OIG Greenlights Manufacturer’s Limited Free Drug Program

Footnotes for this article are available at the end of this page.

On February 28, 2023, the Office of Inspector General (“OIG”) issued Advisory Opinion No. 23-02 (“Opinion”), which favorably addresses a pharmaceutical manufacturer’s proposal to offer a free limited supply of medication for patients experiencing insurance coverage delays.

The Arrangement 

The proposed arrangement involves an enzyme replacement therapy that treats an extremely rare and fatal inherited genetic disorder. The drug was approved by FDA in 2018, and its sole indication is to treat a severely compromised immune system caused by the disorder. According to the manufacturer, the diagnosis is typically made soon after birth, and the condition affects no more than 15 patients in the United States annually.1 The drug does not cure the condition. Rather, it is taken as a maintenance medication. The drug is self-administered by the patient or caregiver and is delivered through an intermuscular injection.

Under the proposed arrangement, the manufacturer would offer a free 14-day supply of medication to certain patients experiencing a coverage delay of more than 48 hours. Eligible patients must:

    1. be diagnosed with the specific genetic disorder;
    2. have commercial or government insurance; and
    3. have not previously taken the medication.

The patient is eligible for a second free 14-day supply if the insurance coverage determination is pending after the exhaustion of the initial supply or the patient was denied coverage and is actively appealing the determination. Given the small patient population and the medication’s unique storage and handling requirements, the free supply is only available through one specialty pharmacy. The medication is dispensed directly to the patient.

Information about the program is limited. The manufacturer’s website will inform the public about the free drug program. The manufacturer may also distribute preapproved non-promotional communications to healthcare providers and non-promotional education materials to the public to help facilitate the well-being of patients with rare diseases. The manufacturer will not advertise the free drug program outside the limited channels identified above. Further, the advertising embargo extends to prescribers. The manufacturer will advise physicians that they are prohibited from marketing their participation in the free drug program to the public.

Since 2018, only 49 patients have received the treatment. The manufacturer estimates that the free drug supply program would only account for less than 0.01% of all prescribed vials. However, nearly 80% of the patient population is covered by Medicare or Medicaid. Program participation is not contingent on any future obligation to use or purchase the drug. The free drug supply is provided outside of any insurance benefit and patients are advised not to seek reimbursement for any 14-day supply. The manufacturer will also inform any Part D beneficiary that they are prohibited from allocating any portion of the free drug supply to their true out-of-pocket cost.

The Analysis

The OIG noted that the arrangement implicated the federal anti-kickback statute (“AKS”) because it involves the transfer of remuneration to a beneficiary that could induce the patient to use the medication in the future. The payment of any future claim for the medication by a federal healthcare program could be tainted by the free supply offering. The specific arrangement was not structured to meet any applicable safe harbor. Arrangements that do not fit in a safe harbor are analyzed on a case-by-case basis to evaluate the risk of fraud and abuse. The OIG indicated that the specific risks associated with this free drug offering included patient seeding, overutilization, and increased program costs. However, the arrangement included sufficient safeguards to present a low risk of fraud and abuse under the AKS.

Most problematic seeding arrangements include a free or reduced-cost item or service offered to induce the person to acquire future items or services that are reimbursed by a federal healthcare program. Here, the risk of the free supply influencing the patient to obtain the drug in the future was deemed sufficiently low because:

    1. it is contingent upon an initial insurance coverage delay or denial;
    2. it would be a rare occurrence; and
    3. the drug is only one of two available treatment options for the disorder.

The OIG concluded that this free drug program was distinguishable from a problematic arrangement because of the limiting eligibility criteria, limited applicability of the program, and lack of available treatment alternatives for the disorder.

The OIG also deemed the overutilization risk to be low for similar reasons. Notably, the potential universe of eligible patients was narrow because program participation requires the patient to

    1. have the genetic disorder;
    2. be prescribed the treatment for the first time; and
    3. experience a coverage delay in receiving a favorable coverage decision.

The specific eligibility requirements would ensure the program is limited in scope and served as a sufficient safeguard against overutilization.

Lastly, the OIG concluded that the risk of the arrangement increasing federal healthcare program expenditures to be equally low. In support of the conclusion, the OIG relied upon

    1. the marketing and advertising limitations;
    2. the lack of any financial benefits to prescribers;
    3. the inability of the prescriber, patient, caregiver, or pharmacy to submit a claim for the drug, and
    4. the 14-day supply being provided outside of any insurance benefit.

The OIG also analyzed the arrangement under the Civil Monetary Penalties Law beneficiary inducement prohibition (“Beneficiary Inducement CMP”) because the free supply could influence the patient’s selection of provider, practitioner, or supplier for a reimbursable item or service. While manufacturers are generally exempt under the Beneficiary Inducement CMP, they can nonetheless violate the statute when they provide remuneration to influence a beneficiary to select a particular provider, practitioner, or supplier. For example, a manufacturer could offer a free drug supply as a means to influence the patient’s selection of a pharmacy for future dispenses that are covered by Medicare and Medicaid.

The OIG concluded that the free drug program was unlikely to induce a beneficiary to select a specific provider, practitioner, or supplier because one pharmacy is the sole source of the medication. Without other dispensing options, there can be no inducement because the beneficiary must use the only available pharmacy. However, in the event the drug was available through other sources, the OIG noted that the possibility of receiving an initial free supply following an insurance delay was unlikely to influence the purchase of other federally reimbursable products from the pharmacy in the future. The OIG deemed the arrangement to be low-risk Beneficiary Inducement CMP.

The Takeaway

Although the Opinion cannot be relied upon by anyone other than the requesting party, the analysis provides valuable insight into the OIG’s application of the AKS and Beneficiary Inducement CMP to limited free drug programs.

This Opinion builds upon prior OIG guidance addressing the parameters of low-risk free drug, quick start, or medication bridge programs. The totality of the guidance offers the framework for manufacturers and pharmacies to structure compliant limited free drug programs. However, as demonstrated by the arrangement described above, any free drug program must be implemented with strict eligibility, frequency, duration, distribution, and marketing criteria and safeguards to maintain a low compliance risk profile.

For questions about this Opinion or any similar arrangement, please contact AGG Healthcare attorneys David Blank or Charmaine Mech or another member of the AGG Healthcare team.


[1] The only other FDA-approved treatment for the disease involves a bone marrow transplant.

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