Kickback Questions & Answers

Receiving compensation for moving patients from brand-name drugs to generics: ethical and legal issues¹

American Medical Association (AMA) Policy H-125.984 recognizes that generic drugs can be less costly alternatives to brand-name products. H-125.984 also states that physicians should be free to use either the generic or brand name in prescribing drugs for their patients, and physicians should supplement medical judgments with cost considerations in making this choice. Recently, the AMA has learned that some health insurers are offering to pay physicians to switch patients from brand-name drugs to generic. The AMA has received numerous inquiries from the Federation of Medicine concerning the legality or ethical propriety of accepting this type of compensation.  This question-and-answer document attempts to address these legal and ethical considerations.

Will physicians violate any federal laws by accepting the health insurer’s payment? 

A physician accepting payment from an insurer in exchange for moving a patient from a brand name to a generic drug could potentially face both criminal and civil liability exposure under the federal antikickback statute.²  The antikickback statute prohibits individuals or entities that knowingly and willfully offer or receive anything of value (1) in order to induce or reward the referral of business, or (2) in return for ordering any good, if payment for the good or referred business is at least partially made by a federal health care program (e.g., Medicare Advantage). Accepting payment for moving a patient from a brand name to a generic could be viewed as an antikickback statute violation (e.g., the physician receiving something of value, such as a cash payment, to prescribe the generic instead of the brand-name drug). Violations of this law are punishable by up to five years in prison, criminal fines of up to $25,000, civil monetary penalties up to $50,000, and exclusion from participation in federal health care programs like Medicare. 

The Michigan State Medical Society has asked a health insurer to change the way it promotes the compensation to physicians so it is clear that any payment is for the purpose of fairly compensating the physician for otherwise unpaid physician work relating to moving the patient from the brand name to the generic (e.g., time and effort taken “to track the patient to determine if the change is medically appropriate and counsel the patient about making the change”).

May a physician lawfully accept the payment if the payment only applies to patients who have commercial insurance or whose care is funded by a state governmental program?

The answer to this question depends on the laws of the state in which the physician practices. At least 37 states have some type of antikickback statute, and some of these statutes apply in commercial insurance contexts. If the amount of payment offered to the physician to move the patient from the brand-name drug to the generic exceeds the fair market value of the physician’s time and effort, the physician could be exposed to liability under a state antikickback statute. See Appendix A for a list of citations to state antikickback statutes.

What if a physician’s acceptance of the compensation does not implicate any state or federal antikickback statutes? Are there any other potential liability concerns?

AMA policy acknowledges the legitimacy of generic substitution. AMA policy also states that physicians should use their medical judgment when deciding to make a substitution. In some circumstances, a physician might have to respond to medical liability allegations if a switch resulted in patient injury. The ability to respond effectively to these allegations may be made more difficult if the physician received payment from a health insurer to make the switch.

Are there any ethical concerns raised when a physician accepts payment for changing a patient from a brand-name drug to a generic?

Accepting payment for changing patients from a brand-name drug to a generic may raise ethical concerns that are expressed in a number of ethical opinions that have been published by the AMA’s Council on Ethical and Judicial Affairs (CEJA). For example, “E-8.03 Conflicts of Interest: Guidelines” states, “Under no circumstances may physicians place their own financial interests above the welfare of their patients.” “E-8.06 Prescribing and Dispensing Drugs and Devices” adds, “Physicians should prescribe drugs, devices, and other treatments based solely upon medical considerations and patient need and reasonable expectations of the effectiveness of the drug, device or other treatment for the particular patient.” Similarly, “E-8.13 Managed Care” states, “Efforts to contain health care costs should not place patient welfare at risk…Physicians should insist that any incentives to limit care must be disclosed fully to patients by plan administrators….”  These and other ethical pronouncements from CEJA are attached to this document in Appendix B. A physician should consider these pronouncements as part of a decision to consider whether it is appropriate to accept payment in exchange for moving a patient from a brand-name medication to a generic. 

¹ NOTICE:  This document provides only general legal information and not legal advice.  The reader should not rely on this information when dealing with personal legal matters.  Instead, the reader should obtain advice from retained legal counsel.

² Section 1128B(b) of the Social Security Act (42 U.S.C. 1320a-7b(b)).