This past month, the Department of Justice announced a settlement with a specialty pharmacy and its CEO related to alleged improper waivers of patient copays, as well as provision of prior authorization administrative services to referring physicians, both of which the Government contended were illegal kickbacks to patients and prescribers. As part of the settlement, the pharmacy and its executive agreed to repay $20 million to the Federal Government. This recent settlement is the latest in a series of actions targeting copay waivers and prior authorization assistance by pharmacies and highlights the importance of sound policies and procedures aimed at ensuring compliance with Federal rules and safe harbors.
Background
Over the past several years, pharmacy benefits managers (PBMs) have stepped up audits on pharmacies, focused on their copayment collection efforts, as well as their involvement with the prior authorization process on behalf of physicians. This has led to large audit recoupments from specialty pharmacies, as well as potential network termination.
Worse yet, routine waiver of copayments and improper involvement in the prior authorization process has become an easy target for whistleblower relators and the Department of Justice, who have brought increasing numbers of False Claims Act cases against pharmacies and their executives over these practices. This can result in large repayments by pharmacies – including treble damages, fines and attorney’s fees – as well as subsequent network exclusion by PBMs, who have relied on the existence of False Claims Act settlements to terminate pharmacy providers.
This most recent settlement capped off an action originally brought as a whistleblower case in 2020 by employees within the pharmacy’s reimbursement department. The Government subsequently chose to intervene, and brought claims against the pharmacy, two of its C-Suite executives, and a referring physician (who had allegedly received the administrative services from the pharmacy). As noted above, the case highlighted the scrutiny on copay collection, and offered a window into the Government’s theories of liability when examining pharmacies.
Alleged Routine Waiver of Copays
The primary focus of the Government’s case against the specialty pharmacy related to alleged routine waiver of copayment over the course of five years. While pharmacies are generally required to charge and collect copays from patient (based on the Antikickback Statute[1], the Beneficiary Inducement Statute[2] and contractual requirements), the Office of Inspector General (OIG) has created a “safe harbor” through regulation that permits pharmacies to waive patients’ copays based on an individualized assessment of financial need or after making bona fide efforts to collect, provided the waiver is not advertised and provided that such waivers are not routine.[3]
In its Complaint-In-Intervention, the Government contended that data reflected that the pharmacy routinely waived copays for Medicare patients who had copays greater than $2,500, suggesting that nearly 92% of the Medicare patients with copays greater than $2,500 had all, or substantially all, of their copays waived by the pharmacy. What is significant here is that the Government may be “cherry picking” the claims it considers when calculating copay collection rates. For example, it is entirely possible that when considering all Medicare claims (including those with copays less than $2,500), the pharmacy may have had a much higher collection rate. Likewise, it is also possible that the pharmacy’s collection rate may have been even higher if all plans were considered, not just Medicare. Nevertheless, the Government focused on the pharmacy’s actions related to this subset of claims, which it contended resulted in revenue of over $20 million to the pharmacy.
In addition, the Government made much issue of the nomenclature the pharmacy used to describe its practices for agreeing to waive patients’ copays, ostensibly based on financial need. In particular, the Government focused on the pharmacy’s referral to its internal “foundation” to provide copay assistance, and the fact that physicians allegedly were always assured by the pharmacy that their patients would pay nothing out of pocket (in essence, offering to physicians not to bill their patients for copays). This, the Government argued, suggested that the pharmacy was soliciting or advertising the waiver of copays.
Finally, the Government contended that the pharmacy did not have a standardized process for verifying patient financial hardship and did not typically require proof of financial hardship before waiving copays (alleging that the pharmacy either had no paperwork at all, or had incomplete documentation, for more than half of the patients at issue).
Alleged Provision of “Free” Prior Authorization Administrative Services
In addition, the Government alleged that the pharmacy provided a doctor with numerous other free services that saved the physician time and helped him make money, as part of a broader effort to induce the doctor to provide a stream of patient referrals to the pharmacy. While the Complaint-In-Intervention cited to many examples of services that were provided, it was the provision of prior authorization assistance, including participating in peer-to-peer reviews and drafting clinical notes and letters of medical necessity, that was of particular concern.
The Antikickback Statute prohibits the provision of remuneration in exchange for referrals, and the definition of “remuneration” has been interpreted to include the provision of free items or services that would otherwise have to have been provided or performed by the referring physician. Here, the Government alleged that the pharmacy expressly offered to assist the physician with the time-consuming task of completing prior authorization approvals as a means to induce the referrals from the physician to the pharmacy.
Key Takeaways
This case may be particularly concerning to many specialty pharmacies as it focuses on two key issues regularly faced by pharmacies: collecting patients’ high-dollar copays and assisting in the prior authorization process. Fortunately, pharmacies can take certain steps to avoid liability by ensuring their practices are compliant.
Copay Collection Procedures
As noted in the Government’s Compliant-In-Intervention, the pharmacy allegedly did not have or follow detailed copay collection procedures aimed at verifying and documenting patient financial need. It is absolutely critical – both for complying with the elements of the safe harbors and for complying with PBM contractual requirements – that pharmacies maintain written copay collection policies and procedures. These procedures must dictate the steps to be taken to collect patients’ copays in good faith, and must lay out the criteria for when copays may be waived (i.e., after non-token efforts to collect or based on an individualized assessment of financial need). Most importantly, staff need to be effectively trained on these procedures to ensure that they are followed, and that their interactions with patients or prescribers do not undercut the nature or intent of the policies.
Prior Authorization Policies
In addition, if a pharmacy or its staff intend to play any role in the prior authorization process, the pharmacy must have clear written guidelines setting forth what that role may be, and ensuring that it does not cross the line. Many PBM agreements provide limitations on the role a pharmacy may play, and policies and procedures must account for those variations. Equally as important, the information provided in the prior authorization request forms needs to be accurate and supported by records. Payors and regulators have homed in on instances where there are misrepresentations in the prior authorization request forms.
How Frier Levitt Can Help
Frier Levitt routinely counsels pharmacies on their copayment collection and prior authorization practices. Frier Levitt can draft comprehensive written policies and procedures for pharmacies, outlining the steps necessary for compliance in these areas, and can often provide such standard operating procedures on a flat fee basis. If your pharmacy does not have written policies and procedures on copay collection and/or prior authorization assistance, or if it has been several years since you have revisited these policies, we encourage you to contact us today.
[1] 42 U.S.C. § 1320a-7b
[2] 42 U.S.C. § 1320a-7a(a)(5)
[3] 42 C.F.R. § 1001.952(k)(3)
