Unfavorable Specialty Pharmacy Advisory Opinion

The Office of the Inspector General (the “OIG”) recently issued an unfavorable advisory opinion regarding an arrangement proposed by a specialty pharmacy.  The specialty pharmacy requested the advisory opinion (the “Requestor”).  The Requestor dispenses specialty pharmaceuticals that may not be available at local retail pharmacies.  In some instances, according to the Requestor, local retail pharmacies may be prohibited from dispensing the specialty pharmaceuticals or managed care payors may designate certain pharmacies to dispense the pharmaceuticals.

The Requestor dispenses specialty pharmaceuticals for a variety of chronic and life-threatening diseases.  Some of the specialty pharmaceuticals are reimbursable by federal healthcare programs.  If the Requestor fills a prescription through a distribution channel or at one of its physical locations, then the Requestor also provides the following additional services: (1) team counseling including a patient care coordinator and pharmacist, (2) proactive renewal reminders and utilization and adherence assessments, and (3) financial assistance support.

Under the arrangement presented to the OIG, the Requestor would enter into contracts with local pharmacies and pharmacy networks in order to assist their patients in getting access to the specialty pharmaceuticals that the Requestor may dispense.  The local pharmacy would be required to perform support services including: (1) accepting new specialty pharmaceutical prescriptions from patients or prescribers, (2) gathering demographic information, (3) recording medication history and use, (4) counseling patients on appropriate use of medications, (5) informing patients about access to specialty pharmaceuticals and other services provided by specialty pharmacies, (6) obtaining patient consent to forward the specialty pharmaceutical prescription to the Requestor, (7) transferring prescription information to the Requestor, and (8) providing ongoing assessment for subsequent refills (the “Support Services”).  The Requestor would compensate local pharmacies fair market value for the Support Services, which payments would be made on a per-fill basis for the initial prescription and each refill.

On review, the OIG was troubled with the proposed arrangement.  The per-fill fee was specifically cited as problematic.  The OIG, consistent with prior statements and interpretations, found the payment methodology potentially subject to fraud since the amount was directly tied to the volume of prescriptions sent to the Requestor.  Even though the Support Services would be provided by the Requestor to the local pharmacy and those services would benefit patients, the referring local pharmacy would still recognize a financial benefit from making the referral.

The OIG included a comment that the Support Services would not be offered to all of the local pharmacy’s patients, only those who were referred.  This reference raises the possibility that if the Requestor had provided the Support Services to all of the local pharmacy’s patients, then the arrangement may have been more palatable.

As always with advisory opinions from the OIG, the opinion is specific to the Requestor and the facts presented by the Requestor.  That being said, there are still some lessons to learn from the advisory opinion.  First, any arrangement where payment is tied directly to the volume of business between the parties is very likely to raise eyebrows and be viewed as suspect.  Parties should be very careful anytime payments are linked to referrals.

Second, the care coordination goals included as part of the proposal may be helpful in forming a relationship that can pass muster.  Care coordination is clearly a goal under many forms of healthcare reform and various types of providers will need to figure out how to work together.  Obviously, care coordination services cannot be offered for free.  However, if such services are offered to all patients and not just those patients referred, then an arrangement may not be viewed as a vehicle for driving referrals.  In such an instance, the OIG’s fraud concerns may be reduced because the “extra” services are not a carrot to incentivize referral behaviors.

Everyone in the healthcare industry should always remember to carefully vet all angles of a potential arrangement before starting.  Keep in mind, which the OIG certainly does, so long as only one purpose of a relationship is to obtain referrals in exchange for remuneration then there may be complications under the Anti-Kickback Statute.


About Matt Fisher

Matt is the chair of Mirick O'Connell's Health Law Group and a partner in the firm's Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt's health law practice includes advising clients with regulatory, fraud, abuse, and compliance issues. With regard to regulatory matters, Matt advises clients to ensure that contracts, agreements and other business arrangements meet both federal and state statutory and regulatory requirements. Matt's regulatory advice focuses on complying with requirements of the Stark Law, Anti-Kickback Statute, fraud and abuse regulations, licensing requirements and HIPAA. Matt also advises clients on compliance policies to develop appropriate monitoring and oversight of operations.
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