Recently, the FDA announced the approval of a non-synthetic cannabis drug – Epidiolex – used to treat seizures. The FDA previously approved drugs only using synthetic THC, such as Marinol, Sydros, and Cesamet. But Epidiolex is the first drug derived from marijuana and approved by the FDA.

In preparation for the approval process, the manufacturer of Epidiolex  conducted clinical trials on the potential abuse of cannabidiol (CBD), which is considered when classifying a drug into a controlled substance schedule. Prior to the approval of Epidiolex – and up until now – all substances derived from marijuana (including CBD) were classified as Schedule I. So when Epidolex was approved, the DEA faced a dilemma: it is a marijuana product but it is approved by the federal government acknowledging its beneficial use and low probability of abuse. By the way, the drugs with synthetic THC were classified as Schedule II-III.

Today (October 1, 2018), the DEA announced that it is classifying approved CBD drugs (Epidiolex) as Schedule V (!) drug – an unpredicted and a bold step towards legalizing marijuana products. The DEA defined approved CBD drugs as:

            “A drug product in finished dosage formulation that has been approved by the U.S. Food and Drug Administration that contains cannabidiol . . . derived from cannabis and no more than 0.1 percent (w/w) residual tetrahydrocannabinols.”

What does this mean for pharmacies?

The pharmacies may now carry CBD products but only if they are approved by the FDA and have less than .1% THC. So far Epidiolex is the only drug that fits into the description. Therefore, CBD oils, tinctures, etc. cannot be legally distributed by pharmacies as they constitute non-approved products derived from marijuana. State laws may vary but they usually permit the sale of marijuana CBDs only through the state regulated dispensaries – not pharmacies (unless they are located in Connecticut).

How about Hemp-CBD? Can a pharmacy carry such products?

Hemp is not a Scheduled I substance as industrial hemp was legalized in 2014. Therefore, arguably Controlled Substances Act does not apply to hemp products. However, Hemp-CBDs have not been approved by the FDA and therefore do not fit within the DEA’s  narrow definition of “approved CBD drugs.”

For an excellent discussion on Hemp-CBD regulations and likely DEA enforcement actions against Hemp-CBD distributors, see Harris Bricken’s blog post.

In attempt to counterbalance Amazon, Walmart has recently signed a deal with Anthem to provide Medicare enrollees with over-the-counter medications and health supplies at its stores.

For quite some time, Walmart has been making advances in the healthcare sector. For example, it already provides eye care at roughly 3,000 in-store vision centers and free health screenings at 4,700 locations four times a year. It even assists with Affordable Care Act policies, Medicare Advantage plans and prescription drug plans through the company’s partnership with directhealth.com.

Some commentators predict that Walmart will soon start providing additional low-cost health services, such as basic medical care through nurse practitioners, physician assistants or even doctors.

Its deal with Anthem means more Medicare customers shopping at Walmart for their Medicare Advantage benefits purchasing over-the-counter medicine, first aid supplies, support braces and pain relievers from a store. Walmart can also market its healthy grocery items to such customers since the federal government recently allowed insurers to cover such products as a supplemental benefit. This has given the company another advantage over pharmacy chains.

CNN Money reports that Walmart also “dipped a toe in the booming urgent care industry a few years ago and now operates a total of 19 Walmart Care Clinics in Georgia, South Carolina and Texas. Visits cost between $59 and $99, and customers can get routine and urgent care, as well as lab tests and immunizations, from nurse practitioners. But the effort has met with mixed success, experts said, and has not expanded nationwide.”

CURES (California state prescription history database) has been around since 1997 but not many providers took advantage of what it has to offer. Ignoring CURES is ignoring a tool that could shine light on what is really happening with the patient. News are full of stories describing opioid deaths, which could have been easily prevented if prescribers performed database checks. See L.A. Time coverage of an opioid death of a 59-year-old patient who received 75 prescription by three primary care doctors, a psychiatrist and a pain specialist in one year. None of her providers knew what the others were prescribing – none of them utilized CURES.

The legislature decided to take matters in its hands and starting October 2, California prescribers must consult CURES prior to prescribing controlled substance to new patients or once every four months if a prescription remains a part of the patient’s treatment plan.

Emergency departments and surgical teams can prescribe a nonrefillable five-day supply without first consulting CURES. In other emergency situations – when checking CURES is not reasonably possible –  a five-day nonrefillable supply is also allowed, but the prescriber must document the reason for skipping consultation.

Hospice care patients are exempted. In addition, Schedules V are not reportable to CURES, so no verification is needed if provider prescribes a Schedule V drug.

What does it mean for pharmacies?

Pharmacists are not among the providers who must verify CURES. Corresponding responsibility laws and requirements that pharmacists consult available records prior to dispensing, make it imperative for pharmacists to run CURES reports on all new patients receiving Schedule II-IV medications and existing patients every 4 months. As I mentioned in a related blog post, there were too many disciplinary cases against pharmacies and pharmacists – on the state and federal levels – where pharmacies performed their due diligence but failed to verify CURES prior to dispensing. As a result, they were faced with DEA registration revocations, monetary penalties, and the Board of Pharmacy actions. All could have been avoided if pharmacists consulted CURES prior to dispensing.

If you are a pharmacy owner or a pharmacist-in-charge, make sure that your policies and procedures on dispensing controlled substances are updated and you follow the recommended procedure on verifying CURES prior to dispensing to any new patients and periodically to the existing patients. It can save your license and your business.

Approximately 20 pharmacies across Ventura county filed a lawsuit against their Pharmacy Services Administrative Organizations (PSAOs) – Arete, Elevate, and Leadernet – for allegedly conspiring with OptumRx in reducing reimbursement rates.

The pharmacies allege that PSAOs owe fiduciary obligations to independent pharmacies to protect their interests against PBMs. PSAOs allegedly failed to negotiate acceptable rates for pharmacies by signing PBM contracts reimbursing pharmacies below the cost.

OptumRx is also a part of the lawsuit under a separate cause of action under Unfair Trade Practices for negative reimbursements and spread pricing. OptumRx has a large presence in Ventura County serving Gold Coast Health Plan, providing drug benefits to approximately 200,000 low-income Medi-Cal beneficiaries.

Ventura Star reports that prior to filing the lawsuit, the pharmacies complained multiple times to Ventura County Medi-Cal Managed Care Commission about below-market rates and the shut-down of several independent pharmacies due to the inability to stay in business. An independent consultant reviewed the rates and reported to the Commission that Optum’s rates are comparable to payments in similar Medicaid plans. The commission refused to direct OptumRx to raise its rates.

Pharmacies allege that OptumRx conspired with PSAOs to force low reimbursements on the pharmacies by inventing its own MAC list “based on thin air.”

OptumRx defended its reimbursement methodology in a public statement:

            “OptumRx’s role is to ensure consumers and health plan payers have convenient access to affordable prescription medications, and we will continue to work to help lower   health care costs for Gold Coast Health Plan and California taxpayers…We believe this    lawsuit is without merit and will vigorously defend ourselves.”

Because most pharmacy contracts with PSAOs and PBMs have arbitration provisions, the case may end up in arbitration. We will be watching how the case unfolds and will report of any developments.

Last week, I was speaking in Strafford live webinar, “Prescription Audits: When the DEA or AG Come Knocking.” Our panel discussed the increased scrutiny of healthcare providers’ prescribing and dispensing practices by the DEA, audit preparation, and enforcement actions.

After the webinar, I received several questions regarding some of the points discussed and decided to address them in this blog post.

Registration:

  • All principal places of business should have separate registrations, unless providers only prescribe at that location. If providers store or administer any controlled substances – separate registration for that place of business is required.

  • Since DEA registration is based on state licensure, separate registration is required in a different state even if a provider just prescribes.

  • Employees do not have to have separate registration if acting within the scope of their employment.

Corresponding responsibility:

Corresponding responsibility still remains a leading cause for discipline and DEA enforcement actions. I usually see pharmacies run into this problem when they do not run PDMP reports on new and existing patients or they are filling scripts coming from problematic prescribers who are already on the DEA radar.

The best way to avoid any corresponding responsibility is to run PDMP reports on all new and existing patients (4-6 months is a good time-frame). Many states have laws requiring pharmacies and prescribers to run such reports. For example, California enacted a regulation (which becomes effective on October 2, 2018) requiring mandatory use of CURES prior to prescribing, ordering, administering or furnishing Schedules II-IV. (Several exceptions apply).

Dispensing pharmacists should screen every patient (including known patients) on red flags and document how the red flags were cleared. For example, I currently have a case in which DEA claims that the red flags were not resolved. After interviewing the client, we learned that the pharmacist actually screened his patients. Many of them were established with the pharmacy, some were paying cash due to Medicaid non-coverage and that the pharmacist interviewed the patients who were traveling longer distances (for example, one patient was living 30 miles away but was working close by). However, the pharmacist did not document these inquires and therefore DEA now claims failure to exercise corresponding responsibility. Remember to document every single conversation you have with a prescriber or a patient. It might not be very practical but it helps to avoid potential problems and questions from the Board of Pharmacy and the DEA.

Monetary Penalties:

There are two types of monetary penalties in the DEA’s arsenal:

  • One is a hefty fine of $64,820 per violation, found in Sec. 842(a) (all subsections other than 5, 10, 16). Most commonly cited violations under this section are failure to exercise corresponding responsibility, dispensing on invalid prescription blanks, purchasing controlled substances under invalid or missing power of attorney.

  • Another one is a smaller monetary penalty of $15,040 for violations of Sec. 842(a)(5) and (10) only. These are all record-keeping errors, such as failure to list patient addresses or failure to keep complete and accurate records. It is not uncommon that such record-keeping violations add up to millions of dollars.

Voluntary Surrender of DEA Registration:

During the webinar we discussed some of the tactics employed by the DEA to urge voluntary surrender. If such tactics do not work, a Diversion Investigator may offer a partial surrender of Schedule II registration only. It may sound like a great deal as many practitioners already shy away from Schedule II drugs. However, a partial surrender may cause collateral consequences, such as contractual termination by PBMs. Most PBM contracts require that their in-network pharmacies have non-restricted full DEA registrations. A provider should not surrender the registration (in full or partially) before discussing the case with the attorney specializing in this type of work. And keep in mind that you can always surrender the registration at a later date.

New DEA pharmacy cases:

There were two significant pharmacy DEA cases this year: Trinity Pharmacy and Zion Clinic Pharmacy.  Both pharmacies failed to resolve red flags prior to dispensing controlled substances. Both pharmacies did not run PDMP reports and did not document conversations with patients and prescribers.

Interestingly, the DEA became interested in Zion Clinic pharmacy due to a large ordering of hydromorphone. A regular pharmacy orders about 5,900 dosage units of hydromorphone in a year and Zion Clinic ordered 41,700.

I encourage you to read both of the opinions as they describe “willful blindness,” “red flags,” and DEA’s administrative procedure:

Zion Clinic Pharmacy

Trinity Pharmacy.

If you would like to review the slides from the DEA webinar, please click here.

I am pleased to announce that I will be speaking in an upcoming Strafford live webinar, “Prescription Audits: When the DEA or AG Come Knocking” scheduled for Wednesday, August 22, 1:00pm-2:30pm EDT.

The Drug Enforcement Administration (DEA) and state attorneys general (AGs) are increasing scrutiny on medical providers at all levels who are involved in prescribing, administering, and/or dispensing controlled substances, especially opiates and other abused drugs. Counsel should prepare providers for DEA or state AG audits and investigations of their practices and to meet varying recordkeeping requirements, including those for prescribing and/or dispensing buprenorphine.

Providers should be aware of the extent to which regulators are “mining” prescribing patterns by reviewing various state prescription drug monitoring programs and used as a basis for further investigation. Investigations also stem from wholesaler reports of suspicious transactions.

Providers with prescription authority must comply with both federal and state drug regulations. Failure to comply—whether negligent or intentional—could result in penalties, including fines, being stripped of the ability to lawfully prescribe, and potential criminal prosecution.

Counsel and providers should understand their potential liability exposure, develop effective policies and procedures, and be prepared to encounter and respond to an audit and to take corrective steps to ensure federal and state law compliance and mitigate damages.

Our panel will discuss the increased scrutiny of healthcare providers’ prescribing and dispensing practices by the DEA and state AG through their medical boards and other actions, and will guide counsel in preparing for and responding to prescription audits and ensuring ongoing regulatory compliance.

We will review these and other crucial issues:

  • What should providers and counsel expect when the DEA or state AG conducts a prescription audit?

  • What policies and procedures should be in place to ensure compliance with federal regulations?

  • What are best practices for counsel to providers facing a DEA or state AG audit?

After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.

I hope you’ll join us.

For more information or to register go to Stafford Webinar’s website.

Or call 1-800-926-7926
Ask for Prescription Audits: When the DEA Comes Knocking on 8/22/2018
Mention code: ZDFCA

Walgreens has entered into agreement with DaVita to purchase its non-dialysis related prescription files, mostly under Medicare Part D. Currently, DaVita uses a drug distribution facility in Orlando for dispensing by mail non-dialysis medications. The deal with Walgreens is scheduled to finalize in late September, at which time the files of the facility will be transferred to Walgreens. DaVita plans to close the facility in Orlando as soon as the transition takes place, laying off about 109 of its employees.

More information on the deal:

Orlando Sentinel

Business Journal

The California Board of Pharmacy’s July 2018 issue of “The Script” highlights new regulations on inventory reconciliation of controlled substances. Because dispensing controlled substances is still the most frequently cited disciplinary offense, this post focuses and further explains some of the requirements. The regulation could be found in California Code of Regulations, title 16, Section 1715.65. It became effective in April 2018, so by now you should have performed your first inventory of Schedule IIs. If you haven’t – do so as soon as possible assuring full compliance with the regulations.

In a nutshell, the regulations require all pharmacies licensed in California – and certain clinics – to perform periodic inventory for all controlled substances. Schedule II inventory should be performed quarterly and should involve manual count and a comparison with the last inventory. If any discrepancies are found, they must be reported to the Board (note: the DEA requires only substantial losses to be reported). A discrepancy should be reported to the Board within 30 days of the discovery (or 14 days if theft, self-use or diversion is the cause). The discrepancy must be reported, even if the pharmacy is still not clear about the cause (same applies to the DEA reporting). A good approach is to report and state that the investigation is on-going, and then amend or withdraw the report later, if needed.

All new PICs must perform an inventory reconciliation report within 30 days of becoming the PIC.

For Inpatient Hospital Pharmacy: all the above applies plus perform the same in all satellite locations.

For Automated Drug Delivery Systems: all above requirements apply. The inventory reconciliation should be performed at all locations. During an inventory reconciliation, the PIC must verify that access was limited only to facility personnel.

Important practice pointers:

Follow Federal Schedules: states’ schedules of controlled substances are different from federal’s. Pharmacies should follow federal schedules (it becomes especially pertinent when reconciling Schedule IIs). Pharmacy may add additional drugs to its reconciliation report (i.e. costly drugs).

No estimation: for Schedule IIs the inventory reconciliation should include a physical count, not an estimate (already required by the federal law). For other schedules, you can estimate the number, unless the container holds more than 1,000 tablets or capsules in which case a pharmacy must make an exact count of the contents.

      Per Board of Pharmacy’s guidance:

  • “where there is a unit of use container, a pharmacist should accept the measurement printed on the container and include it in the physical count. However, if he unit of use container looks damaged or altered in some manner, treat the item as quarantined.

  • Where multi-dose containers are used, a pharmacist should subtract the amount dispensed from the measurement printed on the container. Subsequently, the pharmacist should document the remaining amount on the container itself.

Example: A pharmacist dispensed 240ml from a 473ml stock bottle. The pharmacist would subtract 240ml from 473ml and document the difference of 233ml on the stock bottle. The remaining amount of 233ml would be used as the physical count for the reconciliation report.”

Reports for Schedule III-V: under the federal law a provider should inventory Schedules III-V every two years. The Board recommends to do so more often, however, no clear guidance is given, simply “to follow the standard of practice in the community.” At least once a year is probably a good estimate in most communities in California.

Perpetual inventory: keeping a perpetual inventory does not satisfy the above regulations because it requires a physical count of Schedule IIs and a reconciliation with all acquisitions and dispositions (every 3 months).

Electronic records: all reports may be compiled and maintained digitally.

Who must perform the reconciliation: at least two persons should be performing the reconciliation, such as the PIC and an assistant (pharmacists or licensed pharmacy technicians).  Note: unlicensed individuals (such as clerks) should not prepare or complete the report.

The importance of choosing the right wholesaler cannot be underestimated. With so much emphasis on compliance, a pharmacy cannot succeed if it partners with a wholesaler that does not understand pharmacy business and the requirements placed on pharmacies by PBMs, Boards, and federal agencies. Pharmacy’s profitability largely depends on its wholesalers. Therefore, an effective and strategic relationship between the pharmacy and its wholesaler is crucial.

Increased competition and thin margins pressure independent pharmacies to seek “good deals” from smaller, and often “shady” wholesalers. Many pharmacies have learned their lessons by being terminated from PBMs’ networks or by being subjected to large recoupments stemming from unsuccessful drug reconciliation reports performed by PBMs. The major part in these audits is played by your wholesaler, which need to respond promptly with adequate information.

While pharmacies must verify that the wholesaler is properly licensed, now they need to inquire into the wholesaler’s VAWD accreditation. This is a new requirement that OptumRx – with about 30% of the market share – decided to impose on the pharmacies within its network.

In 2016, OptumRx announced that its network pharmacies must purchase products only from VAWD-Accredited wholesalers. It also granted an extension for the wholesalers to pursue the accreditation. Last month, Optum announced the revocation of the extension and made a public comment that it will subject the pharmacies to recoupments if the products are bought from non-VAWD wholesalers.  This development affects smaller pharmacies working with smaller non-VAWD wholesalers.

To avoid PBMs’ recoupments and termination, follow some basic guidelines:

  • Purchase from VAWD-accredited wholesalers

  • Know your wholesaler

Searching for discounts and buying from small, relatively unknown wholesalers might cost more in the long run. For example, see a recent criminal case where a wholesaler falsified pedigrees and pharmacies failed to spot red flags. Our office represented pharmacies who were not able to account for drugs because a wholesaler disappeared, did not provide adequate 3Ts records, or provided misbranded drugs. This becomes especially relevant in PBM audits where a strong partnership with the wholesaler means a successful drug reconciliation audit.

  • Make sure your wholesaler is compliant with the Drug Supply Chain Security Act by reviewing all purchasing records

  • Verify all applicable licensing and disciplinary records

  • Review all invoices, acquisition records, pedigrees prior to accepting a delivery

  • If you see any red flags, address them with the wholesaler and document the conversation

Note that when a distributor approaches you with a too-good-to-be-true deal, think twice, research the distributor and the source of the drug.

  • Know the source of the product (domestic v. foreign)

It’s not always easy to spot a drug from a foreign source. For example, in 2005 three businesses and 11 individuals were charged in connection with a $42 million dollar conspiracy that involved the distribution of counterfeit Lipitor manufactured in Costa Rica and smuggled into the U.S. Misbranded Lipitor was virtually indistinguishable and the invoices showed a U.S. distributor and manufacturer.

Our firm was also involved in defending a physician in an Avastin case, where a clinic was purchasing a drug from a distributor located in the U.S. (properly licensed) but who was selling counterfeit Avastin obtained from a foreign source. It was almost impossible to determine where Avastin was coming from. The physician was indicted by the U.S. Department of Justice despite the fact that his job and responsibilities did not include purchasing medications.

See a related blog post.

I have been closely watching Amazon’s attempts to enter pharmaceutical market,[1] but even for me, Amazon’s acquisition of PillPack came as a surprise.

For those not familiar with PillPack (which has its headquarters on the East Coast), it specializes in single-dose medication packing, deliveries, and prescription management targeting chronic-disease patients. It acts as an online pharmacy, licensed in 49 states. By acquiring PillPack, Amazon effectively steps into the pharmaceutical distribution chain forgoing some preliminary steps of initial licensing, vendor contracting, and infrastructure set-up. (Amazon will still have to go through a change of ownership process with the licensing boards and PBMs).

Some sceptics argue that PillPack gives Amazon a mere fraction of a percent in market share, and it would be difficult to increase the market share due to PBMs’ market control. Currently, PillPack works with all three major PBMs (Express Scripts,[2] CVS Caremark and OptumRX), but they will be wary of Amazon’s entrance into their industry. Due to this middleman between the customers and distributor, many are puzzled on how Amazon’s typical marketplace model would work with PillPack. Some speculate that Amazon might become a PBM itself and then vertically integrate throughout the whole supply chain. With a recent acquisition of Whole Foods – which owns 500 stores – it can open pharmacies in many locations throughout the nation. For a very well written discussion, see Inc’s coverage.

While some do not expect a huge change in the way pharmaceuticals are delivered to consumers (because of the PBM’s shield and because PillPack does not have a large market presence), some – on the other hand – expect the PillPack deal to cause “a pharmacy shakeout over the next five years.” See CNBC’s coverage.

No matter what the experts say, independent pharmacies’ high-profit cash business may suffer.

Realizing this, most pharmacy chains are getting ready for Amazon’s entry. For example, CVS is expanding its one- and two-day deliveries, Rite Aid is merging with Albertsons, Walgreens is partnering with Humana, UnitedHealth, and LabCorp to add more services to its stores.

[1] See my latest post on the topic “Why Amazon shelved its plan to enter the pharmaceutical distribution chain.”

[2] The company was terminated by Express Scripts and had a lengthy public fight over what constitutes a retail pharmacy. Express Scripts recently reinstated PillPack in its network.