Pharmacy Alert: Government Investigations Involving OTC Cards on the Rise

In recent years, the government has intensified its scrutiny of healthcare providers, with a particular focus on pharmacies. Independent pharmacies and pharmacy owners must be aware of a growing trend in government investigations regarding the alleged payment of kickbacks to patients through cash and supermarket gift certificates, and Over-the-Counter (OTC) cards. These practices can result in severe consequences for pharmacies and their owners. This article aims to shed light on the recent uptick in these investigations and provide guidance to pharmacies to avoid potential pitfalls.

Government agencies, including the Department of Justice (DOJ), have ramped up efforts to combat healthcare fraud across the United States. Recent cases, such as the one outlined in the Department of Justice’s press release[1], involve pharmacy owners charged with a $26 million healthcare fraud scheme, have drawn attention to the issue. The pharmacy owners allegedly engaged in a scheme where they paid kickbacks to patients through cash, supermarket gift certificates, and OTC cards. OTC cards typically provide patients with discounts on non-prescription items purchased at the pharmacy. However, when used as a vehicle for kickbacks, they can result in serious legal consequences for both pharmacies and patients. Specifically, OTC cards are issued to members in the form of a pre-loaded or pre-paid cards that may be used to purchase eligible, over-the-counter, non-prescription items like vitamins, toothpaste, haircare products, cosmetics, and antihistamines. The monthly benefits to members range between $100 and $150, but any unused funds are forfeited unless spent on eligible items within the same month.

Pharmacies involved in kickback schemes face the risk of civil and criminal penalties, including substantial fines, imprisonment, and exclusion from participating in federal healthcare programs. Additionally, pharmacy owners can be subject to professional licensing sanctions, reputational damage, and potential loss of business. Pharmacies must also be aware that the Anti-Kickback Statute (AKS), the False Claims Act (FCA), and other federal and state healthcare fraud laws are highly relevant in these investigations. Violations of these laws occur when a pharmacy offers or pays anything of value to patients in exchange for their patronage or the purchase of goods.

To avoid potential government investigations and legal repercussions, it is crucial for pharmacies and pharmacy owners to prioritize compliance with applicable healthcare laws and regulations. Some key steps to consider include:

  1. Educating Staff: Ensure that all pharmacy staff members are aware of the legal boundaries surrounding kickbacks and are trained to identify potential issues.
  2. Reviewing Internal Policies: Regularly review and update internal policies to ensure compliance with relevant laws and regulations, including the AKS and FCA.
  3. Maintaining an up-to-date record-keeping system, which includes receipts and invoices.
  4. Engaging Legal Counsel: Seek legal advice from experienced healthcare attorneys to establish compliance programs, conduct internal audits, and respond to potential investigations.

Pharmacies and pharmacy owners should be on high alert for government investigations related to kickback schemes involving OTC cards. The recent increase in such investigations serves as a stark reminder of the importance of adhering to applicable healthcare laws and regulations. By staying proactive, establishing comprehensive compliance programs, and seeking legal counsel, pharmacies can protect themselves from potential legal and financial ramifications while maintaining the trust and confidence of their patients.

How Frier Levitt Can Help

It is never too late to take corrective action. Frier Levitt is a national boutique healthcare law firm with extensive experience representing community pharmacies for over 20 years. Our team can provide valuable guidance and support to ensure compliance with applicable laws and rectify any instances of noncompliance, including those related to OTC cards. Notably, Frier Levitt’s compliance protocols have been expressly approved by the DOJ and OIG.

Please contact us for a consultation. We are committed to helping you navigate the complex legal landscape and meet your specific needs.

[1] Department of Justice. (Reference to the press release: