Unpacking HHS' Opinion on Cell Therapy Refund Programs

July 30, 2024 | By Mary Kohler in Law360

Cell and gene therapies grab headlines for the miracles they deliver and for their seven-digit price tags. Many insurers question their value proposition.

Increasingly, the U.S. Department of Health and Human Services Office of Inspector General has been addressing fraud and abuse concerns about rare disease products, including cell and gene therapies. To date, most of its advisory opinions have dealt with anti-kickback issues raised by patient support.[1] However, the complex delivery models and financing arrangements of some therapies present bigger challenges.

The OIG's Advisory Opinion No. 24-04, posted on June 20, tackles some of these more difficult issues.[2] Specifically, what if an insurer promises to pay but later reneges? What if the manufacturer raises the price mid-treatment? And beyond the opinion lurks a thornier question still: What if the multimillion-dollar treatment fails?

A Potential Cure at Risk

Each year, 17 to 24 U.S. infants are born without a thymus gland. As a result, their immune system fails to develop properly. Prone to infection and requiring strict isolation, most of these children die by age 2. In their short lives, they can incur $5 million to $11 million in healthcare expenses.

The OIG opinion concerns a new cell therapy that uses healthy donor tissue to regenerate these patients' thymic function. Within a year, most obtain needed immunity and are considered cured. Rather than die, they live.

The product is marketed by a biopharmaceutical company whose U.S. affiliate coordinates supply. The opinion redacts the company names. The therapy has been under investigation at an academic medical center since 1993, and the center is the only administration site authorized by the U.S. Food and Drug Administration.

However, administering an FDA-approved therapy is different from running clinical trials. The center is now a treating hospital delivering care. That means it must buy the product from the company upfront and then seek reimbursement from insurers.

Insurance Headaches

Insurers can struggle to cover breakthrough therapies. Large, unpredictable payouts strain budgets, and small patient populations make it difficult to pool risk.

Payors also question the upside. Manufacturers can justify pricing by years of life gained, or a significant overall savings, but long-term efficacy can be unknown when FDA approval is based on small trials and an accelerated pathway. And if an expensive therapy doesn't work — either now or later — the insurer must pay for the therapy and the care it was supposed to avoid.

So, insurers approve cases one-by-one. However, downstream denials can still occur as payor systems fail to recognize exceptions, and providers can struggle to navigate untested claims processes. Submission errors and appeals are the norm.

But, if a patient's insurer denies coverage after treatment has begun, the center faces a tough situation. Most of the center's patients cannot realistically guarantee payment, and half of them are Medicaid beneficiaries.

After FDA approval, the center became hesitant to deliver the therapy it had spent 30 years developing.

The Refund Program

The company agreed to forgive the center's payment obligations if an insurer promised coverage, and later refused. Relieving a provider's payment obligations can trigger the anti-kickback statute. However, the OIG allowed a similar program in the past, in Advisory Opinion No. 00-10 in 2000.[3] It endorsed the proposal here under controls that align with that earlier opinion.

In this case, the center must ensure the therapy is clinically appropriate for the patient and get a written agreement specifying the payor's reimbursement terms. It must also pursue appeals if claims are denied. And if the program is triggered, all patient cost-sharing payments are returned.

The OIG noted these controls should ensure refunds are rare, and the program's three-year term limits potential remuneration to the center.

Also, the program is not advertised, and patients are identified objectively through required newborn screening. The OIG added it would be exceedingly rare for distant referring physicians to have financial connections with the single nationwide treatment center. So, it concluded the program should not interfere with clinical decisions or prompt overutilization.

The OIG emphasized this ultra-rare therapy is a one-time potentially curative treatment, and the overall savings exceed the product's cost. So, the product should help federal programs rather than harm them.

Not surprisingly, the OIG cautioned it would view a mass-produced drug, or one with competitors, differently.

This analysis underscores the importance of identifying risks and establishing thoughtful controls. The OIG wants access programs to solve legitimate problems rather than aiming to expand markets or increase sales. Here, the center's inability to shoulder the reimbursement risk makes this program strategically necessary to the product's ongoing viability.

However, the OIG's assumptions about the program's limited term warrant a closer look.

Limiting Time and Scope

Like the operational controls, the program's three-year term aligns with the OIG's prior opinion. Ordinarily, three years is sufficient for a provider to navigate numerous claims with its handful of local payors before assuming the risk of nonpayment.

However, the center delivers only a few treatments each year. And its nationwide operation means returning to square one as each new distant payor assesses coverage anew. So, its worries over unfamiliar insurers reneging are unlikely to abate in three years.

More fundamentally, it seems unfair to expect the center to bear the risk of absorbing a multimillion-dollar purchase price that reflects value rather than cost of goods, especially when it has done so much upfront diligence. Additionally, it invented the therapy. Forcing it to bear this commercial risk — at any point — might have unintended effects on research incentives.

The opinion notes Medicaid may soon develop a nationwide coverage policy.[4] That could resolve the federal payor problem. It might also sidestep the kickback issue. However, the time limit may still be more problematic than the opinion lets on.

The Discount

The company also asked the OIG about its agreement to protect the center's pricing if the product's reported price increases during the course of treatment. The agreement is structured as a discount that meets all requirements of the OIG's safe harbor. The agency said yes without much analysis.

But the question is more interesting than the answer. It suggests that despite value and payment tensions, the company may still consider raising the price.

Any number of considerations may prompt a price increase, but the economics of cell and gene therapies are also evolving rapidly.

Lurking Questions

Cell and gene therapy is coming of age as the Centers for Medicare & Medicaid

Services move toward paying providers for value and pushing back on its growing drug spend. The agency's cell and gene therapy access model aims to lower state Medicaid prices and link payments to outcomes.[5]

Some experts suggest manufacturers should offer product warranties, and risk management firms are designing plans to protect manufacturers against large payouts for failed treatments.[6]

The Institute for Clinical Evaluation and Research recently issued a white paper describing several innovative payment models for these therapies.[7] It outlines strategies for determining a fair price and managing clinical uncertainty. It also urges policy reforms to balance competing stakeholder interests.

These ideas might ease payor skepticism and facilitate adoption.

But, they might also act as a clawback for earlier players whose launch prices didn't factor them in. Despite charging an amount that can trigger sticker shock, a company that sells at most 24 products per year can't be generating excessive profits. Each treatment it gives away has a material revenue impact. And if these new models cut too deeply, the company, rather than the center, may face the tough situation. Time will tell.

What's Next

It's fortunate the scenario presented could align so well with the OIG's earlier thinking. And that the condition is ultra-rare. Future cases will require a further stretch. Vertex Pharmaceuticals Inc. sued the OIG earlier this month for refusing to opine favorably on its proposed program.[8] Progress will move incrementally as all parties gain experience with these new technologies.

Still, the OIG's willingness to engage is encouraging. Companies should continue accessing the advisory opinion process for innovative rare disease therapies.

And despite the novel issues posed by cell and gene therapies, fundamental principles remain the same. Payors must act in good faith. Manufacturer programs should solve real problems and not be disguised as market expansion tactics, and providers need to bear some risk in a world of value-based care.

But given the promise these therapies hold, the juice seems worth the squeeze.

Mary Kohler is the founder at Kohler Health Law PC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Five of the OIG's first six 2024 advisory opinions focus on rare disease products. And several OIG opinions allow manufacturers to subsidize expenses when needy patients must travel to access therapies. The company requesting this opinion appears to have received one of these opinions. See, OIG Advisory Opinion No. 23-01, Dept. of Health and Human Services, Office of Inspector General (Feb. 17, 2023).

[2] OIG Advisory Opinion No. 24-04, HHS OIG (Jun. 20, 2024). The opinion also addresses a question about §1128(a)(5) of the Social Security Act, which allows civil monetary penalties for prohibited inducements to beneficiaries. And it's favorable. For simplicity, it is not discussed here.

[3] OIG Advisory Opinion No. 00-10, HHS OIG (Dec. 15, 2000)(allowing manufacturer to replace unreimbursed product). See also OIG Advisory Opinion No. 02-06, HHS OIG (May 14, 2002) (allowing manufacturer to refund providers for equipment purchase if subsequent claims for procedures using that equipment were denied).

[4] The Center for Medicare and Medicaid has launched an access model to develop nationwide Medicaid coverage for expensive cell and gene therapies. Cell and Gene Therapy (CGT) Access Model | CMS (website accessed July 11, 2024). In March, CMS issued a request for applications to manufacturers. The opinion suggests the company responded to this RFA.

[5] Id.

[6] Last year, Marsh and Octaviant Financial announced "New warranty program helps expand patient access to life-changing gene therapies," Marsh website (accessed Jul 10, 2024).

[7] ICER, Managing the Challenges of Paying for Gene Therapy: Strategies for Market Action and Policy Reform, (Apr. 23, 2024).

[8] The company's gene editing therapy requires patients to undergo a conditioning process that could cause infertility. Vertex says this consequence means some patients face a painful choice between pursuing treatment and having children. So, it wants to provide fertility preservation services. The OIG acknowledges the dilemma but says it's premature to promise prospective fraud and abuse immunity when the circumstances of cell and gene therapy are changing rapidly and so much is still unknown. See OIG Advisory Opinion No. 24-06, HHS OIG (Jul. 18, 2024).

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