District Court Elucidates the Meaning of “to Induce” Under the Federal Health Care Program Anti-Kickback Statute

The United States District Court for the Eastern District of Virginia recently dismissed an appeal by the Pharmaceutical Coalition for Patient Access (“PCPA”) that challenged a negative opinion issued by the U.S. Department of Health and Human Services, Office of the Inspector General (“OIG”) concerning pharmaceutical manufacturers’ offers of cost-sharing subsidies to Medicare Part D (“Part D”) beneficiaries. The opinion under review was Advisory Opinion No. 22-19,[1] which we previously wrote about[2] and in which the OIG advised that if pharmaceutical manufacturers offered the proposed cost-sharing subsidies to Part D beneficiaries via PCPA, they could be subject to liability under the Federal health care program Anti-Kickback Statute (the “AKS”), even though the proposed subsidies would not violate the Civil Monetary Penalty Law’s Beneficiary Inducement Prohibition (“BIP”).

Proposed Subsidy

The Court succinctly summarized the proposed subsidy as follows:

Enrollees qualified for PCPA’s program would pay $35 per month for branded drugs (or $10 per month for generic products) plus either 25% or 10% of the otherwise applicable co-insurance obligation (that percentage dependent on the particular enrollee’s financial need); PCPA would cover the rest of the enrollee’s cost. […]

So, if the $10,000-per-month oncology drug described previously were branded and produced by a participating manufacturer, under PCPA’s program (and depending on the enrollee’s financial need), PCPA would cover approximately somewhere between $6,380 and $7,280 of the enrollee’s annual co-pay for that drug. The government, through Medicare, would foot the rest of the over-$111,000 bill for the year.[3]

In order to qualify for the proposed subsidy, a patient would have to have: (1) a cancer diagnosis; (2) a household income between 150% and 350% of the federal poverty line; (3) already been prescribed a Part D oncology drug produced by a participating manufacturer; and (4) approval from their Part D plan for coverage of the Part D drug.[4]

PCPA’s Challenge

PCPA challenged the opinion under the Administrative Procedure Act (“APA”), which states that a court must hold unlawful and set aside an agency action if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” or “contrary to constitutional right, power, privilege, or immunity.”[5]

PCPA provided three (3) pertinent claims of relief in its action:

1. The opinion is contrary to law because OIG’s interpretation of the AKS runs contrary to the plain language of the AKS[6];
2. A 2005 OIG Special Advisory Bulletin renders the negative opinion arbitrary and capricious; and
3. The negative opinion infringes upon PCPA’s First Amendment free speech rights.[7]

The Court disagreed with each argument and ruled in favor of the Government’s motion for summary judgment.

Analysis

The Court first addressed whether the OIG’s interpretation of the AKS runs contrary to a plain reading of the AKS. Specifically, PCPA argued that in order to show “inducement” under the AKS, there must be a showing of both a quid pro quo and a corrupt intent. PCPA reasoned that the ordinary meaning of “induce” implies a corrupt intent to bring about an unlawful act, and that by extension, activities which are not colored by such corrupt intent would not satisfy the inducement component for purposes of the AKS. In support of this argument, PCPA cited a recent holding from the Supreme Court of the United States in U.S. v. Hansen, which construed an entirely independent criminal facilitation statute’s use of “encourages or induces” to require a showing that a wrongdoer intended to bring about a particular unlawful act.[8]

The Court disagreed, holding that the AKS only contemplates the ordinary meaning of “induce”, which is neutral with respect to intent and therefore does not require a showing of corrupt intent to bring about an unlawful act. The Court emphasized that the AKS does not require a showing that the activities being induced are independently unlawful, as would be the case for criminal facilitation or solicitation. Rather, the inducement itself is the activity targeted by the AKS. The Court further reasoned that inducement within the AKS is distinct from its use in the criminal solicitation vein, noting that it lacks additional verbiage which correlates to related criminal activities as well as that criminal solicitation typically requires a showing of specific intent whereas the AKS does not.

PCPA also argued that OIG Ad. Op. 22-19 failed to follow the OIG’s 2005 Special Advisory Bulletin, which stated that certain patient assistance programs could have reduced risk of violating the AKS if:

(i) The program contains features that adequately safeguard against incentives for card holders to favor one drug product (or any one supplier, provider, practitioner, or Part D plan) over another; (ii) the program includes a large number of manufacturers, including competing manufacturers and manufacturers of both branded and generic products, sufficient to sever any nexus between the subsidy and a beneficiary’s choice of drug; and (iii) each participating pharmaceutical manufacturer offers subsidies for all of its products that are covered by any Part D plan formulary.[9]

However, the Court stated that this 2005 guidance contained notable caveats, including that it was “premature to offer definitive guidance on these evolving programs” and that “determination regarding whether a particular arrangement violates the anti-kickback statute requires a case-by-case evaluation of all of the relevant facts and circumstances.”[10] Therefore, the Court found that the OIG “followed the Guidance’s sole requirement to a tee” because it conducted a fresh analysis and concluded the proposed program would contravene the AKS based on the relevant facts and details.[11]

PCPA also argued that the OIG opinion infringed on its First Amendment rights because, as a result of the opinion, it “cannot communicate with the public about the crisis in oncology access, the barriers to access created by Medicare, and how [PCPA’s] program can address those critical issues[.]”[12] The Court disagreed, finding that PCPA was free to discuss these barriers and financial concerns as much as it wished, and that the opinion merely advised “PCPA that it will be subject to liability if it engages in certain forms of transactions.”[13]

* * *

We will continue to monitor and report on novel theories and defenses under the AKS.

FOOTNOTES

[1] https://oig.hhs.gov/documents/advisory-opinions/1056/AO-22-19.pdf

[2] https://www.fdalawblog.com/2022/10/articles/prescription-and-otc-drugs/oig-limits-pharmaceutical-manufacturers-ability-to-offer-drug-cost-sharing-subsidies/

[3] Pharm. Coal. for Patient Access v. United States, No. 3:22-CV-714 (RCY), 2024 WL 187707, at *5 (E.D. Va. Jan. 17, 2024)

[4] Id. at 5-6

[5] 5 USC § 706(2)(A) and (B).

[6] The AKS provides, in relevant part, “Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person […] (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $100,000 or imprisoned for not more than 10 years, or both.” 42 USC § 1320a-7b(b)(2)

[7] Pharm. Coal. for Patient Access, at 5

[8] 599 U.S. 762 (2023).

[9] Id. at 41.

[10] Id. at 41-2

[11] Id. at 43

[12] Id. at 45

[13] Id.