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Our Take: Oral arguments in Pfizer lawsuit renew focus on case that could have industry-wide implications

Jul 19, 2021

Lawyers for the federal government and Pfizer presented their arguments late last month in a case before the U.S. District Court of the Southern District of New York.

The case centers on copay assistance programs.

Anti-kickback regulations prohibit drug companies from offering anything of value to Medicare beneficiaries that would “induce” them to buy their drugs. That includes direct assistance with copays and other out-of-pocket expenses. The restrictions do not apply to patients with commercial insurance.

Drug companies are allowed to donate to independent charitable organizations that assist patients with their drug costs, including disease-specific charities and assistance groups — as long as the drug companies do not influence how the donations are used (i.e., a drugmaker cannot specify that its donations must be used to pay patients’ out-of-pocket expenses for the drug company’s own drugs).

Prosecutors for the federal government argue that the anti-kickback statutes help to protect Medicare and save taxpayers millions of dollars by making sure that Medicare beneficiaries have some skin in the game — out-of-pocket costs ensure that beneficiaries have some sensitivity to drug prices. If less expensive alternatives are available, then beneficiaries are likely to choose those to keep their costs as low as possible.

When drug companies pay beneficiaries’ out-of-pocket costs, it eliminates that price sensitivity and potentially induces beneficiaries to choose the drug that will incur no out-of-pocket cost, even if it is considerably more expensive than other appropriate treatments. Medicare, and ultimately taxpayers, are responsible for covering most of the cost of the drug, while the drug companies increase their sales and profits. They also get to take a tax deduction for the donations they make to the patient-assistance charities.

In the last several years, the Department of Justice has led investigations into potential violations of the anti-kickback statues involving these types of donations by some of the top names in the drug industry. Several patient-assistance charities have also been investigated for violating the anti-kickback statutes by directing patients toward a specific donor’s drug and have paid to settle their cases. Altogether, the DOJ has collected more than $1 billion through these settlements.

In 2018, Pfizer paid $23.85 million to settle a case in which the DOJ alleged that Pfizer made donations to a copay assistance nonprofit organization called the Patient Access Network Foundation and then used a specialty pharmacy to steer Medicare beneficiaries taking three of Pfizer’s drugs toward the foundation to cover their copays. The drugs in that case were chemotherapy agents Sutent (sunitinib malate) and Inlyta (axitinib), and a cardiac drug, Tikosyn (dofetilide).

In June 2020,  Pfizer sued the Department of Health and Human Services (HHS), seeking a declaratory judgment in the U.S. District Court for the Southern District of New York. Pfizer is hoping the court will rule that at least one of two proposed versions of a patient assistance program for the company’s heart drug tafamidis, which Pfizer markets as Vyndaqel and Vyndamax, is legal.

The FDA approved Vyndaqel and Vyndamax in 2019 to treat a rare and serious cardiac disease known as transthyretin amyloid cardiomyopathy, which can cause progressive heart failure and eventually be fatal if left untreated. The two drugs are the only approved treatments for the condition, which, according to Pfizer, affects an estimated 100,000 to 150,000 people in the U.S. Most of these patients are Medicare beneficiaries.

Pfizer’s list price for the drugs is $225,000 for one year of treatment. At that price, Medicare beneficiaries who take either of the drugs pay about $13,000 in annual out-of-pocket costs under Part D — just for that one drug. Pfizer wants to cover those costs for beneficiaries with incomes that are between 500% and 800% of the federal poverty level.

One of Pfizer’s two proposed versions of the assistance program would directly cover many beneficiaries’ copays for tafamidis through copay cards or coupons. The other version would fund an independent charity that would provide copay assistance to patients with transthyretin amyloid cardiomyopathy. Pfizer said the program would help middle-income Medicare patients who don’t qualify for other types of assistance, such as those created to help lower-income beneficiaries.

Last September, HHS’ Office of Inspector General (OIG) rejected Pfizer’s proposed cost-sharing assistance program, saying it was “highly suspect” under the federal anti-kickback statutes and was likely to induce patients to purchase the drugs.

Pfizer contends that since Vyndaqel and Vyndamax are the only drugs approved to treat transthyretin amyloid cardiomyopathy, the company’s proposed patient-assistance program cannot be used to steer patients away from alternatives that cost less. The drugmaker says it won’t provide Medicare beneficiaries any copay assistance unless it received the declaration from the court because without it, the legal risks are too high.

The judge who heard the oral arguments asked Pfizer’s attorneys why the company doesn’t just lower the price of the drugs instead of paying patients’ copays. They said that even if Pfizer were to cut the cost of the drugs in half, many Medicare beneficiaries still would not be able to afford tafamidis because of the way Part D is structured. Beneficiaries must pay $6,550 out of pocket before they reach the “catastrophic” threshold, and then they must still pay 5% of the drug’s cost, with no cap on the cost.

Pfizer says it isn’t trying to take down the anti-kickback statutes. It only wants the OIG to take a narrower interpretation of the regulations.

The judge did not indicate when she would make a ruling in the case.

Our Take: Like most others who are paying attention to this bellwether case, we are eager to see if the court decides in Pfizer’s favor. If it does, the government could find it much more difficult to enforce the anti-kickback regulations in the future.

Pfizer and other drug companies could conceivably be free to increase their prices as much as they want, since many patients (including Medicare beneficiaries) would not have to pay out of pocket for the drugs. That could leave other patients who aren’t eligible for the copay assistance programs out of luck.

It could also swiftly deplete Medicare’s trust fund accounts.

Of course we believe that Medicare beneficiaries should have access to drugs that will help to prolong their life and even improve the quality of their life. We’re not against copay assistance programs in general. But we do see how drug companies could easily abuse the programs, particularly if the court ruling in the Pfizer case effectively hamstrings the government’s ability to enforce the anti-kickback regs.

In the oral arguments in the Pfizer case, the prosecutor said that Pfizer has effectively “priced itself out of the market. It has priced the drug so high that most people who are eligible for that drug cannot purchase it.” That, according to the attorney, is one of the main reasons the company wants to pay for patients’ copays.

In our research for this article, we came across a couple of particularly interesting points:

A study by the American Heart Association found that, based on its list price of $225,000 per year, “tafamidis was cost-effective in 0% of 10,000 probabilistic simulations.” To make the drug cost-effective at $100,000 per quality-adjusted life-year, the price would have to be reduced by 92.6%, to $16,563 per year.

Separately, in a Barron’s article published last fall, the author cited a 2017 Citigroup report that found that a $1 million donation to a charity that helps Medicare beneficiaries access a drug like tafamidis “has the potential to generate up to $21 million for the sponsor company, funded by the U.S. government.”

There has to be a way that drug companies can recoup the R&D costs they incur for new drugs while also ensuring that patients who will benefit from the drugs can afford them. There should also be a way to revamp Part D so there’s a cap on beneficiaries’ out-of-pocket costs.

Allowing Medicare to negotiate prices directly with drug companies may not be the ultimate solution, or even the best one, but it would be a start.

What else you need to know
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