HHS OIG Issues Unfavorable Opinion Regarding Drug Company’s Plan to Provide Hospitals Free Medications

On November 16, 2018, the Office of the Inspector General of the Department of Health and Human Services (HHS-OIG) released Advisory Opinion No. 18-14. The opinion was written in response to a Requestor’s proposal that it provide free doses of a commonly used drug it manufactures to hospitals for treatment of inpatients with a specific form of epilepsy. Typically, the drug is not separately reimbursable in the inpatient setting and therefore, many hospitals do not keep a sufficient quantity in stock and are hesitant to administer the drug due to insufficient reimbursement from government and commercial payors.

Under the Proposed Arrangement, the Requestor would keep the drug stocked at hospitals for the exclusive use by inpatients suffering from the specific severe form of epilepsy. The Requestor would also provide additional dosages of the drug for patients during the entire admission to the hospital and following discharge so long as their personal insurance does not cover the drug, because an abruptly stopping the medication would have adverse effects on the patient.

HHS-OIG issued the unfavorable Opinion, explaining that the Proposed Arrangement implicated the federal anti-kickback statute (AKS) because the drug would be considered remuneration to the hospitals, which could then serve as a source of referrals for the drug. Additionally, HHS-OIG felt that by providing the drug to the hospitals at no cost, the Requestor could induce the hospitals to continue to purchase or recommend future purchases of the drug. This is especially true here where there are health consequences to abruptly discontinuing the drug and there is only one other drug on the market that can treat the epileptic condition.

HHS-OIG also gave the following reasons for its belief that the Proposed Arrangement would present a substantial risk of fraud and abuse under the AKS:

• Providing the drug for free would relieve a hospital of the significant financial burden of stocking the drug;
• The Federal health care programs would not experience the same financial saving that the hospitals would under the Proposed Arrangement because the drug is included in a bundled payment and the reimbursement amount would not change;
• The Proposed Arrangement could be a “seeding arrangement” by offering the drug for free to a small subset of patients while retaining a high price for all other patients;
• Hospitals could influence patients to consider the drug as a first option thereby resulting in unfair competition;
• The Requestor would not provide continued free vials of the drug to patients who are discharged and have insurance coverage; yet, the Requestor certified that discontinuation of the course of treatment has potential adverse consequences.

Further, HHS-OIG was not convinced that the Requestor needed to provide the drug free of charge to avoid delays in administration. The OIG pointed out that the Requestor could place the drug on consignment at the hospitals and charge the hospitals when the drug is used, thus negating concerns about delays.

For a more in-depth review and analysis of the HHS OIG’s decision, see this month’s edition of our sister publication, Policy & Medicine Compliance Update.