Pharmacy Alert: The Import of Proactive Compliance for Compounding Pharmacies

The healthcare industry in general, and compounding pharmacies in particular, have, over the last several years, faced increased government scrutiny into their business practices, which has corresponded with unrelenting enforcement actions.

Though several actions have recently been brought to conclusion, government enforcement actions into compounding pharmacy practices continue to be initiated; prosecutorial trends we saw employed over a half-decade ago remain relevant today. Some of these enforcement trends as to compounding pharmacies have been based on pharmacies’: (1) filling medically unnecessary compounded prescriptions; (2) paying improper remuneration to marketers to market the pharmacies’ services to prescribers; and (3) failing to collect (or waiving) the full amount of copayments due on prescriptions.

We address, first, the government’s focus on the lack of medical necessity for compounds prescribed, dispensed, and billed. Dispensing and requesting reimbursement for medications which are found to lack medical necessity opens compounding pharmacies up to liability under the False Claims Act and Health Care Fraud Statute as well as conspiracy to violate either or both of these statutes, without limitation. Investigations into compounding pharmacies for lack of medical necessity is exacerbated by two characteristics which are common to the compounding industry: high reimbursement margin of specific ingredients within compounded medications (which may be viewed as duplicative therapy or lacking in efficacy) and the use of marketers in the compounding space. Pharmacies may also open themselves up to exposure by including “check the box” prescriptions on preprinted prescription pads.

Compounding pharmacies who employ sales representatives to market their compounding services to prescribers may be subject to enforcement actions based on a variety of factors, including, for example, the mere manner of payment from the pharmacy to the marketer. The government has, in the past, taken the position that certain types of payments from pharmacies to marketers violate the Anti-Kickback Statute and are, thus, ripe for prosecution. The government may also attribute a pharmacy’s high per-prescription payments to marketers to nefarious conduct, supporting an inference that marketers are paying kickbacks to physicians in exchange for their prescriptions. It is important that pharmacies are aware of the risks of utilizing marketers and the manner in which they are compensated.

The third area of enforcement focuses on waiver or reduction of copayments charged for prescriptions. The government, often viewing this behavior through a lens of inducement, may classify waiver or non-collection as problematic. In certain instances, liability arises merely from the pharmacy’s failure to maintain adequate documentation of the justification for the waiver, even where the waiver itself may have been legitimate. Given the foregoing, it is important that pharmacies consult with counsel to ensure the pharmacy is engaging in the appropriate framework for copay waiver and maintains sufficient documentation as to the reason for such waiver.

The government’s focus on the trends above has led to numerous government investigations and enforcement actions which, over the last few months alone, have resulted in devastating consequences for compound pharmacists, ranging from hefty fines to significant time in prison. To illustrate, in January 2022, a Mississippi compounding pharmacist was sentenced to five years in prison after pleading guilty to conspiracy to defraud TRICARE relating to payment of kickbacks for referrals of medically unnecessary compounds and systematic waiver and/or reduction of copayments. Just a month prior, in December 2021, another Mississippi compounding pharmacist was sentenced to 18 years in prison and was ordered to pay restitution in the amount of approximately $290 million after pleading guilty to conspiracy to defraud the government relating to distributing compounded medications that were not medically necessary, paying marketers commissions based on a percentage of reimbursements, and routinely waiving and/or reducing copayments. Additionally, in October 2021, thirteen defendants in Texas, including three compounding pharmacy owners and two pharmacists, pled guilty to Wire Fraud, Health Care Fraud, and violations of the Anti-Kickback Statute after admitting to engaging in a $126 million compounding fraud scheme which included offering specific compounds based on the amount of reimbursement rather than medical necessity or efficacy as well as paying kickbacks to physicians to induce them to prescribe medically unnecessary compounds which were often mailed to patients who never requested them. While these defendants have not yet been sentenced, they face statutory maximums of between five and 20 years in prison.  

As demonstrated above, there are multiple areas of enforcement onto which the government may grab at any one time. While this article mentions three specific trends, the government’s reach is, of course, not limited to those. Given the many areas of potential exposure, it is imperative that pharmacies ensure their operations and procedures are compliant, polished, and followed in order to avoid liability to the greatest extent. 

How Frier Levitt Can Help

The best method to proactively understand and address any potential issues within the pharmacy’s operations is to perform a compliance check. Frier Levitt attorneys are seasoned not only in recognizing the government’s investigatory trends, but in developing compliance measures which proactively address those trends. Frier Levitt is also experienced in strategically defending enforcement actions. If you have any questions about laws or conduct which may implicate your pharmacy, contact Frier Levitt today.