Patient Services Inc. (PSI), a foundation based in Midlothian, Virginia, has agreed to pay $3 million to resolve allegations that it violated the False Claims Act by acting as a conduit to enable certain pharmaceutical companies to provide kickbacks to Medicare patients taking the companies’ drugs by paying the patients’ copayments, the Department of Justice announced today. The amount of the settlement announced today was determined based on analysis of PSI’s ability to pay after review of its financial condition.

When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B or Part D, the beneficiary may be required to make a partial payment, which may take the form of a co-payment, co-insurance, or deductible (collectively, copays). Congress included co-pay requirements in these programs, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. The Anti-Kickback Statute prohibits pharmaceutical companies from offering or paying, directly or indirectly, any remuneration – which includes money or any other thing of value – to induce Medicare patients to purchase the companies’ drugs, and it prohibits third parties, such as copay foundations, from acting as a conduit for such payments.

“The Department is committed to ensuring that foundations are not used as mere conduits to funnel kickbacks from pharmaceutical companies to Medicare patients and to increase company profits while avoiding an important cost-control aspect of the Medicare program,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “We will continue to combat unlawful kickback arrangements and their pernicious influence on our health care system.”

“Pharmaceutical companies cannot use foundations to funnel drug co-payments disguised as routine charitable donations, all to prop up excessive drug prices. PSI allegedly operated as a vehicle for specific pharmaceutical companies essentially to pay kickbacks at the ultimate expense of the American taxpayers who support the Medicare program,” said U.S. Attorney Andrew E. Lelling of the District of Massachusetts. “We will continue to pursue this kind of enforcement until the practice disappears.”

The government alleged that PSI coordinated with three pharmaceutical manufacturers – Insys, Aegerion, and Alexion – to enable them to pay kickbacks to Medicare patients taking their drugs. PSI allegedly worked with these companies to design and operate certain funds that funneled money from the companies to patients taking the specific drugs the companies sold. These schemes allegedly minimized the possibility that the companies’ contributions to the funds would go to patients taking competing drugs made by other companies and undermined the nature of these contributions as bona fide donations. The United States previously entered into settlement agreements with Insys, Aegerion, and Alexion covering their use of PSI as a conduit to pay their patients’ copays.

As to Insys, the government alleged that, in late 2013, PSI and Insys began discussing a potential copayment assistance fund for Subsys, a sublingual form of fentanyl, a powerful opioid painkiller, which was approved for the treatment of breakthrough cancer pain in opioid-tolerant patients. The government further alleged that PSI worked with Insys to create the “Breakthrough Cancer Pain” fund, to which Insys was the only donor. The government also alleged that PSI allowed Insys to see the status of each patient that it referred to PSI, including whether that patient had received copay assistance from PSI and the amount of the assistance. The government alleged that PSI knew that Insys was referring patients to the Breakthrough Cancer Pain fund who did not have cancer, but PSI stated that it would only prevent “off-label use…if the Donor wants us to.”

The government also alleged that, in 2013, at Aegerion’s request, PSI created a fund for homozygous familial hypercholesterolemia (HoFH), which can be treated by Juxtapid, a drug that was sold by Aegerion. The government alleged that PSI allowed Aegerion to participate in establishing the patient eligibility criteria that PSI used to cover copayment obligations of patients taking Juxtapid, and PSI’s HoFH fund allowed Aegerion to pay for Medicare patients’ copayments to eliminate any price sensitivity to physicians prescribing and patients taking Juxtapid.

The government further alleged that Alexion approached PSI in January 2010 to request that PSI create a fund to provide financial assistance to Soliris patients, including by paying patients’ Medicare copays and other medical expenses for Soliris patients. Soliris was indicated for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH) to reduce hemolysis and for the treatment of patients with atypical hemolytic uremic syndrome (aHUS) to inhibit complement-mediated thrombotic microangiopathy. According to the government, except in rare instances, PSI provided financial assistance from the Complement Mediated Diseases (CMD) fund only if a patient was taking Soliris, and PSI reported information back to Alexion confirming the specific Soliris patients who were approved for copay or other financial assistance from PSI and through which PSI detailed payments to those patients.

“Few things undermine public confidence quite like finding out the pharmaceutical companies and non-profits they entrust with their health and financial peace of mind have been playing fast and loose with the law. Schemes like these, and the individuals and organizations who perpetrate them, are an affliction on our health care systems,” said Joseph R. Bonavolonta, Special Agent in Charge of the FBI Boston Division. “This settlement demonstrates the FBI’s resolve to ensure that patients receive care that is based solely on sound medical judgment, and not compromised by kickbacks.”

PSI has agreed to a three-year Integrity Agreement (IA) with HHS-OIG as part of the settlement. The IA requires, among other things, that PSI implement measures designed to ensure that it operates independently and that its arrangements and interactions with pharmaceutical manufacturer donors are compliant with the law. In addition, the IA requires compliance-related certifications from PSI’s Board of Directors and detailed reviews by an independent review organization.

“Foundations operating patient assistance programs should operate with integrity and act independently from their donors,” said Gregory E. Demske, Chief Counsel to the Inspector General at the U.S. Department of Health and Human Services. “Our Integrity Agreement is designed to promote such independence and monitor the foundation to reduce the risk of future kickbacks.”

The government’s resolution of this matter illustrates the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).

The investigation was conducted by the Department of Justice’s Civil Division and the U.S. Attorney’s Office for the District of Massachusetts, in conjunction with the Department of Health and Human Services, Office of Inspector General, and the Federal Bureau of Investigation.

The claims resolved by the settlement are allegations only; there has been no determination of liability.