Pharmacy Membership Programs Offering Discounts May Be Legal According to a Recent OIG Opinion

In a recent advisory opinion, the Office of the Inspector General (OIG) opined that a retail pharmacy chain, which also operates health care clinics, could offer discounts to Medicare and Medicaid beneficiaries without those discounts constituting prohibited remuneration. The retail pharmacy chain had asked the OIG if it would permit the pharmacy to operate a paid membership program (“Benefit Program”) allowing participation by Federal health care program beneficiaries. The retail pharmacy chain had previously been offering the Benefit Program exclusively to enrollees of commercial insurance plans, but had excluded Federal health care program beneficiaries. 

Participation in the Benefit Program provided members access to three categories of benefits: 

  • Category 1: Provides members access to discounts on the pharmacies’ retail prices for specific items for which members would pay entirely out of pocket (i.e., items for which the Member pays the entire price charged and for which no insurer, including any Federal health care program, would be billed). The Benefit Program would include discounts to members on prescription drugs listed on the Benefit Program’s formulary, pet prescriptions, nebulizer devices and related supplies, blood glucose testing meters and related supplies, and immunizations.
  • Category 2: Permits members to have access to a 10% discount on any clinic service when the member pays for the service entirely out-of-pocket. These discounted services would include physicals, immunizations, and health screenings and testing, such as lipid panel testing.
  • Category 3: Allows members to earn a 10% credit toward future eligible retail purchases when they purchase certain Pharmacy-branded products and in-store photo finishing.

Benefit Program members were notably precluded from redeeming earned credits to purchase prescriptions, immunizations, Clinic services, alcohol, gift cards, postage stamps, pre-paid cards, milk products, or tobacco products. Members also could not redeem earned credits for retail pharmacy or clinic cost-sharing amounts. The Benefit Program also included a guaranteed savings feature, which would allow members to be eligible for a store credit equal to the difference between the membership fee and the member’s total savings over the course of a year, if the member has not achieved total savings over the one-year membership equal to or great than the annual membership fee.

Based on the facts submitted, the OIG ultimately concluded that the Benefit Program would implicate both the Federal Anti-Kickback statute (AKS) and the Beneficiary Inducements Civil Monetary Penalties (CMP) law, because the discounted items and services and earned credits could induce a beneficiary to select the pharmacy as his or her supplier for Federally reimbursable items or services. However, as concluded by the OIG, the Benefit Program would satisfy the requirements of the exception to the definition of remuneration related to retailer rewards for the Beneficiary Inducement CMP; would not constitute grounds for the imposition of administrative sanction under the Beneficiary Inducement CMP; and would pose a low risk of fraud and abuse under the AKS.

This OIG opinion has significant implication for pharmacy providers (i.e., national chain, regional chain, or independent) with “Membership Programs” that limit participation by Federal beneficiaries and those contemplating the implementation of a benefit program. The opinion discussed above provides significant guidance to pharmacies that are contemplating offering programs to federal health care beneficiaries. However, there are certain key Membership Program elements that the OIG relied upon in supporting its conclusion and which must be met by Membership Programs in order to avoid potential pitfalls that may have far-reaching consequences, including potential criminal liability under the AKS. Frier Levitt regularly provides legal counsel to pharmacies of all sizes and specialties on implementation of innovative marketing programs. If you are considering the implementation of a properly structured Membership Program, contact Frier Levitt today to speak to an attorney.

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