Unlike many other states, the state of Texas allows physicians to own or invest in a pharmacy, as long as the ownership structure fits within the Texas Patient Non-Solicitation Law exceptions, enumerated at Tex. Occ. Code Ann. § 102.003. In entering into an investment arrangement with a pharmacy, physician investors must also be cognizant of the Federal Anti-Kickback Statute (AKS), which prohibits payment in exchange for referrals for items or services paid for by Federal health care programs (including Medicare and Medicaid). 42 U.S.C. § 1320a–7b(b). Additionally, the Federal physician self-referral law, commonly known as Stark, prohibits physicians from referring Medicare and Medicaid patients to a health care company if the physician or an immediate family member has a financial relationship with the company. 42 U.S. Code § 1395nn. Both the AKS and Stark have certain exceptions, under which an investment arrangement can be structured in order to avoid violation.
It should be noted, however, that Texas and other states have increasingly been scrutinizing physician investment in compounding pharmacies with expanding investigations into kickbacks and referrals. These new probes target compounding pharmacies who are suspected of illegally paying doctors to write prescriptions for their products and services, including pain creams and DNA tests, with a focus on pharmacies that set up physician ownership arrangements with the sole purpose of remunerating physicians for referrals, in violation of Texas law, Stark, and the AKS. For example, the physician may not be a direct investor in the pharmacy that is filling the referred prescriptions, but instead receive indirect remuneration under the guise of a small ownership interest in an umbrella company or a related pharmacy. Federal authorities usually target large-scale cases of fraud involving Federal programs, some of which are estimated to be in the tens of millions of dollars. But, for schemes on a smaller scale (or not involving Federal programs), Texas regulators can now rely on a new amendment to the Texas Pharmacy Act that took effect in September 2015, which allows the Texas State Board of Pharmacy to inspect a pharmacy’s “financial records” (which were previously off limits) in response to a specific complaint against the pharmacy. However, even with this new law, state investigators may not be able to prove physician ownership, and whether “financial records” include investor records has not yet been clarified as, to date, no cases have yet been prosecuted using this new law.
It is, however, clear that Federal and State regulators are vigorously investigating claims of illegal referrals and kickbacks in the independent pharmacy setting. Structuring these types of arrangements is fraught with regulatory landmines, which can result in significant fines and penalties if not done properly. If you have received notice of an investigation from a regulatory authority or require assistance in structuring your pharmacy’s corporate structure, contact the attorneys at Frier Levitt today.
