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OIG Approves Manufacturer’s Direct-to-Patient Discount Sales Program

Written by:  Carrie A. Roll and Theresa C. Carnegie

The Office of Inspector General (“OIG”) recently posted an Advisory Opinion approving a pharmaceutical manufacturer’s direct-to-patient product sales program. While this Advisory Opinion cannot be relied upon by anyone other than the requestor, it potentially opens the door for manufacturers to develop similar direct-to-patient discount arrangements for brand name drugs facing generic competition.


Under the arrangement, the pharmaceutical manufacturer sells one of its brand name drugs (for which there is a generic equivalent) at a discount to any patient who has a valid prescription for the product. The discounted sales price for a 30-day supply of the drug product is much lower than the manufacturer’s wholesale acquisition cost (“WAC”). The patient may be uninsured, have commercial insurance, or be insured by a federal health care program – including Medicare or Medicaid. The patient pays for the drug out-of-pocket and no insurer – governmental or non-governmental – is charged for the cost of the drug. Additionally, Part D patients cannot include the amounts they pay for the product under the arrangement in any submission for true-out-of-pocket expense (“TrOOP”) calculations under a prescription drug plan.

According to the manufacturer, the arrangement operates entirely outside of all federal health care programs. The pharmacy under contract with the manufacturer to dispense the product under this arrangement is prohibited from filing any claim for payment under any federal health care program or any commercial prescription drug insurance plan. All patients must be processed as cash-paying customers. The pharmacy collects the cash payment and sends the full amount of the cash payment to the manufacturer. In turn, the pharmacy is paid a flat fee for its services. The manufacturer does not directly advertise the program to the patients. Patients hear of the arrangement from their health care professionals and the manufacturer’s website.

OIG Analysis

The OIG concluded that although the arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute (the “Kickback Statute”), the arrangement presented a minimal risk of fraud and abuse and the OIG would not impose administrative sanctions for the following reasons:

  • No marketing of federally reimbursable products. The manufacturer certified that it would not use the discount offered under the arrangement as a vehicle to market its other federally reimbursable products or allow the pharmacy to attempt to influence patients to choose the pharmacy as its supplier for other federally reimbursable products. Thus, the arrangement is distinct from problematic “carve-out” arrangements.
  • Limited coverage of the product. The arrangement involves a product not included on most plan formularies because of the availability of generic equivalents. Most Part D beneficiaries do not have coverage for the product and likely could not purchase the product through Medicare Part D if the arrangement were terminated.
  • No risk of increased costs to federal health care programs. Because the product has generic equivalents, federal health care programs would not be forced to pay for more expensive drugs if the direct-to-patient product sales program ended.
  • No inducement for prescribers to switch to the product. The manufacturer certified that the pharmacy filling the prescriptions for the manufacturer under the arrangement must refrain from offering any inducement to a healthcare provider to prescribe or switch participants to the product or the manufacturer’s other products. The OIG noted that the manufacturer could audit the pharmacy to confirm compliance with this requirement.
  • No federal payments implicated. The main factor in the OIG’s analysis pointing toward a minimal risk of fraud and abuse was the fact that the arrangement would operate entirely apart from any federal program and thus no federal dollars would be involved – even for purposes of tracking Medicare Part D TrOOP spending.
  • Payments to pharmacy are fair market value. The manufacturer certified that all fees paid to the pharmacy are arm’s-length and fair market value. The OIG noted that these fees are not reimbursable by federal health care programs and, therefore, are less likely to be remuneration to induce referrals.

An Alternative to Controversial Co-Pay Assistance Programs?

This favorable Advisory Opinion allows pharmaceutical manufacturers the opportunity to explore direct-to-patient discount programs for their brand name drugs facing a loss of market share due to generic competition.  Such programs may be a valuable alternative to the pharmaceutical industry’s current use of controversial co-pay assistance and coupon programs that have been criticized by health plans and have been the subject of litigation.  We may also see such programs grow as pharmacy benefit managers continue to exclude more and more brand name drugs from their formularies. 

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Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.