On July 25, the U.S. Court of Appeals for the Second Circuit affirmed the U.S. District Court for the Southern District of New York (SDNY) decision granting summary judgment in favor of the Department of Health Human Services (HHS) in Pfizer’s landmark challenge against the Office of Inspector General’s (OIG) interpretation of the federal Anti-Kickback Statute (AKS).

The challenge began on June 27, 2019, when Pfizer sought an OIG advisory opinion relating to its proposed direct copay assistance program for patients taking its breakthrough drug tafamidis, which bears a $225,000 annual price tag. In late 2020, OIG issued the unfavorable advisory opinion in this litigation. In that opinion, OIG concluded that the direct copay program would involve prohibited conduct under the AKS because Pfizer would provide a valuable copay subsidy card to eligible Medicare beneficiaries, which would induce such beneficiaries to purchase tafamidis by removing the financial impediment of the cost-sharing obligation. OIG further concluded that the copay program would present more than a minimal risk of fraud and abuse under the AKS and would be “highly suspect,” because one purpose would be to induce Medicare beneficiaries to purchase its federally reimbursable Medications. OIG noted that the program effectively would eliminate beneficiaries’ Medicare Part D cost-sharing requirements and could increase costs to the Medicare program.

In June 2020, after OIG had informed Pfizer that the opinion would be unfavorable but before OIG had issued the advisory opinion, Pfizer sued HHS in the SDNY, challenging OIG’s conclusions about the direct copay program as contrary to law under the Administrative Procedure Act (APA). On September 30, 2021, the SDNY granted summary judgment in favor of HHS, which the Second Circuit has now affirmed.

Throughout its challenge, Pfizer maintained that a direct copay program must be administered with a “corrupt” intent to violate the AKS.  Pfizer defined “corrupt” intent as a quid pro quo that “improperly or corruptly” skews the patient’s decision-making. The SDNY disagreed, however, concluding that nothing in the AKS’s text is “amenable to a reading that there be corruption involved.” Rather, the SDNY reasoned that the plain meaning of the terms “remuneration” and “induce,” as used in the AKS, describe a payment that persuades another to take a certain course of action. The SDNY therefore ruled against Pfizer because it found the stated intent of Pfizer’s program was to increase the number of Medicare beneficiaries who purchase the drug.

The Second Circuit declined to decide whether the AKS contains a quid pro quo element, noting that doing so was unnecessary because OIG expressly stated in its advisory opinion that the direct copay program would operate as a quid pro quo, given that Pfizer would offer the subsidy so that beneficiaries could purchase its drug. Indeed, the Second Circuit stated: “[w]e have no doubt that at least some kind of quid pro quo, direct or indirect, exists here.” But the Second Circuit ultimately disagreed with Pfizer that a quid pro quo must be corrupt in nature to implicate the AKS and that the word “induce”—as used in the AKS—requires or implies an element of corruption.

Pfizer’s attempts to narrow the scope of the AKS’s reach based on its original text – which prohibited only kickbacks, bribes, or rebates – also did not persuade the court. Pointing to Congress’s 1977 statutory expansion of the AKS to cover “any remuneration,” the Second Circuit stated that “the plain meaning of ‘remuneration’ is clearly broader than a kickback, bribe, or rebate.”

The Second Circuit was equally unpersuaded by Pfizer’s argument that the AKS should be construed narrowly in light of the Beneficiary Inducements Civil Monetary Penalty Law (CMPL), which Pfizer asserted Congress intended to serve as a broader, civil counterpart to the AKS. Despite Pfizer’s repeated references to the AKS and CMPL as “sister statutes” throughout its challenge, the Second Circuit noted that the AKS “is not simply a narrower version or criminal counterpart of the [CMPL] – although the two statutes have similar subject matter, they prohibit different activities.” Ultimately, the court found “little utility” in Pfizer’s attempt to compare the statutes to narrow the AKS.

Finally, the Second Circuit rebuffed Pfizer’s attack on the advisory opinion process in a win for OIG. The Second Circuit noted that the “process is [] helpful for determining when a proposed program is designed to ‘induce’ the purchase of a federally reimbursable medical treatment, just as the agency did here.”

It remains to be seen whether Pfizer will petition the U.S. Supreme Court for certiorari and see its challenge to the end. No other federal courts of appeals have ruled on this issue, so there is no circuit split for the Supreme Court to resolve. But the Second Circuit left a potential avenue open for appeal by failing to address Pfizer’s July 19, 2022, letter to the court, in which Pfizer cited the Supreme Court’s recent opinion in Ruan v. United States, No. 20-1410 (June 27, 2022). Pfizer asserted that Ruan narrowly construed the Controlled Substances Act to include a strong scienter requirement to diminish the risk of overdeterrence and that the Second Circuit should interpret the AKS in a manner that similarly diminishes the risk of overdeterrence. But for now, OIG’s longstanding position regarding the broad reach of the AKS stands.

If you have any questions about the decision, please contact the author or a member of the Bass, Berry & Sims Healthcare Fraud & Abuse Task Force.