News & Events

OIG Approves Free Clinic Arrangement To Dispense PAP Drugs to Part D Enrollees

A free clinic in West Virginia can dispense manufacturer-provided prescription drugs at no cost to certain low-income Part D enrollees, the Department of Health and Human Services Office of Inspector General said in Advisory Opinion No. 06-08, released June 30.

Specifically, the OIG said the arrangement, which involves dispensing free drugs provided by drug company patient assistance programs (PAPs) to patients who meet "stringent financial need guidelines," did not violate the anti-kickback statute.

The name and location of the requestor was redacted from the advisory opinion, but Senate Finance Committee leaders in a news release applauding the OIG's decision identified the free clinic as West Virginia Health Right.

The free clinic provides no-cost medical, dental, laboratory, and other health care services to certain low-income residents, and does not bill patients or any insurer, including federal health programs. The clinic employs three salaried nurse practitioners, but otherwise relies on volunteer physicians, dentists, nurses, pharmacists, and other health care personnel to provide the free health care.

Dispensing Prescription Drugs
In some cases, according to the advisory opinion, the clinic's pharmacy dispenses drugs to qualifying Medicare beneficiaries, regardless of enrollment in Part D, when the drug is too expensive for a beneficiary to obtain from a retail pharmacy or if insurance cost-sharing amounts are prohibitively expensive for an individual beneficiary.

The requestor told the OIG it first directs patients to alternate assistance, including the Part D drug subsidy or alternate drugs covered by their plans' formularies, before dispensing drugs.

Since the free clinic does not bill insurance or patients, it told the OIG that it relies on limited funding from other sources as well as pharmaceutical manufacturer PAPs to stock its pharmacy.

The clinic dispenses PAP-provided drugs in two ways, according to the advisory opinion. One involves dispensing drugs to individual patients enrolled on their own in a PAP. The other involves bulk shipments of drugs to the clinic for dispensing to patients who meet the PAP requirements. In both arrangements, the clinic receives no remuneration from the drugmakers, including dispensing for administrative fees, the OIG said.

The OIG noted that while there was nothing in the request to suggest that the PAPs were problematic, there was not enough information to determine whether the PAPs were properly structured for the purpose of providing free drugs to certain Part D enrollees.

"We observe that it should not be difficult for pharmaceutical manufacturers to structure PAPs to provide drugs to Part D enrollees entirely outside the Part D benefit in a manner that poses little, if any, risk under the fraud and abuse laws," the advisory opinion stated. "This would seem to be particularly true when the drugs are dispensed through a free clinic with no ability to submit claims for dispensed drugs such as the Requestor."

Free Clinic Arrangement
The OIG said it concluded that the free clinic arrangement was not problematic for reasons that included the absence of a billing system that could charge the Part D program for the drugs or allow the free drugs to count toward beneficiaries' true-out-of-pocket costs.

Furthermore, the OIG said the arrangement did not violate the anti-kickback statute because there was no apparent remuneration by PAPs to the clinic. In other words, the requestor could not benefit economically from selling any of the drugs.

In addition, the OIG noted that the arrangement inured the public good "in the form of increased availability of health care items and services for an underserved population."

The OIG also found that the requestor was not in a position to generate referrals to the PAP sponsors for care payable by a federal health program. While the pharmacy fills prescriptions for Part D patients who receive care in another setting, and the doctors in those settings could volunteer at the clinic, the clinic provides no pay to the doctors, eliminating concern that the arrangement could generate illegal referrals.

The request also posed the question whether the free drugs amounted to impermissible inducement to beneficiaries to generate business that would be payable by federal health programs. The OIG concluded that is not the case because the requestor does not bill federal health programs for any items or services.

Congressional Reaction
In their news release, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), ranking member Max Baucus (D-Mont.), and health subcommittee ranking member John D. Rockefeller IV (D-W. Va.) said that PAPs and free clinics were key safety net programs for low-income individuals.

Grassley said the advisory opinion should help everyone involved in the clinic's program to "know that their work doesn't violate the federal anti-kickback statute."

"Free clinics are a valuable way to get low-cost and no-cost drugs to Americans in need," Baucus said. "This opinion from the Inspector General's office lets clinics know this service is not only laudable, but still legal under the new Medicare drug benefit."

The advisory opinion will be available at

The Grassley-Baucus letter is available at


Uninsured people include children, young adults, middle-aged adults and people nearing or at retirement.

Smaller employers are less likely to offer health insurance to their employees because premiums are prohibitively expensive.

WVAFC at a Glace

West Virginia Association of Free Clinics
1520 Washington Street East
Charleston, WV 25311
Phone: 304-414-5941
Linda West, Executive Director