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Unique Issues and Challenges for Supermarket Specialty Pharmacies

Supermarket pharmacies have existed in the marketplace for nearly 60 years, with the number of outlets exploding in more recent times. Supermarket pharmacies have consistently averaged some of the highest customer-satisfaction scores among different pharmacy provider sites, resulting in over 15% of all prescriptions being dispensed from supermarket pharmacies.

Over the last several years, with the increased importance and prevalence of specialty medications in the healthcare continuum, many supermarket pharmacies have made the plunge into the specialty pharmacy arena. Supermarket-affiliated specialty pharmacies have become among the fastest growing independent providers of specialty services. Their extensive network of retail, chain pharmacies, combined with their regular patient face-to-face presence, have positioned supermarket specialty pharmacies to perform well in the specialty pharmacy space. However, this growth opportunity is not without a unique set of challenges and legal issues specific to supermarket specialty pharmacies.

Below is a summary of several of the specific challenges uniquely faced by supermarket pharmacies operating in the specialty pharmacy space:

  • Central Fill, Remote Processing and Shared Services: With a delivery model built on many smaller, in-store retail locations, and high infrastructural costs associated with operating a specialty pharmacy, many supermarket specialty pharmacies utilize the benefits of a central fill, remote processing and shared services arrangement. Creatures of State law, these arrangements can enable specialty medications to be delivered to patients in-person through the retail locations, with various aspects of the filling, dispensing, and patient management process being done off-site, at a centralized location. However, supermarket specialty pharmacies must be cautious to structure such arrangements in compliance with all applicable State pharmacy laws, as well as intricate PBM requirements regarding billing and claims submission.
  • Pharma-Pharmacy Relationships: In the specialty pharmacy industry, there is a vast array of different forms of pharmacy-manufacturer arrangements, including direct purchasing agreements, limited distribution drug access, hub arrangements, data purchasing agreements and patient support programs. Supermarket specialty pharmacies must carefully examine and structure these agreements to comport with applicable healthcare laws, as well as PBM requirements.
  • Specialty-at-Retail and Network Access: Supermarket pharmacies dispense both retail and specialty medications in significant volumes. This presents issues when designating a pharmacy’s class of trade as either retail or specialty, making decisions regarding network participation and evaluating contract terms such as reimbursement rates and DIR fees. Notwithstanding the broad cross section of the population supermarket pharmacies serve, supermarket specialty pharmacies also face issues of being excluded from specialty pharmacy networks, resulting in leakage of high-revenue prescriptions to competitor, PBM-owned pharmacies. Fortunately, many State and Federal “any willing provider” requirements can be leveraged by supermarket specialty pharmacies to gain access to restricted networks.
  • Accreditation: Specialty pharmacy accreditation is becoming more and more important for payor network access, as well as access to limited distribution drugs.  With their strong emphasis on policies, protocols and procedures, supermarket specialty pharmacies are uniquely qualified to obtain applicable specialty accreditations, including URAC, ACHC and JCHAO. However, with a broader array of pharmacies under the same corporate umbrella, supermarket specialty pharmacies must take steps to ensure compliance with accreditation standards and avoid interruptions in accreditation.
  • Patient Savings Programs and Anti-Kickback Compliance: Many supermarket chains offer a variety of forms of customer loyalty programs, rewards programs and patient savings programs.  Recent prosecutions and OIG Guidance have highlighted the risks associated with these programs, particularly when they involve reducing patient pay costs or Usual & Customary prices.  Supermarket specialty pharmacies must be careful to structure these programs to ensure compliance with Federal and State Anti-Kickback Laws. 
  • Marketing and Advertising: Weekly circulars and flyers are a staple of supermarket chains, but special care and attention must be placed to ensure compliance with State pharmacy laws regarding pharmacy and drug advertising, including special prices. Likewise, pharmacies face strict rules regarding the advertising and promotion of controlled substances. All the while, PBMs routinely monitor and scrutinize all representations made in pharmacy marketing and advertising (including websites), making this a serious issue for supermarket specialty pharmacies.
  • Automation, Remote Dispensing and Telepharmacy: Supermarkets are well versed in centering their business model around the grocery-seeking customer, with many being open 24 hours a day. While it is practical for the supermarket to be open 24 hours a day, it is often not practical to keep the pharmacy open 24 hours a day, which may create patient access to medication hurdles.  Remote automated dispensing systems and telepharmacy can be one way to overcome this hurdle, offering patients access to medications when the pharmacy may not necessarily be “open,” or potentially freeing up the pharmacist’s time to conduct more clinical interventions rather than spending the majority of his or her time dispensing. However, there are numerous legal issues related to remote dispensing and telepharmacy ranging from State specific laws regulating the use of this technology to payor reimbursement issues that all must be carefully navigated before jumping into this investment.
  • Patient Access and Convenience: Supermarkets tend to be housed in spacious buildings with pharmacies that are often times not located right in the front of the store. A core component of supermarket pharmacies philosophies often centers around customer service, which may in turn prompt supermarket pharmacies to look to offering new and convenient methods to get the patient his or her prescription in the most efficient way, such as mobile app ordering and pickup or curbside delivery. These innovative patient service tools and structures must be structured in a way that are HIPAA compliant, meet both Federal and State specific requirements, and payor standards. 
  • DEA Compliance: Recent enforcement actions by the DEA regarding opioid dispensing have continued to dominate news outlets, while public and private lawsuits against drug manufacturers, wholesale distributors and pharmacy chains involving distribution of opioids continue to mount. Major chain pharmacies have also been at the center of settlements with the Federal government in fines upwards of $80 million based on “improper” dispensing of opioids. Specialty pharmacies, supermarket pharmacies, and the combination thereof are no exception to this trend, and it is now imperative to review and update all policies and procedures related to opioid dispensing; assess whether opioid dispensing best practices are operationalized; and implement the necessary tools necessary for proper opioid dispensing by the team. Meanwhile, in the efforts to curb the opioid crisis, supermarket pharmacies need to hone practices and operations surrounding naloxone ordering and dispensing.
  • Mergers and Acquisitions: Transactions in specialty pharmacy – whether they involve acquisitions centered around growth or divestures to improve efficiencies – are some of the most complex arrangements compared to any other industry. These regulatory-intensive transactions require competent counsel, well-versed in the nuances of pharmacy transactions, especially in pharmacy regulatory issues. While many lawyers can appropriately structure transactions involving general retail and commercial businesses, competent pharmacy regulatory counsel is a must in order to properly advise regarding the ins-and-outs of State pharmacy practice acts, DEA requirements, Medicare/Medicaid requirements, and PBM manual requirements that effect change of pharmacy ownership in order to successfully navigate the due-diligence stage of supermarket pharmacy transactions.
  • Private Labeling and Branding: Many supermarket pharmacies seek to stock “private labeled” drugs and cosmetics to build brand value and revenue. While the regulatory requirements are somewhat more relaxed for a firm that does not participate in the manufacture or processing of a drug, a regulatory framework nevertheless exists when supermarket pharmacies elect to submit listing information directly to the FDA.
  • NADAC Pricing, MAC Appeals and DIR Fees: Because of the wide range of generic and specialty medications regularly dispensed by supermarket pharmacies, supermarket specialty pharmacies face disproportionate pressures on decreasing reimbursement as compared to other specialty pharmacies. Between reduced NADAC pricing and onerous MAC lists, supermarket specialty pharmacies often face negative margins on the generic medications they routinely dispense. In addition, supermarket pharmacies face unique DIR fee considerations, as they often have dispensing criteria that “fit” the various performance based categories, but DIR fees render many specialty medication reimbursements below water. Fortunately, many protections exist under State and Federal law, including appeal processes to challenge underwater NADAC and MAC pricing, as well as the imposition of DIR fees, even against supermarket specialty pharmacies.

Frier Levitt routinely represents specialty pharmacy providers of all types, including supermarket-affiliated specialty pharmacies. We understand these unique issues faced by supermarket specialty pharmacies, as well as legal options and tailored solutions. For more information, contact Frier Levitt today.