As prescription drugs – particularly expensive specialty drugs – have become an increasingly larger portion of health care costs in America, both private and public health insurers use co-pays and co-insurance to put cost constraints on prescription reimbursement. Concerned with market share and profit, drug companies regularly seek to circumvent these restrictions with tools such as Patient Assistance Programs or PAPs.

Why are Patient Assistance Programs a Problem for Medicare and Medicaid?

Public health insurance programs such as Medicare and Medicaid pay for the care of elderly and low-income patients. To ensure that taxpayer dollars are used as effectively as possible, Medicare, Medicaid, and other government healthcare programs require that the treatments they pay for are medically necessary and cost-effective. These programs have instituted prior authorization and step edit requirements, as well as prohibitions against offering kickbacks or other incentives to formulary committees, health care providers, patients, or middlemen such as pharmacy benefit managers.

While they claim to be altruistic, Patient Assistance Programs are all too frequently used to bypass such controls, enlisting health care providers, middlemen and patients in an effort to pass along higher reimbursement costs to taxpayers. By paying patients’ copayments, drug manufacturers insulate patients from the true costs of their drugs. The manufacturers then raise their prices even higher, requiring government healthcare programs to pay skyrocketing costs. Ultimately, these costs are all borne by ordinary taxpayers.

Patient Assistance Program FAQs

As long as there have been insurance co-pay and co-insurance requirements, drug companies have worked to circumvent them, using tools such as advertising and discount coupons to entice patients to us their brand name drugs rather than less expensive but equally effective treatments. Because such offers can be deemed inducements from drug manufacturers, the federal Anti-Kickback Statute (AKS) makes it illegal for these tools to be used by Medicare and Medicaid patients. To get around this restriction, drug makers began establishing third-party “Patient Assistance Programs” – also known as PAPs or “Co-pay Charities.”

Organized as umbrella assistance charities or specifically around particular diseases – for example, multiple sclerosis, rheumatoid arthritis or kidney disease – PAPs are touted as a godsend to help patients afford lifesaving medications or clinical treatments they might otherwise not be able to afford. Some are legitimate charities with significant contributions coming from independent donors or through grass-roots fundraising, but a good many are funded entirely by drug makers as an outsourced, tax-deductible marketing department working to assess how best to maximize profit from a particular patient.

Specialty drugs are medications classified as high cost, high complexity, high touch, and/or requiring special handling or distribution. Used to treat complex or rare chronic conditions, they are purchased through a specialty pharmacy and often administrated as an injection or in an infusion by a physician or infusion clinic. Included in this category are biologics (drugs derived from living cells) and so-called “orphan drugs,” which were developed specifically to treat a rare medical conditions. The cost per patient for many such specialty drugs can run into hundreds of thousands of dollars per year. Many patients taking these drugs are elderly or low income so their cost is covered under public insurance programs such as Medicare or Medicaid.

Accounting for 19 percent of total drug spending in 2004, specialty drugs have grown to one-third of government’s drug spend in 2015 and are expected to reach 50% in the next 10 years, making them a prime target for drug company fraud schemes and causing a major drain on the resources of public programs such as Medicare and Medicaid.

You should be concerned if your employer or a drug company with whom you do business is (among other things):

  • Contributing to PAPs that are focused on a very narrow disease description or limit their assistance to a very small group of products, particularly very expensive drugs, rather than supporting patient programs that cover all available treatments for a disease including generics.
  • Controlling or influencing the PAPs eligibility criteria or other activities.
  • Requiring that the PAP attribute its financial distributions specifically to the drug company.
  • Directing the PAP to prioritize patient eligibility on criteria other than objectively assessed financial need such as insurance coverage, choice of physician, clinic, treatment or supplier.
  • Directing the PAP to favor health care providers based on their contributions to the program.
  • Soliciting specialty drug distribution data from the PAP in order to correlate it with patient usage of the drug company’s products.
  • Gaining access to confidential patient information in order to influence physicians’ diagnoses.
  • Notifying patients and health care providers when PAP monies from a drug maker are available to treat a particular disease.
  • Falsifying authorization forms in order to qualify patient’s eligibility for a PAP payment that covers only the company’s products.
  • Discouraging a PAP’s participants from obtaining available free drugs or making their access to free drugs conditional on future purchases.

Recent Settlements

As drug prices and prescription drug spending climb ever higher, the federal and state governments have prioritized their enforcement efforts to combat fraudulent schemes that result in wasteful spending. Several recent settlements demonstrate the government’s commitment to stopping PAP fraud:

  • In September 2020, Gilead Sciences paid $97 million to resolve allegations that it illegally used a foundation as a conduit to pay the copays of thousands of Medicare patients taking one of Gilead’s drugs called Letairis. According to the government, Gilead made payments to a PAP, which, in turn, used those funds to pay copays of patients prescribed Letairis. The government alleged that Gilead routinely obtained data from the PAP detailing how much the foundation had spent for patients on Letairis, and then used this information to decide how much to pay to the PAP and to confirm that its payments were sufficient to cover the copays of only patients taking Letairis.
  • In July 2020, Novartis paid over $642 million to resolve allegations that it paid unlawful kickbacks. Among other misconduct, the company allegedly used three charitable foundations as conduits to pay the copayments of Medicare patients.
  • In July 2019, three pharmaceutical companies paid over $122 million to resolve allegations that they used charitable foundations as conduits to pay the copayments of Medicare and CHAMPVA patients.

Identifying PAP Fraud

Increased prosecution of fraudulent retail prescription drug reimbursements from public health insurance programs has caused many drug companies to shift their profit maximization focus to more expensive specialty drugs and the use of third-party Patient Assistance Programs. Federal and state governments have responded by putting additional scrutiny on PAPs that target Medicare and Medicaid patients. Prosecutors rely heavily on internal whistleblowers who can provide inside information to lay out the blueprint of the scheme.

If you are aware of a PAP that is potentially defrauding public insurance programs, you may qualify to serve as a whistleblower. If the federal or a state government successfully prosecutes the allegations you bring to light, you may be entitled to a monetary reward.

Our Team

With over 30 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $5.4 billion to federal and state agencies, with whistleblower recovery shares as high as 49%. They are ready to help if you have evidence of fraud involving patient assistance programs.

Please call (866) 401-5971 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower.  Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.

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