Client Alert: Federal Government Crack-Down Involving Medicare and Medicaid Over-the-Counter Cards is Expanding

Having served for nearly a decade as a federal prosecutor with the Department of Justice (“DOJ”), I always understood that whether a violation of the Anti-Kickback Statute (“AKS”) will result in criminal charges versus a civil lawsuit for monetary damages depends, in part, on the exchange of so-called “cash on the barrelhead” between providers. Not so much anymore. Ambitious federal prosecutors have expanded the concept to bring criminal charges against pharmacists based on benefits offered to customers, not another provider or referral source.

Specifically, on December 8, 2022, federal prosecutors charged an employee of NY Elm Pharmacy, located in Queens, New York, and the owner of 888 Pharmacy, located in Brooklyn, New York, with offering illegal kickbacks in the form of supermarket coupons, copay waivers, and over-the-counter (“OTC”) cards. As we wrote about here, the DOJ also recently announced the conviction of a pharmacist in New York City who paid kickbacks involving OTC cards to customers. Notably, these charges are severe and carry prison terms of up to 10 years’ incarceration.

In these prosecutions, pharmacists offered nominal benefits to customers, including:

1. $3 supermarket coupons;
2. $2 in-store credits;
3. waivers of $3 copayments; and
4. OTC card exchanges.[1]

The 888 Pharmacy complaint, however, alleges: “a common means of providing kickbacks and bribes to Medicare beneficiaries and Medicaid recipients and facilitating fraud schemes for medically unnecessary medications is to fail to charge such individuals the copayments due for their prescriptions.” Perhaps, but copay waivers are also expressly permitted under the law based on individualized assessments of financial need.

Accordingly, the sweeping AKS charging theory discussed here means that a pharmacist may be criminally charged if she has waived copayments or offered nominal benefits to customers who then filled medically unnecessary prescriptions at the pharmacy, irrespective of the pharmacist’s knowledge of medical necessity. This is all the more troubling because federal prosecutors are relying on data to identify medically unnecessary prescriptions using “outlier” dispensing trends. In short, if your pharmacy dispensing is outside the bell curve and you have offered benefits to patients of the nature described herein, you may have criminal exposure.

How Frier Levitt Can Help

It is never too late for corrective action. Frier Levitt routinely advises clients on strategies for ensuring compliance with all applicable laws and correcting past instances of noncompliance, whether that be OTC-related or otherwise. Notably, Frier Levitt’s compliance protocols have been expressly approved by the DOJ and OIG. Frier Levitt is a national boutique healthcare law firm that has represented community pharmacies for more than 20 years. Please contact us for a consultation. We look forward to assisting you with your needs.

[1] Unlike the Civil Monetary Penalties Law, which permits gifts of nominal value to federal program beneficiaries of no more than $15 per item, or $75 in the aggregate per patient annually, the AKS does not have a de minimis exception. Nonetheless, the OIG has suggested, albeit obliquely, that nominal gifts would not be challenged. See OIG Compliance Program for Individual and Small Group Physician Practices, 65 F.R. 59441 (Oct. 5, 2000) (stating that the AKS may apply to “[s]oliciting, accepting or offering any gift or gratuity of more than nominal value to or from those who may benefit from a physician practice’s referral of Federal health care program business”) (emphasis added).