicare, Medicaid and Medicare Advantage programs.4 However, "cost sharing subsidies provided by bona fide independent charities unaffiliated with pharmaceutical manufacturers should not raise anti-kickback concerns, even if the charities receive manufacturer contributions."5

The Special Advisory Bulletin set forth the five parameters under which cost-sharing subsidies provided by bona fide  independent charities unaffiliated with pharmaceutical manufacturers could continue to be offered to needy patients, including certain Medicare Part D beneficiaries. The parameters are: (1) the pharmaceutical manufacturer or its affiliate may not exert direct or indirect influence or control over the charity or subsidiary program; (2) the charity awards assistance which is truly independent and severs any link between the manufacturer's funding and the beneficiary; (3) the charity awards assistance without regard to the manufacturer's interest and without regard to a beneficiary's choice of product, provider or practitioner; (4) the charity provides assistance based on  consistent, reasonable, verifiable, and uniform measures of financial need; and (5) the manufacturer does not solicit or receive data from the charity that would facilitate the manufacturer's being able to correlate the amount of its donations with the number of subsidized prescriptions of its products.6

The Advisory Bulletin was supplemented in May 2014 (the Supplemental Bulletin) to further elucidate the parameters of PAPs offered by charities to federal program beneficiaries in financial need.7  While recognizing the importance of the safety net, the OIG continued to be concerned about unlawful kickbacks, the submission of false claims in violation of the False Claims Act and related federal and state laws.

The OIG outlined two remunerative aspects of PAP arrangements which require scrutiny under the AKS: (1) donor contributions to PAPs (analyzed as indirect remuneration to patients)  and (2) PAP grants to patients.  "If a donation is made to a PAP to induce the PAP to recommend or arrange for the purchase of the donor's federally reimbursable items, the statute could be violated. Similarly, if a PAP's grant of financial assistance to a patient is made to influence the patient's physician to prescribe certain items, the statute could also be violated." 8

The OIG also issued a Special Advisory Bulletin in September 2014 on pharmaceutical manufacturer copayment coupons which could implicate the AKS, False Claims Act and other federal and state laws. Typically copayment coupons cannot be used by beneficiaries of federal healthcare programs.  The OIG advised that manufacturers which did not comply with the law "may be subject to sanctions if they fail to take appropriate steps to ensure that such coupons do not induce the purchase of Federal health care program items or services, including, but not limited to, drugs paid for by Medicare Part D.  Failure to take such steps may be evidence of intent to induce the purchase of drugs paid for by these programs, in violations of the anti-kickback statute."9   

On October 29, 2004 the OIG issued an Advisory Opinion, No. 04-15, which was a favorable opinion to an independent charity regarding its PAP.  On August 29, 2008 it modified that opinion to permit the charity to provide aggregate applicant data to donors and to modify the standard donation agreement to permit donors to terminate participation and to expand the charity's operations to provide assistance in other disease categories.  On May 21, 2014 the OIG sent the charity a letter in light of its  Supplemental  Bulletin regarding independent charity PAPs to require the charity to make additional certifications to retain its favorable advisory opinion.  On Dec. 30, 2015, the OIG confirmed in light of the Charity's response to the OIG’s concerns that the charity would retain its favorable opinion.

In contrast, in 2006 the OIG issued a favorable advisory opinion to Caring Voice Coalition (CVC) regarding its PAP.10  The OIG also sent CVC a  letter in May 2014 requiring CVC to  make additional certifications to come into compliance with the Supplemental Bulletin. CVC addressed the OIG concerns and certified it would comply with the OIG longstanding guidance on the proper structuring of a PAP, including the parameters previously outlined in the 2005 Special Advisory Bulletin on PAPs for Medicare Part D enrollees. Based on CVC's response to the OIG’s concerns, the OIG issued a modification to the 2006 Advisory Opinion on December  23, 2015 and CVC retained its favorable opinion.  However, on November 28, 2017 the OIG rescinded its Advisory Opinion as supplemented, determining that CVC failed to comply with certain factual certifications and failed to fully, completely, and accurately disclose all relevant and material facts to the OIG in accordance with 42 C.F.R. § 1008.45.

On January 4, 2018,  the OIG issued a guidance letter to the Pharmaceutical Research and Manufacturers of America (PhRMA) for PhRMA and its members in response to the notice by CVC that it would not provide patient assistance in 2018.  The guidance explained the effect of the rescission of the Advisory Opinion to CVC for 2018 beneficiaries impacted by CVC's decision who rely on the  subsidies for their medications. "The Office of Inspector General (OIG) will not pursue administrative sanctions against any Drug companies for providing free drugs during 2018 to Federal health care program beneficiaries who were receiving cost sharing support for those drugs from CVC as of November 28, 2017, as long as the Drug Company complies with the safeguards described in this letter.”11  The drug companies providing free drugs in 2018 to federal program beneficiaries who were receiving cost sharing support from CVC as of Nov. 28, 2017 would not be subject to OIG administrative sanctions if they followed five conditions.

Department of Justice Activity

The DOJ has been investigating pharmaceutical manufacturers regarding their donations to  charitable organizations offering cost sharing subsidies to needy beneficiaries. In September 2017, the U. S. Attorney's Office for the District of Massachusetts (USAO-MA) settled criminal and civil False Claims Act allegations with Aegerion Pharmaceuticals.12  The civil settlement required Aegerion to pay $28.8 million over a three year period ($26.1 million federal portion and $2.7 million state portion) to resolve, among other things, the alleged kickback allegation regarding funneling funds to a PAP to defray patient copayments for their use of Juxtapid, a drug used to treat Homozygous Familial Hypercholesterolemia  HoFH, a condition which causes high cholesterol.13  A five year corporate integrity agreement with Independent Review Organization (IRO) reviews and compliance-related Board and company executives certifications was required. Aegerion, a subsidiary of Novelion Therapeutics, Inc., also agreed to a deferred prosecution agreement to resolve a felony charge regarding the Health Insurance Portability and Accountability Act (HIPAA), and entered into a plea agreement relating to allegations of (1) misbranding and (2) that it had failed to give healthcare providers complete and accurate information about  the treatment for  HoFH  and how to diagnose it, and filed a misleading Risk Evaluation and Mitigation Strategy (REMS) assessment report regarding the safe use of Juxtapid.  The USAO-MA further alleged a violation involving marketing and sales of Juxtapid for cholesterol in addition to (HoFH) without adequate instruction for use.  The plea agreement included payment of a criminal fine and forfeiture of $7.2 million.14

DOJ activity in this area has not abated. In December 2017 the DOJ settled with United Therapeutics for $210 million to resolve allegations that it used a foundation to pay copayments for Part B and Part D recipients for its drugs allegedly in violation of the False Claims Act. The DOJ characterized the payments as alleged kickbacks.  In April 2018 the DOJ reached a settlement in principle with Jazz Pharmaceuticals which has set aside $57 million to resolve its PAP allegations. In May 2018, the DOJ settled  with Pfizer for $23.85 million to resolve issues regarding its use of a charitable foundation to defray Part B and Part D beneficiary copayments for three Pfizer drugs.  In June  2018, the USAO-MA  reached a settlement in principle with Lundbeck LLC for $52.6 million relating to its relationship and donations to independent charitable foundations providing assistance to patients utilizing Lundbeck drugs and to the sales and marketing practices for two of Lundbeck drugs.


PAPs can provide great benefit to patients in financial need, but can run the risk of violating the fraud and abuse laws if not properly structured and administered. It is imperative that pharmaceutical manufacturers, bona fide independent charitable foundations, and others with PAPs adhere to the guidance for offering free or subsidized drugs to federal healthcare program beneficiaries.

  1. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) included a safe harbor incorporating criteria for waivers of cost sharing amounts  for Part D drugs.  The safe harbor also protects cost-sharing waivers offered to individuals who qualify for low income subsidies, even if the waivers are routine and do not follow an individualized determination of financial need, provided they are not advertised.  See Section 1866D-42 of the MMA, codified at 42 U.S.C. § 1320a-7b(b)(3)(G).; See also 42 C.F.R. § 423.782. 
  2.  OIG Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees, 70 Fed. Reg. 70623 (Nov. 22, 2005).
  3.  70 Fed. Reg. 70624 (Nov. 22, 2005).
  4.  Prior guidance on the anti-kickback concerns can be found in the 2002 OIG Special Advisory Bulletin on Offering Gifts and Other Inducements to Medicare beneficiaries, the AKS, § 1128B(b) of the Social Security Act (SSA), and the provision of the Civil Monetary Penalties Law prohibiting inducements to Medicare and Medicaid beneficiaries, § 1128A(a)(5) of the SSA as well as risk areas under the False Claims Act. or other federal and state laws.  The guidance also builds on an Advisory Opinion issued in 2002 regarding a nonprofit charitable organization that wanted to subsidize the cost of medical care of financially needy Medicare beneficiaries.
  5.  70 Fed. Reg. 70624, (Nov. 22, 2005).
  6.  Advisory Opinion No. 02-1. The OIG does permit the  PAP charity  to report to drug manufacturers aggregate data about the number of all applicants for assistance in a disease category and the number of patients qualifying for assistance in the disease category.
  7.  Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs, 79 Fed. Reg. 31120 (May 30, 2014).
  8.  79 Fed. Reg. 31121 (May 30, 2014).
  10.  Advisory Opinion No. 06-04 (April 20, 2006).
  11.  See Letter from  Gregory E. Demske, Chief Counsel to the Inspector General, OIG to J. Stansel, PhRMA dated June 4, 2018.  The five conditions were as follows: "[1] The five drugs are provided in a uniform and consistent manner to Federal health care program beneficiaries who: (i) were receiving cost sharing assistance from CVC for the same drug(s) as of November 28, 2017; and (ii) have been impacted by CVC's decision not to provide assistance in 2018. [2] the free drugs are awarded without regard to the beneficiary's choice of provider, practitioner, supplier, or health plan. (footnote omitted relating to not directing patient to a particular pharmacy which might have implicated the civil monetary penalty inducement prohibition under the anti-kickback law). [3] The free drugs are not billed to any Federal health care program, counted toward the beneficiary's Medicare Part D true out-of-pocket (TrOOP), resold, or otherwise billed to a third-party payor. [4] The provision of the free drugs is not contingent on any future purchases or orders of the drugs or any other item or service. [5] The Drug Company maintains accurate, contemporaneous, and complete records of the free drugs it furnishes to Federal health care program beneficiaries."
  12.  The civil false claims settlement resolves a whistleblower qui tam case brought by three former employees of Aegerion. United States ex rel. Clarke, et al. v. Aegerion Pharmaceuticals, Inc. No. 13-CV-11785 (D. Mass.).
  13.  The allegations included allegations related to alteration or falsification of statements of medical necessity and prior authorization, failure to give proper instruction regarding diagnosis and use of Juxtapid, marketing and sales allegations for use of Juxtapid not only for treatment of HoFH but for high cholesterol, among others.
  14.  The plea agreement can be found at also entered into a separate civil consent decree to resolve Federal Food, Drug, and Cosmetic Act (FDCA)  liability regarding alleged "failure to comply with requirements of the REMS program and distribution of Juxtapid with labeling which lacked adequate directions for all of Juxtapid's intended uses." See Department of Justice Press Release dated September 22, 2017.

Danielle Trostorff

Baker Donelson Bearman Caldwell & Berkowitz, P.C.

Danielle Trostorff is a Shareholder with Baker Donelson, Bearman, Caldwell & Berkowitz, New Orleans. She focuses her practice on handling healthcare regulatory matters, transactions, Medicare/Medicaid and third-party reimbursement claims, and cost reporting appeals and audits (including RAC, ZPIC, RADV, OIG, CMS and other contract auditor reviews). She has experience with contracts, mergers and acquisitions, medical staff credentialing, fair hearings, NPDB, HCQIA, and medical staff bylaws matters, government and government payor audits and investigations, enforcement actions and suspensions, False Claims Act and qui tam matters as well as EMTALA, HIPAA, e-health, survey, fast track termination, licensing and certification, CHOW, ACO, Value Based Purchasing, fraud and abuse and Stark law, voluntary disclosures, and other compliance issues.  She represents all types of healthcare providers and suppliers, as well as pharmaceutical and Medicare Advantage Plans. She handles matters before the Provider Reimbursement Review Board and other administrative review bodies, CMS, the OIG, federal AUSAs, state Medicaid fraud units and federal courts. She has been listed in Best Lawyers in America® in healthcare since 1993, Louisiana Super Lawyers in healthcare since 2007 and the 2016 – 2019 editions of Chambers USA. She was named Best Lawyers in America® Lawyer of the Year in New Orleans in Health Care Law in 2013.  She may be reached at [email protected].