Free Drug Starter Programs Are Not All Alike

Although free drug starter programs are commonplace in the specialty pharmacy space, they vary widely in the marketplace. From a legal perspective, each program requires a unique analysis that is highly dependent on the specific facts and circumstances of the offer.

A recent, strongly unfavorable advisory opinion (AO) by the US Department of Health & Human Services Office of Inspector General (OIG) highlighted that regulatory analysis is greatly informed by the particular circumstances of the program. Also, contrasting the unfavorable AO against previous favorable free drug AOs can help identify the characteristics that are more or less likely to be deemed at high risk of fraud and abuse. Although specialty pharmacies are not often involved with the construction of free drug programs, understanding the types of attributes that tend to increase the risk of a program is very important.

AO 18-14, published on November 16, 2018, analyzes a free anticonvulsant drug program offered by a drug manufacturer to hospitals taking capitated risk for patients with infantile spasms, a rare form of epilepsy that typically presents in infants up to 2 years of age. In finding that the drug program raised an unacceptable risk of fraud and abuse, the OIG considered its attributes as well as publicly available facts—an untraditional approach for the OIG. Although AOs are not binding on any entity other than the requestor, any manufacturer, specialty pharmacy, hub, or other entity involved in free drug programs would benefit from a careful review of the AO. Further, in AO 18-14, the OIG analyzed many of the same categories of risk that it had historically in reviewing free drug programs. This continuity in analysis provides a framework for review of free drug program risk.

The Facts and Background
The OIG noted that the price of the drug at issue in AO 18-14 increased dramatically over the past 15 years, from approximately $40 per vial in 2001 to $38,892 in 2018, with net sales growing from $95.2 million in 2008 to $1.195 billion in 2017. The OIG also highlighted that the condition is treated in Europe and Canada with a synthetic form of the drug for only a fraction of the cost of the US formulation and that the manufacturer had recently settled Federal Trade Commission (FTC) charges that a company it acquired in 2014 illegally took ownership of the US rights to develop a competing drug, substantially limiting competition. Part of the FTC settlement was a requirement that the manufacturer grant a license to another company to develop a synthetic substance for treating infantile spasms. The drastic price increase and anticompetitive history surrounding the drug may have been central to the OIG’s analysis.

Under the program at issue in AO 18-14, patients would be offered the free drug immediately upon (on-label) diagnosis. There would not be a requirement that insurance coverage be delayed or denied. The patient would continue to receive the drug during the hospital stay, as well as after discharge, and until the end of therapy or until insurance coverage was obtained, whichever occurred first. No payer would be charged for the free drug.

Because the hospital receives a capitated payment for the patient’s stay, the cost of the drug would typically be paid by the hospital and reduce the hospital’s overall profit. Offering the drug free through the proposed program would result in lower expenses and greater profitability for the hospital than if the patient received the drug outside the free drug program.

The AO includes facts from manufacturer-cited studies that indicate outcomes improved when drug therapy began within a month of symptoms presenting and decreased development and intellectual outcomes with treatment delay. The manufacturer also submitted that there are medical risks associated with stopping drug therapy early, as well as the associated effects from the untreated, underlying disease itself. Because of the drug’s high cost and the rarity of the disease, the manufacturer suggested that hospitals were hesitant to stock the drug and warned that the typical 1- to 5-day hospital stay could be prolonged if the hospital did not stock the drug and instead had to order it on a patient-specific basis.

The Analysis
In disapproving the arrangement, the OIG appears to have been largely influenced by the increased cost of the drug. The manufacturer’s concerns about resetting best price if it lowered the drug price for this specific indication seem to have rung hollow with the OIG, particularly in light of the marked drug price increase over the past decade or so.

Additionally, although the manufacturer posited that the free drug helped patients get treated quickly, avoiding the risks of delayed treatment, the OIG questioned the need for the free drug to solve treatment delays. The OIG reasoned that the manufacturer could provide a free consigned drug, which would solve the delay in treatment issue without resulting in a windfall for the hospital in the form of free drugs.

In addition, the OIG also found these areas problematic:
  • The potential to induce the hospital to prescribe the drug because providing the free drug would alleviate a significant financial obligation by the hospital
  • That the free drug program would not result in savings to federal health care programs
  • The potential “seeding” effect, in which a patient is started on a costly drug for free and then federal health care programs pay for the remaining course of treatment
  • The anticompetition effects, given that other drugs are used off label to treat the condition and other therapies may come to market
  • That the offer to insured patients was essentially contingent on future purchases because of the negative effects of discontinuing therapy and that the free drug would not be offered once insurance is available
In finding the proposal raised an unacceptable risk of fraud and abuse, the OIG noted that it had previously approved certain free drug arrangements but found this proposal distinguishable. Contrasting the proposal with AO 15-1, in which the OIG approved a free drug program, provides some guidelines for structuring a free drug program.

The following are elements of the free drug program in AO 15-11 that differ from those in the program in AO 18-14:
  • The prescriber did not receive any benefit under the program, and therefore, the likelihood that the free drug would induce the prescriber to use the drug was low.
  • The risk of overuse of the drug was limited because the free drug was offered only to patients with an on-label diagnosis and a delay in insurance coverage. Also, the free supply was limited to an initial 30-day supply of the drug, plus 1 free refill.
  • There was limited risk of seeding because only 0.0008% of dispenses of the medication were under the free drug program. Prescribers largely expected insurance coverage when choosing to treat with the drug.
  • The program did not result in any cost to federal health care programs.
In both of these AOs, the OIG looked to the effect of the program on those in a position to influence referrals or prescriber choice and the likelihood of inducing the use of the program drug, whether the program had a seeding effect, and the cost to federal health care programs. Other elements analyzed were the risk of overuse and the effect on competition.

Accordingly, when specialty pharmacies are presented with free drug programs, these concepts should be explored. Legal analysis is always essential for free drug programs. A specialty pharmacy may not have the leverage to modify a free drug program, but understanding the associated risks and opportunities to mitigate those risks is paramount.




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