Six legal and regulatory risks facing specialty pharmacies

“Specialty drugs” are a fast growing sector of the pharmaceutical industry and are predicated to represent 50 percent of drug expenditures in the United States by 2020.[1] Specialty drugs are typically dispensed by specialty pharmacies. Although there is no agreed-upon industry definition of “specialty pharmacy,” generally, these pharmacies focus on dispensing and distributing high cost “specialty drugs” prescribed for the treatment complex or chronic medical conditions such as cancer, rheumatoid arthritis, multiple sclerosis, hepatitis C and HIV/AIDS.[2]

Although specialty pharmacies face many of the same legal and regulatory issues that traditional retail pharmacies face, there are often unique considerations for specialty pharmacies. This article identifies six issues currently facing specialty pharmacies, and provides recommendations for how specialty pharmacies can mitigate these risks.

1. Prescription Billing Errors

Nature of the problem: Prescription billing errors — even small ones — can have significant consequences for specialty pharmacies.

Specialty pharmacy angle: Specialty pharmacies often dispense specialty drugs not dispensed by traditional retail pharmacies. Specialty drugs may have unique billing requirements, and, because they are often more expensive than “regular” drugs, government and commercial payors may review these claims with greater scrutiny.

Discussion: Due to the high cost of many specialty drugs, even small billing errors can result in substantial overpayments. Common billing errors include using the incorrect national provider identifier on submitted claims and incorrect place of residence code, among others. The possible consequences of such errors include (1) violating payor policies or requirements, leading to allegations of fraud, (2) Medicaid payment holds and referral to state Medicaid fraud control units (state attorneys general), and (3) liability for overpayments, including liability under the False Claims Act for improper retention of overpayments.

Recommendations: If a specialty pharmacy discovers that a billing error resulted in a Medicaid or Medicare overpayment, it should plan to submit a refund within 60 days of “identifying” the overpayment. In some cases, a formal self-disclosure (e.g., through the OIG self-disclosure protocol) may be the most appropriate approach to resolve matters implicating potential violations of federal law. Failure to report and return Medicaid and Medicare overpayments within 60 days can result in liability under the FCA, including civil monetary penalties, treble damages and, potentially, exclusion from participation in federal and state health care programs. However, even if a provider runs afoul of the 60-day clock, the provider is still obligated to return the overpayment.

Billing errors that result in overpayments by commercial payors may violate a specialty pharmacy’s contractual obligations to the payor. Specialty pharmacies should correct the overpayment in accordance with its contractual obligations.

To help mitigate the possibility of billing errors in the first place, specialty pharmacies should ensure that staff undergo ongoing training on appropriate billing procedures, particularly those procedures that are unique to specialty pharmacies. Further, specialty pharmacies should engage in proactive monitoring to prevent, detect and correct billing errors, particularly those in high-risk areas.

2. Manufacturer Copay Coupons

Nature of the problem: Drug manufacturers frequently offer copay coupons to insured patients to reduce their out-of-pocket costs for specific brand-name drugs. Although pharmacies may lawfully accept copay coupons from certain commercially insured patients to reduce their out-of-pocket costs, the federal anti-kickback statute (AKS) prohibits specialty pharmacies from accepting copay coupons from federally insured healthcare beneficiaries.

Specialty pharmacy angle: Copay coupons are commonly offered for high-cost specialty drugs dispensed by specialty pharmacies. Many specialty drugs may not be affordable to patients without these coupons.

Discussion: A September 19, 2014, OIG special advisory bulletin and report specifically addressed the issue of manufacturer copay coupons, finding that such coupons could be viewed as improper kickbacks under the federal AKS. Although the guidance primarily focused on the use of copay coupons under Medicare Part D, the agency specifically noted that the prohibition applies to all federal health care programs. The OIG places primary responsibility on drug manufacturers for ensuring that Part D members do not redeem copay coupons; however, pharmacies that accept coupons could also be held liable under the federal AKS, Civil Monetary Penalty (CMP) Law or the FCA. Last year, for example, Nashville Pharmacy Services agreed to pay $7.8 million to settle allegations that it submitted false claims by, among other things, accepting manufacturer copay coupons from federal healthcare beneficiaries to reduce patients’ out-of-pocket costs.[3]

In addition to federal regulations, some state have enacted other laws that prohibit the use of copay coupons for drugs reimbursed by state medical assistance programs (including Medicaid), worker’s compensation, and other programs. Some states may also have laws which prohibit the use of copay coupons for commercial payors. Part of the Nashville Pharmacy Services settlement also covered allegations that the pharmacy accepted manufacturer copay coupons from patients covered by TennCare, the Tennessee Medicaid Program.

Commercial payors have also raised concerns over the prevalence of manufacturer copay coupons for branded drugs for which cheaper generic equivalents are available. For example, effective July 1, 2013, UnitedHealthcare has limited the use of copay coupons for certain specialty drugs. In a memorandum explaining the company’s position, UnitedHealthcare stated that “[w]hile coupons may appear to be beneficial to members, they ultimately add costs back into the healthcare system by circumventing tiered PDLs that encourage use of lower cost medications.”[4]

Some commercial payors have initiated lawsuits under federal racketeering and antitrust laws against drug manufacturers for providing copay coupons to pharmacies. In one such lawsuit, the New England Carpenters Health & Welfare fund alleged that, by providing copay coupons, the drug manufacturer interfered with the pharmacies’ contractual obligations to collect copays directly from patients.[5] Although these lawsuits have been directed at the manufacturers, not the pharmacies, and have been largely unsuccessful so far, commercial payors could initiate similar litigation against pharmacies in the future.

Recommendations: To minimize the potential risks associated with accepting manufacturer copay coupons, specialty pharmacies should implement policies and procedures to ensure that only eligible beneficiaries are allowed to use copay coupons. Because the law varies from state to state, specialty pharmacies should consult with an attorney licensed in each state in which they operate to ensure compliance with applicable federal and state laws. Although it may not violate federal or state laws for a specialty pharmacy to accept copay coupons from commercially insured patients, it may violate the pharmacy’s contractual obligations to certain commercial payors. Specialty pharmacies should understand their contractual obligations to commercial insurers with respect to copay coupons, and provide training to pharmacy staff on any contractual restrictions on accepting copay coupon from patients covered by certain insurance plans.

3. Improper Patient Referrals

Nature of the problem: The government and whistleblowers continue to target pharmacies, including specialty pharmacies, for improper referrals in violation of the federal AKS, which prohibits the provision of anything of value to healthcare providers in exchange for referrals of items or services that may be reimbursed by federal healthcare programs.

Specialty pharmacy angle: Several specialty pharmacies recently settled an FCA case with federal and state governments for allegations of improper referrals. These settlements demonstrate how expensive it can be settle these types of allegations.

Discussion: In 2014, two specialty pharmacies, Bioscrip and Accredo agreed to pay $15 million and $60 million[6] respectively to resolve allegations that the specialty pharmacies accepted kickbacks in the form of rebates and patient referrals in exchange for promoting certain drugs over competitor products.[7] These allegations were brought by a whistleblower under the FCA. Although the settlement agreements did not contain a formal finding of liability, the cases were expensive to resolve, and the specialty pharmacies agreed to admit to certain facts as part of the settlement agreement.[8]

The OIG has warned specialty pharmacies about directly linking payments to patient referrals. In 2014, the OIG issued an unfavorable advisory opinion in response to a specialty pharmacy’s proposal to pay local retail pharmacies that don’t dispense specialty drugs a fee for certain “support services” provided in connection with referring patients to the specialty pharmacy.[9] These “support services” would include services such as accepting prescriptions for specialty drugs, recording the patient’s medication history and use, counseling the patient and informing the patient of access to specialty drugs, and obtaining the patient consent to forward the specialty drug prescription to the specialty pharmacy.[10] The fee for these services would be fair market value (FMV) and paid on per-fill basis.[11]

The OIG concluded that this proposal could potentially generate prohibited remuneration in violation of the federal AKS, opining that because the fee for the “support services” would be paid each time the services resulted in a referral to the specialty pharmacy, the arrangement posed “more than minimal risk” of fraud and abuse.[12] According to the OIG, “per-fill fees” are “inherently subject to abuse because they would be directly linked to business generated by the [retail pharmacies] for [the specialty pharmacy].”[13] This advisory opinion suggests that the OIG is likely to view any referral or fee-for-transfer arrangements between specialty and retail pharmacies as prohibited remuneration, even if the remuneration is FMV.

Recommendations: Improper referrals can trigger liability under the AKS and FCA and can be expensive to settle, as demonstrated by the Bioscrip and Accredo settlements. To avoid this risk, specialty pharmacies should ensure that adequate policies and procedures are in place to address relationships with healthcare providers (e.g., prohibitions or appropriate limitations on the provision of items of value). Specialty pharmacies should also provide adequate training on these policies and procedures to staff interacting with healthcare providers as well as create systems to adequately monitor the provision of items of value to healthcare providers and detect potential misconduct.

4. Usual & Customary (U&C) Pricing and Prescription Discount Card Programs

Nature of the problem: Retail pharmacies often offer prescription discount card programs. Generally, members pay an enrollment fee to receive discounted prices on prescription drugs and other benefits. Whistleblowers have recently brought FCA lawsuits against pharmacies based on allegations that these programs improperly inflate U&C prices and result in higher reimbursement for pharmacies.

Specialty pharmacy angle: Some specialty pharmacies may similarly accept prescription discount card programs, or create loyalty programs for their customers, and thus could face similar FCA lawsuits.

Discussion: Many states define the U&C charge as the price charged to the “general public.” Some whistleblowers have argued that the “general public” includes the customers who are members of discount card programs. These whistleblowers have brought FCA lawsuits against pharmacies on the theory that failing to pass on discount-program pricing as the U&C price misrepresents the U&C price and causes the government to overpay for prescriptions. Last year, the Seventh Circuit upheld the lower court’s decision in United States ex. rel. Garbe v. Kmart Corp., 968 F. Supp. 2d 978 (S.D. Ill. 2013), which allowed a whistleblower to proceed with FCA claims under this theory. The court agreed with the whistleblower that customers participating in Kmart’s generic discount programs were part of the “general public” because anyone is eligible to join the program. In a similar lawsuit, Doe v. Houchens Indus. Inc., No. 1:13-CV-00196-RLY, 2015 WL 133706 (S.D. Ind. Jan. 9, 2015), the court cited Garbe in rejecting the pharmacy-defendant’s argument that a discount club price was not the U&C price.[14] The court based its conclusion on the minimal amount of the enrollment fee (often waived or reimbursed) and the fact that membership was open to anyone who filled prescriptions.

Recommendation: Specialty pharmacies should review discount card pricing — including its frequency — to determine whether it could implicate U&C regulations or contractual provisions with commercial payors.

5. Automatic Refills

Nature of the problem: Automatic refills violate Centers for Medicare and Medicaid Services policy mandating that Medicare Part D sponsors require participating pharmacies to obtain a patient’s consent before automatically filing and delivering a patient’s prescription.[15] Some commercial payors’ contract terms may also prohibit pharmacies from automatically refilling prescriptions for patients.

Specialty pharmacy angle: Many specialty pharmacies are mail-order pharmacies. CMS has reported receiving complaints that some mail-order pharmacies automatically deliver new prescriptions that were called in or e-prescribed without first confirming that the patient wants the prescription filled and delivered.[16]

Discussion: The Final Call Letter from CMS states that Part D sponsors should “require their network retail and mail pharmacies to obtain patient consent to deliver a prescription, new or refill, prior to each delivery.”[17] The policy clarifies, however, that it does not affect retail refill reminder programs that require the patient to pick-up the prescription, nor does it apply to long-term care pharmacies that may automatically dispense and deliver prescriptions.[18] The Nashville Pharmacy Services’ settlement discussed above also included allegations that the pharmacy automatically refilled medications without the consent of the patient, in violation of TennCare’s contractual requirements and CMS policy.[19]

Recommendation: Specialty pharmacies should implement policies and procedures to ensure that prescriptions are not automatically refilled and delivered to patients who are not covered by the long-term care exception. Specialty pharmacies should consider auditing their prescriptions to ensure the appropriate provision of prescriptions to their patients based on their policies and procedures.

6. Compounded drugs

Nature of the problem: In June of 2016, the U.S. Department of Health and Human Services indicated that the OIG will increase its oversight of Medicare Part B claims for compounded drugs.[20] According to the HHS OIG data brief, spending on compounded drugs has increased dramatically, which, in the government’s view, raises concerns about fraud and abuse and patient safety.[21]

Specialty pharmacy angle: Compounded drugs are often prepared by specialty pharmacies.

Discussion: Compounded drugs are customized medications that are tailored to the needs of individual patients. According to the U.S. Food and Drug Administration, compounded drugs may pose unique safety risks to patients; for example, the wrong potency could be prepared. In March of 2016, after self-disclosing the conduct to the OIG, Prime Pharmacy Solutions LLC (PPS), a specialty pharmacy in Louisiana, agreed to pay $613,671.22 to settle allegations that it submitted claims for compound drug prescriptions to federal health care programs “that overstated the amount of ingredients actually dispensed, or included more than an amount prescribed by the physician.”[22] Similarly, in March of 2016, ZMS1 LLC, d/b/a The Medicine Shoppe Pharmacy, a specialty pharmacy in Florida, agreed to pay $35,313.05 after it made a self-disclosure to settle allegations that it submitted claims to federal health care programs for compound drug prescriptions “when it knew or should have known the claims overstated the amount of the active ingredient actually dispensed.”[23]

Recommendation: It is important for specialty pharmacies dispensing compound drugs to accurately report the amount of active ingredient actually dispensed and to fill prescriptions for compound drugs as written by the prescribing physician. If improper conduct is discovered, specialty pharmacies should self-disclose the conduct to the government. By doing so specialty pharmacies can avoid paying the penalties and treble damages that could be imposed if the conduct is exposed through a FCA lawsuit.

Conclusion

The above list of six legal and regulatory issues facing specialty pharmacies is by no means comprehensive, but it does identify some key issues currently facing specialty pharmacies. Specialty pharmacies should implement compliance measures to ensure that applicable laws and regulations are followed, and should consult with a licensed attorney when specific issues arise.

Originally published in Law360: https://www.law360.com/articles/899751.

[1] “2015 Pharm Science Strategic Outlook an Industry in Flux: 2014-2015 Market Trends,” Pharmaceutical Executive, available at http://images.alfresco.advanstar.com/alfresco_images/pharma/2014/11/25/6b62704d-511b-4b8b-8d26-406a753f1e0a/article-856395.pdf (Feb. 27 2017).
[2] “The Growth of Specialty Pharmacy: Current trends and future opportunities,” UnitedHealth Center for Health Reform & Modernization, April 2014, available at http://www.unitedhealthgroup.com/~/media/uhg/pdf/2014/unh-the-growth-of-specialty-pharmacy.ashx (Feb. 27 2017).
[3] January 5, 2016 DOJ Press Release “Nashville Pharmacy Services Settles False Claims Act Lawsuit,” available at https://www.justice.gov/usao-mdtn/pr/nashville-pharmacy-services-settles-false-claims-act-lawsuit (Feb. 27 2017); see also United States ex. rel. McCullough v. Nashville Pharmacy Services, LLC No. 12-cv-0823 (M.D. Tenn.).
[4] “UnitedHealthcare to limit acceptance of manufacturer coupon cards,” available at http://broker.uhc.com/assets/Specialty%20PDL%20Coupons.pdf#sthash.YNti8XFD.dpuf (Feb. 27 2017).
[5] See New England Carpenters Health & Welfare Fund v. Abbott Labs., No. 12 C 1662, 2014 WL 4783833 (N.D. Ill. Sept. 25, 2014).
[6] January 8, 2014, DOJ Press Release, “BioScrip Agrees to Pay $15 Million and Makes Extensive Factual Admissions to Resolve Claims,” available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-simultaneously-files-additional-healthcare-fraud-claims-against ((Feb. 27 2017); May 1, 2015 DOJ Press Release, “Manhattan U.S. Attorney Announces $60 Million Civil Fraud Settlement With Accredo Health Group Over Kickback Scheme Involving Prescription Drug,”  available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-60-million-civil-fraud-settlement-accredo-health-group (Feb. 27 2017).
[7] January 8, 2014, DOJ Press Release, “BioScrip Agrees to Pay $15 Million and Makes Extensive Factual Admissions to Resolve Claims,” available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-simultaneously-files-additional-healthcare-fraud-claims-against ((Feb. 27 2017); May 1, 2015 DOJ Press Release, “Manhattan U.S. Attorney Announces $60 Million Civil Fraud Settlement With Accredo Health Group Over Kickback Scheme Involving Prescription Drug,”  available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-60-million-civil-fraud-settlement-accredo-health-group (Feb. 27 2017).
[8] January 8, 2014, DOJ Press Release, “BioScrip Agrees to Pay $15 Million and Makes Extensive Factual Admissions to Resolve Claims,” available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-simultaneously-files-additional-healthcare-fraud-claims-against ((Feb. 27 2017); May 1, 2015 DOJ Press Release, “Manhattan U.S. Attorney Announces $60 Million Civil Fraud Settlement With Accredo Health Group Over Kickback Scheme Involving Prescription Drug,”  available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-60-million-civil-fraud-settlement-accredo-health-group (Feb. 27 2017).
[9] August 7, 2014, OIG Advisory Opinion No. 14-06, available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2014/AdvOpn14-06.pdf (Feb. 27. 2017).
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id. at *3.
[15] See April 1, 2013 CMS Announcement of Calendar Year (CY) 2014 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter, available at https://www.cms.gov/Medicare/HealthPlans/MedicareAdvtgSpecRateStats/downloads/Announcement2014.pdf.
[16] Id.
[17] Id.
[18] Id.
[19] January 5, 2016 DOJ Press Release “Nashville Pharmacy Services Settles False Claims Act Lawsuit,” available at https://www.justice.gov/usao-mdtn/pr/nashville-pharmacy-services-settles-false-claims-act-lawsuit (Feb. 27 2017) ; see also United States ex. rel. McCullough v. Nashville Pharmacy Services LLC, No. 12-cv-0823 (M.D. Tenn.).
[20] June 2016 HHS OIG Data Brief, OEI-02-16-00290, “High Part D Spending on Opioids and Substantial Growth in Compounded Drugs Raise Concerns,” available at https://oig.hhs.gov/oei/reports/oei-02-16-00290.pdf (Feb. 27. 2017).
[21] Id.
[22] “OIG 2016 Provider Self-Disclosure Settlements,” available at https://oig.hhs.gov/fraud/enforcement/cmp/psds.asp (Feb. 27. 2017).
[23] Id.