On December 17, 2024, the Department of Health & Human Services, Office of Inspector General (HHS-OIG) issued its second favorable advisory opinion involving an arrangement in which a drug manufacturer sponsors genetic testing for an ultra-rare genetic condition. The opinion is set out in Advisory Opinion 24-12 (AO 24-12) and provides welcome guidance for companies considering similar programs, especially in the face of recent enforcement actions taken by the Department of Justice (DOJ) against sponsors of genetic-testing programs. Read on for a summary of AO 24-12 and recent DOJ enforcement actions related to genetic-testing programs.
When they conduct the complex task of using symptoms to make a diagnosis, healthcare providers likely recall the direction they were given in medical school: “When you hear hoofbeats, think horses, not zebras.” In other words, consider first what is the most common diagnosis, not the rarest. Rare genetic disorders turn this maxim on its head, though, precisely because the correct diagnosis is anything but common. Diagnosing a rare disease correctly requires a healthcare provider to “hear hoofbeats and think zebra.” With this in mind, it becomes obvious that genetic testing can be the quickest or even the only way to reach a correct diagnosis.
But genetic testing is prohibitively costly and not always covered by insurance. So some pharmaceutical companies provide genetic testing to patients at no cost, sometimes in collaboration with genetic-testing labs. By shifting costs away from patients, these sponsored testing programs allow patients to receive genetic tests that are invaluable to finding a correct diagnosis. Such programs, while highly beneficial to patients seeking accurate diagnoses, have drawn the scrutiny of government regulators, who are concerned that the free tests may constitute impermissible remuneration under the Anti-Kickback Statute (AKS) and the Beneficiary Inducements Civil Monetary Penalty Law.
In April 2022, Advisory Opinion 22-06 (AO 22-06) sent a shockwave through the rare disease community and marked the first time HHS-OIG weighed in on the legality of sponsored genetic testing. The arrangement addressed in AO 22-06 involved free genetic tests that screen for a gene mutation associated with a heart disorder for which they manufacture drugs. The advisory opinion was favorable, finding this arrangement would generate prohibited remuneration but posed a sufficiently low risk of fraud and abuse because (1) several features of the arrangement to provide free genetic testing and counseling made it unlikely to lead to overutilization; (2) the arrangement is unlikely to skew clinical decision-making; and (3) there are safeguards in place to prevent use of the arrangement as a marketing or sales tool. Specific aspects of the arrangement that minimize this risk included the following:
The agency’s latest guidance, AO 24-12, indicates that HHS-OIG and DOJ continue to scrutinize companies engaged in sponsored testing arrangements.
In the arrangement reviewed in AO 24-12, the requestor manufactures a drug for an ultra-rare genetic kidney condition and has an arrangement with a genetic-testing lab to offer free genetic testing, genetic counseling, and disease-awareness education. The requestor covers the full cost of these services, without requiring prescription or recommendation of its products.
As it did in AO 22-06, HHS-OIG concluded that this arrangement implicates the AKS because the tests constitute remuneration that may induce patients to purchase (or healthcare providers (HCPs) to prescribe) the requestor’s drug. The opinion is nonetheless favorable because HHS-OIG found that (1) the arrangement includes sufficient safeguards that reduce the risk of overutilization or inappropriate utilization of testing; (2) the arrangement is unlikely to skew clinical decision-making; and (3) the remuneration provided carries a sufficiently low risk of fraud and abuse. Specific aspects of the arrangement that minimize this risk include the following:
Of particular importance to companies conducting or considering similar programs, HHS-OIG includes its customary statement that it would likely reach a different conclusion if any of the facts differed.
AO 22-06 and AO 24-12 provide useful guidance for limiting the risk of False Claims Act (FCA) and AKS liability for sponsored genetic-testing programs, and there is little question that the programs will continue to draw scrutiny. DOJ has brought enforcement actions recently against several rare disease companies engaged in sponsored genetic testing, and some are concerned that the increased oversight of such programs by HHS-OIG and the DOJ will impede efforts to improve access to genetic testing, harming patients struggling with rare diseases who may not otherwise be able to afford such tests.
Emil Kakkis, CEO of Ultragenyx, a biopharmaceutical company that manufactures an FDA-approved drug to treat a rare inherited disorder, recently warned that patients will be most impacted by stricter oversight, as genetic testing often comes at the end of a lengthy, costly, and disheartening diagnosis process. Rigorous enforcement efforts targeting sponsorship programs may further delay this process and patients’ search for answers.
In November 2024, QOL Medical, LLC (QOL) and its CEO agreed to pay $47 million to resolve allegations that they provided free Carbon-13 breath-testing services in order to induce claims for the company’s therapy for a rare genetic condition. According to the settlement agreement between QOL and DOJ, the company received test results from the analyzing lab, including the name of the HCP ordering the test, and distributed this information to its sales force for use in its marketing program. DOJ found this program created improper inducements to generate business for the company’s drug.
We expect that government regulators will continue to scrutinize sponsored genetic-testing programs, so close attention to Advisory Opinions and enforcement actions is necessary for companies seeking to limit risks while helping patients find effective treatment for rare diseases.