District Court Denies Declaratory Judgment and Other Relief In Suit Challenging the Application of the Anti-Kickback Statute and the Beneficiary Inducement Statute
On June 26, 2020, Pfizer brought suit in a direct challenge to the application of health care fraud prohibitions enforced by the Office of the Inspector General for the U.S. Department of Health and Human Services (“HHS-OIG”). The lawsuit was filed in the U.S. District Court for the Southern District of New York.[i]
In Pfizer Inc. v. U.S. Dept. of Health and Human Services, et al., Pfizer sought a declaratory judgment declaring that the drug company’s financial assistance programs offered to qualifying Medicare beneficiaries for the drug tafamidis do not violate the Anti-Kickback Statute (“AKS”)[ii] and the Beneficiary Inducement Statute (“BIS”).[iii] Tafamidis is manufactured and marketed by Pfizer under the brand names Vyndaqel and Vyndamax. Both of those drugs (collectively “the Medications”) treat a rare and fatal heart condition known as “Transthyretin Amyloid Cardiomyopathy” (“ATTR-CM”). Pfizer also sought summary judgment for its challenge under the Administrative Procedure Act (“APA”).
On September 30, 2021, the district court ruled on Pfizer’s request for relief,[iv] declining to issue a declaratory judgment and other relief sought by Pfizer.
There are two of Pfizer’s financial assistance programs that were the focus of the action. Both programs afford financial assistance under the Medicare Part D drug program[v] to qualifying beneficiaries by offering payment assistance for out-of-pocket expenses (copay and insurance) for the Medications in the treatment of ATTR-CM. According to Pfizer, its financial assistance programs were designed to mitigate what can be an ominous financial barrier under Part D’s cost-sharing structure for a portion of Medicare beneficiaries who would not otherwise qualify for financial assistance under a Low-Income Subsidy program enacted by Congress.[vi]
Specifically, under the proposed “Direct Copay Assistance Program,” a copay card or coupon would be used. Pfizer has enumerated several criteria for eligibility. First, a physician would need to prescribe the medications for the treatment of ATTR-CM. Second, the recipient of the copay assistance would need to be a United States resident. Third, the Medicare Part D enrollee must meet certain financial eligibility criteria, demonstrating financial need. In its complaint, Pfizer asserted that its copay assistance program would not provide any financial incentive to physicians to prescribe the Medications. Rather, the program would allow complete independence to physicians to prescribe the drug based on medical judgment, untainted by financial inducements.[vii]
The second financial assistance program proposed by Pfizer, the “Indirect Charity Program,” entails the collaboration by the drug company with independent charities in the provision of copay assistance to Part D beneficiaries. Here, Pfizer desires to engage with an independent charity, for the purpose of funding copay assistance to Part D beneficiaries who have been prescribed the Medications to treat ATTR-CM. In its complaint, Pfizer explicitly averred that its funding arrangements with the charity would also cover “any other prescription drugs” including “other manufacturer’s products” used “to treat . . . symptoms of ATTR-CM, and any. . . side effects of treatment.”[viii] While Pfizer would communicate with the charity about funding needs, the charity would retain the freedom to determine the eligibility of a beneficiary, including financial need, to receive funding provided by Pfizer. The charity will be independent in terms of how funds are allocated, and to ensure recipients of funds were appropriately prescribed by a physician for the treatment of ATTR-CM.[ix]
The government has issued Special Advisory Bulletins that address the AKS as it applies to financial assistance by drug companies to Medicare beneficiaries. Specifically, on November 22, 2005, HHS-OIG published such guidance (“the 2005 Bulletin”).[x] There, HHS-OIG explained its position regarding patient assistance programs (“PAPs”), and exposures arising therefrom under the AKS.
In the 2005 Bulletin, HHS-OIG expressed general support for PAPs, “as long as the assistance is provided in a manner that does not run afoul of the AKS or other laws.”[xi] The 2005 Bulletin makes clear that there are certain PAP by drug manufacturers that run afoul of the AKS. A “heightened risk” exists under these kinds of arrangements.[xii] For cost-sharing subsidies provided by “bona fide independent charities unaffiliated with pharmaceutical manufacturers,” less of a concern exists.[xiii] This is so even if the charities are recipients of contributions from drug manufacturers. Under proper circumstances, drug companies can ensure the availability of treatments to Part D beneficiaries on an affordable basis. A case-by-case analysis is necessitated, including the relevant facts and intent of the parties.
In the 2005 Bulletin, specific attention was given to situations where a drug manufacturer in a PAP offers subsidies tied to the use of the manufacturer’s products. HHS-OIG made clear that these kinds of programs present all of the risks of kickbacks, including “steering. . . [and locking]. . . beneficiaries into particular drugs. . . ,”[xiv] of a manufacturer, “. . . providing a financial advantage over competing drugs,”[xv] and reducing beneficiaries incentives to locate and use less expensive drugs” that are equally effective.[xvi]
The 2005 Bulletin also addressed the offering by drug companies of PAPs, in the form of cash donations, to bona fide independent charities, and HHS-OIG made clear that cost-sharing assistance would be permissible, raising “few, if any,”[xvii] fraud concerns under the AKS, assuming such programs are properly structured. The imperative message from the 2005 Bulletin for PAPs with bona fide independent charities is that “they must not function as a conduit for payments” by the drug company to beneficiaries of PAPs, and they “must not impermissibly influence. . . drug choices.[xviii]
It is interesting to observe that in its 2005 Bulletin, HHS-OIG explained that “in rare circumstances,” only one drug exists on the market for diseases in a particular category and covered by Part D. Alternatively, there could be only one drug company that makes all of the drugs in a particular disease category covered under Part D. In these instances, analysis of these arrangements for anti-kickback concerns would be done on a case-by-case basis, examining all of the facts including the intent of the parties.
In 2014, HHS-OIG issued a Supplemental Special Advisory Bulletin (“2014 Bulletin”) to further clarify its views on the kickback implications that may arise from PAPs with independent charities.[xix] This additional guidance also implicates PAPs that may face liability under the BIS. The independence of the charity is of paramount importance. HHS-OIG expressed concern for how charities define their disease funds, that in some cases, a fund may be too narrowly defined, and covering a limited number of drugs, as to present fraud issues. Donors should not influence the identification of disease funds, and disease funds should not be defined by reference to specific symptoms, the severity of symptoms, or the method of drug administration.
Significantly, the 2014 Bulletin explicitly cautioned that a charity with narrowly defined disease funds would be viewed skeptically “if the disease funds result in funding exclusively or primarily the products of donors,”[xx] or facts suggest the fund functions to “induce the purchase of donors’ products.”[xxi]
Nature of the Action
In its complaint, Pfizer asserted that its financial assistance programs do not violate the AKS or the BIS statute, and it sought a declaratory judgment that would allow it to pursue those programs. Pfizer also moved for summary judgment on its claims. The defendants in the action (“the Government”) filed cross-motions for dismissal of Pfizer’s action and for summary judgment.
The AKS prohibits, as pertinent here, any person from “knowingly and willfully” offering or paying “any remuneration (including any kickback, bribe, or rebate) directly or indirectly,” . . . “in cash or in kind,”. . .“to induce” the “purchase. . . . or arrange for or recommend purchasing. . .any item for which payment may be made in whole or in part under a federal health care program.[xxii]
A violation of the AKS is a felony, punishable by a maximum fine of up to $100,000, imprisonment up to ten years, or both. Administrative remedies are available as well. HHS-OIG may impose civil monetary penalties[xxiii] and exercise its exclusionary authority.[xxiv]
The BIS establishes civil penalty liability for any person who “offers to or transfers remuneration to any individual eligible for benefits under. . .[the Medicare program]. . .that such person knows or should know is likely to influence such individual to order or receive. . .any item or service for which payment may be made under. . .[the Medicare program]. . . .”[xxv] Separately, HHS-OIG may seek to exclude a person from a federal health care program.[xxvi]
The most salient points pressed by Pfizer in its action pertained to its contention that its PAPs did not give rise to the concerns that the AKS and the BIS were intended to prevent. This was so by the very nature of the underlying facts for its PAPs, coupled by the Medications at issue, including their availability and how they are prescribed by physicians. Specifically, Pfizer emphasized that its two financial assistance programs, their purpose and structure, were far removed from the evils that the AKS and BIS were meant to address. This was so since the Medications were made available “after a physician has objectively determined that a patient has ATTR-CM and prescribed the only FDA approved medications for the terminal disease.[xxvii]
Thus, Pfizer argued that the purpose and design of the assistance programs lacked the requisite intent to use kickbacks, to corruptly induce or influence, medical decision-making, to the detriment of the Medicare program. Pfizer portrayed its financial assistance programs as benefiting Part D beneficiaries who would not otherwise be able to afford its Medications for the treatment of ATTR-CM, the sole drugs that have received FDA approval.[xxviii] Pfizer construed the text of the AKS and BIS, and insisted that the design of its PAPs could not be viewed as “remuneration,” “inducement” or as a means to “influence” as those terms, in its view, apply under those statutes.[xxix] Pfizer viewed guidance from HHS-OIG in the 2005 Bulletin and 2014 Bulletin as too restrictive, and inadequate for the particular, unique, PAPs it offered.
Pfizer argued that it had no choice than to resort to judicial recourse, since HHS-OIG had formally issued an advisory opinion[xxx] on its Direct Copay Assistance Program, indicating that the program could give rise to prohibited remuneration under the AKS if the requisite intent was present, considering the facts and circumstances once the program was implemented. In its advisory opinion, the agency wrote that Pfizer’s Direct Copay Assistance Program “would pose more than minimal risk of fraud and abuse” under the AKS. HHS-OIG identified factors that it deemed suspect, the very ones it identified in its 2005 Bulletin. There, the agency cautioned against PAPs that steered, or locked-in beneficiaries to a particular drug, the anti-competitive effects, a disincentive to use less expensive drugs, and higher costs paid by the Medicare program.[xxxi] HHS-OIG declined to issue an advisory opinion on its Indirect Charity Program.
Pfizer made specific note that the Government has had a particularly aggressive enforcement posture against pharmaceutical manufacturers that have provided financial assistance to Medicare beneficiaries. Thus, to pursue those financial assistance programs would be at the risk of exposure to criminal as well as civil administrative sanctions, and exposure to monetary liability and penalties under the False Claims Act.[xxxii] For context, it is important to note that the Government has had involvement in the recent past with Pfizer’s efforts in financial assistance for three of its drugs with a charitable foundation. There, the Government alleged kickbacks in a scheme to use a charitable foundation as a conduit to pay beneficiary cost-sharing. In a settlement, Pfizer in 2018 entered into a five-year corporate integrity agreement, imposing explicit restrictions for a PAP by the drug company.
In the action, Pfizer also raised separate claims of constitutional dimension, asserting violation of the First and Fifth Amendments.[xxxiii]
The District Court Ruling
In response to Pfizer’s request for judicial relief and the Government’s motions for dismissal of the action and summary judgment, the district court explicitly held that no deference is due to the Government’s informal guidance on the AKS as well as the advisory opinion issued by HHS-OIG disapproving Pfizer’s Direct Copay Assistance Program. Quoting Christensen v. Harris County,[xxxiv] the guidance documents and the Government’s advisory opinion are “entitled to respect” where those interpretations have the “power to persuade.”
With regard to Pfizer’s request for relief under the Declaratory Judgment Act,[xxxv] the district court acknowledged that although it may have jurisdiction over the dispute between Pfizer and the Government where there is an actual “case or controversy” where the competing interests are “real and substantial,” elements of “prudential ripeness” may be lacking, thus leading the court to conclude it lacked jurisdiction to rule.
For Pfizer’s Independent Charity Program, the company’s first three causes of action sought declarations that: (i) the Charity Program does not violate the AKS or BIS; (ii) application of HHS-OIG guidance to the Charity Program would violate Pfizer’s First Amendment rights; and (iii) HHS-OIG guidance would violate the Fifth Amendment rights of third parties, namely Medicare beneficiaries. The court noted that the Government did not issue an advisory opinion regarding the Charity Program, and thus there was no substantive claim for the court to consider, no final agency action to review. While the court recognized that Pfizer’s three claims raised an actual case or controversy, it ruled that those claims lacked elements of prudential ripeness. Thus, the court lacked jurisdiction over Pfizer’s request for declaratory relief regarding its Charity Program.
Separately, the district court addressed Pfizer’s Fifth Amendment challenge for both its Direct Copay Assistance Program and Indirect Charity Program. In the litigation, Pfizer contended that HHS-OIG’s past agency guidance as applied to Pfizer’s two financial assistance programs raised equal protection issues under the Fifth Amendment since other income-related categories of beneficiaries are spared the negative financial impacts arising from the cost of the Medications. The district court ruled that Pfizer had no standing to pursue these claims since it was acting on behalf of third parties, middle-income beneficiaries, rather than alleging its own injury arising from agency action.
Regarding Pfizer’s APA challenge in the lawsuit, the district court reached a different result regarding HHS-OIG’s specific agency action for Pfizer’s Direct Copay Assistance Program. Here, Pfizer sought declaratory relief, and summary judgment vacating HHS-OIG’s advisory opinion regarding that program. The court noted that the agency opined in the advisory opinion that the program raised concerns under the AKS, assuming the requisite intent was present, to induce Medicare beneficiaries to purchase the Medications who would not otherwise do so because of the high cost and financial burdens. In the litigation, Pfizer insisted that the element of scienter under the AKS is one that would require a “corrupt” intent, coupled with in improper quid pro quo where Pfizer directly influences a physician’s decision to prescribe, or a patient’s decision to purchase, the Medications. Pfizer argued that under its Direct Copay Assistance Program, no such intent, or financial quid pro quo exists, and thus its program does not run afoul of the AKS. The district court disagreed with Pfizer's interpretation of the AKS.
Construing the text of the AKS, under the plain meaning rule, the court ruled that the statute does not require a corrupt intent, or a direct quid pro quo. The court deemed the text of the AKS as unambiguous. The court wrote that the AKS simply does not refer to a “corrupt” mental state as an element of the offense. Rather, the statute prohibits a person from “knowingly and willfully” offering or paying remuneration to “induce” a purchase. In the court’s view, nothing in the text of the AKS suggests a contrary reading. Pfizer argued that the reference “remuneration” in the AKS, in the parenthetical to include “any kickback” or “bribe” strongly suggests that Congress tethered prohibited remuneration to a corrupt intent. The court disagreed. It was quick to point out that the statute’s parenthetical is nonexclusive, and also includes the word “rebate,” which, in the court’s view, lacks a corrupt aspect to the scienter element. This thus negated any suggestion that the legislature intended to apply a corrupt aspect to the element of intent under the statute. The district court’s reading of the AKS is in accord with case law. Finally, Pfizer argued that the term “to induce” under the AKS implies a corrupt intent and a quid pro quo element to the offense. The court disagreed, finding that the text of the statute does not support such a reading. It made clear that for purposes of liability under the AKS, a payment is made to induce a purchase or provision of medicine or medical services.
Applying the AKS as construed, the district court next considered the APA challenge brought by Pfizer of HHS-OIG’s advisory opinion wherein it raised concerns about the company’s Direct Copay Assistance Program. The court declined to afford the relief that Pfizer sought, ruling that the agency’s advisory opinion withstood scrutiny as not contrary to law. The court reasoned that the AKS is implicated since Pfizer readily conceded that the purpose of the payments under its program is to increase the number of Medicare beneficiaries who purchase its Medications. That was Pfizer’s stated intent for payments made under the program.
In sum, having dispensed with all of Pfizer’s claims, and request for relief, the district court considered the Government’s motion to dismiss and motion for summary judgment. The court granted the Government’s motions.
There are several takeaways from the district court’s analysis and ruling in Pfizer Inc. v. U.S. Dept. of Health and Human Services, et al., providing insight for drug companies in pursuit of their financial assistance programs for Medicare Part D beneficiaries vis-a-vis federal fraud and abuse laws. Specifically, resort to the court seeking declaratory relief must surmount hurdles, requiring a court to have jurisdiction under “case or controversy” rubrics and prudential concerns. Additionally, efforts to restrict, or narrow, the reach of the AKS, as Pfizer attempted, will meet with resistance when applying traditional rules of statutory construction. To the extent that a more narrow reading of the AKS may be deemed desirable, affording financial assistance for economically strapped Medicare Part D beneficiaries, the court observed that Congress, not the judiciary, has a role to play in shaping policy.
[i]Pfizer Inc. v. U.S. Dept. of Health and Human Services, et al., S.D.N.Y. (No. 1:20-cv-04920, filed June 6, 2020).
[ii]42 U.S.C. § 1320a-7b(b)(2).
[iii]42 U.S.C. § 1320a-7a(a)(5).
[iv]Id. Opinion and Order (September 30, 2021).
[v]42 U.S.C. § 1395w-101 et seq.
[vi]Plaintiff’s Complaint, pars. 49-55.
[vii]Id., par. 65.
[viii]Id., par. 71
[ix]Id., par. 72.
[x]“Publication of OIG Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees.” 70 Fed.
Reg. 70,623 (November 22, 2005).
[xi]Id. at 70,624. It should be noted that Congress, through legislation, provided for drug assistance to beneficiaries. For example, under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, provision is made for cost sharing waivers by pharmacies for Part D drugs, provided certain criteria are met. Cost-sharing waivers also apply to individuals who qualify for a low-income subsidy. 42 U.S.C. § 1320a-7b(b)(3)(G). Those alternative approaches, cost-sharing waivers, do not give rise to fraud-related prohibitions. Thus, they are not applicable to the matter addressed by the “2005 Bulletin” and are not relevant to the issues arising from Pfizer’s financial assistance programs.
[xiv] Id. at 70,625-70,626.
[xv] Id. at 70,625.
[xviii] Id. at 70,627.
[xix] “Supplemental Special Advisory Bulletin on Independent Charity PAPs.” 79 Fed. Reg. 31,120 (May 30, 2014).
[xxii] 42 U.S.C. § 1320a-7b(b)(2)(B).
[xxiii] 42 U.S.C. § 1320a-7a(a)(7).
[xxiv] 42 U.S.C. § 1320a-7.
[xxv] 42 U.S.C. § 1320a-7a(a)(5).
[xxvi] See 42 U.S.C. § 1320a-7(b)(7).
[xxvii] Plaintiff’s Complaint, at par. 9 (emphasis in original); see also par. 63.
[xxix] Id. at pars. 78-98.
[xxx] See OIG Advisory Opinion No. 20-05 (September 18, 2020).
[xxxi] See 70 Fed. Reg. 70,625-70,626.
[xxxii] Id. at pars. 60, 122; see also 31 U.S.C. § 3729, et seq.
[xxxiii] Id., pars. 131-136.
[xxxiv] 529 U.S. 576, 587 (2000), citing Skidmore v. Swift & Co., 323 U.S. 134 (1944).
[xxxv] 28 U.S.C. § 2201(a).