With some 71 Medicare drug discount cards already approved by the CMS -- including 28 for beneficiaries not already enrolled in managed-care plans -- competition among card sponsors for enrollees may become intense. The CMS estimates that more than 7 million Medicare beneficiaries will purchase drug discount cards.
As a result, the program presents card sponsors an opportunity not only to earn rebates and other fees but also to lay the foundation for broader customer relationships with large numbers of elderly Americans, many of whom are high users of healthcare products and services.
This unique marketing opportunity may be one of the reasons for the surprisingly high number of drug discount card applications submitted by HMOs, insurers, pharmacy benefit managers, drug manufacturers, pharmacy chains and other organizations. With marketing of cards set to begin in early April, many card sponsors are in the process of developing ambitious marketing plans.
As they do so, however, sponsors should be sensitive to the pitfalls as well as the opportunities in marketing these new drug cards. The CMS is aggressively regulating the marketing of this new product, and there are a number of potential compliance traps into which the unwary sponsor can fall.
Card sponsors must obey tougher restrictions on their marketing activities than other organizations that fall under the privacy regulations of the Health Insurance Portability and Accountability Act. Under the act providers and insurers are allowed to market health-related products or services to patients or plan members without having to obtain the individual's authorization. However, the CMS has created a special rule for card sponsors.
The regulations expressly prohibit sponsors from using protected health information obtained from enrollees for the purpose of marketing other products and services, even if the sponsors obtain the enrollee's prior authorization. In fact, any effort to obtain an enrollee's authorization for this purpose is illegal. Therefore, card sponsors will have to develop special safeguards to ensure that protected health information about enrollees is not integrated with other databases that might be used for marketing purposes.
The CMS' concern is that the Medicare name and endorsement might be used by card sponsors to sell other products and services outside the scope of the drug discount card program. As a result, the CMS has prohibited card sponsors from commingling their drug discount card marketing materials with materials that encourage individuals to purchase other items or services.
This prohibition applies to all marketing, not only marketing that relies on the use of enrollees' protected health information. Sponsors must take special care to ensure that any mass media or Web-based advertising conducted under the rubric of their Medicare endorsement excludes references to any of their other products or services.
The prohibition on commingling marketing materials, however, applies only to marketing conducted by organizations acting in their capacity as drug discount card sponsors. When organizations act in any other capacity, they may include marketing materials about their drug discount card with the materials discussing their other products and services.
Although the CMS has provided guidance in its regulations as to when an organization will be deemed to be acting in its capacity as a card sponsor, this may not always be self-evident to marketing personnel. In addition, even when an organization is not acting in its capacity as a card sponsor, it still is prohibited by law from using the Medicare name or endorsement to imply CMS approval of nonendorsed products.
The CMS has indicated it will conduct random and "for cause" reviews to enforce the commingling prohibition. Marketing activities should therefore be cleared with knowledgeable managerial staff or advisers to ensure that the rules are not violated.
The antikickback law prohibits the payment of remuneration to induce another party to refer an individual for the provision of items or services for which payment may be made under the Medicare program.
Although most drug card program enrollees will merely access discounts without receiving any Medicare reimbursement, for low-income enrollees who are eligible for "transitional assistance," Medicare will pay the sponsor's enrollment fee as well as $600 per year toward the cost of the enrollee's covered drugs. These payments appear to constitute remuneration under the antikickback law.
HHS' inspector general's office has issued "safe harbor" guidelines under the antikickback law designed to let healthcare organizations know which activities are legal under the statute. Although arrangements that do not fall within a safe harbor do not necessarily violate the law, many marketing arrangements, by definition, involve the payment of remuneration in return for the referral of individuals. If these marketing arrangements involve the referral of individuals for Medicare-covered services, they must be structured to fit within a safe harbor.
The two safe harbors that are potentially applicable to marketing arrangements are those for employment and personal services. The CMS also has issued guidelines covering the provision of gifts to enrollees. Sponsors should assess their marketing payment relationships carefully to ensure compliance with these provisions.
Certain sponsors may seek to rely on subcontractors to market their cards. This may be particularly true of drug manufacturers and other companies that do not typically have direct customer relationships with consumers. The good news is that the CMS has given sponsors substantial leeway in subcontracting out core program functions entities. The bad news is that sponsors are legally mandated to ensure that their subcontractors comply with CMS regulations.
This means that sponsors may be held liable by the CMS for any subcontractor activities that violate program requirements. As a result, it will be essential for sponsors to perform adequate due diligence on their marketing partners, build in appropriate protections in their marketing contracts and closely monitor the activities of companies marketing on their behalf.
The penalties for violating CMS marketing rules may include intermediate sanctions such as the suspension of a sponsor's right to conduct enrollment or outreach or the revocation of Medicare's endorsement of the sponsor's card. If a sponsor knowingly misrepresents or falsifies information about the program, the CMS may impose civil monetary penalties of as much as $10,000 per violation. To the extent a sponsor's marketing activities violate other applicable laws, such as the antikickback law or HIPAA, penalties may be imposed under those statutes as well.
Given the array of complex regulations and guidelines that circumscribe drug discount card marketing activities, sponsors should carefully review and expand their corporate compliance programs to address the special compliance risks raised by participation in this program.
The pace at which the program is being implemented is extraordinarily rapid. Once the marketing process begins, it will be difficult to play catch-up from a compliance standpoint. This is the critical time for sponsors to lay the foundation for a drug discount card program that creates business opportunities without associated compliance scandals.
Robert Belfort is a partner in the New York office of the law firm of Manatt, Phelps & Phillips.