In 2015, California permitted pharmacists to furnish Naloxone – the antidote drug for opioid overdose – without a prescription. Pursuant to AB 1535, pharmacists who wish to dispense naloxone must complete a one-hour training and briefly train its customers purchasing naloxone on its use. In addition, the protocol requires pharmacists to screen customers, provide them a copy of the naloxone fact sheet, and thoroughly consult on the routes of administration, side effects, and timing (the consultation cannot be waived). Proper documentation of furnishing and consultation should be saved in the patient’s profile.

Despite this initiative, not many pharmacies embraced the idea of furnishing naloxone (largely due to low reimbursement rates). Very few independent pharmacies currently carry naloxone. Among the chains, only CVS implemented the initiative in all its stores.

To further increase access to naloxone, last month, the California Department of Public Health issued a statewide standing order for naloxone authorizing 27 organizations across the state — mostly pharmacies and addiction treatment centers — to distribute and administer the medication without a prescription. See San Francisco Chronicle for a list of the facilities.

Despite these efforts, the need for naloxone and proper training is still prevalent. Between 1,900-2,000 Californians die each year from opioid overdoses. Often, these people do not have access to medical care and obtaining a prescription for naloxone is out of the question. Thus, more overdose prevention programs will sprout across the state. For example, see San Francisco Department of Public Health efforts on DOPE Project providing training and assistance to drug users and service providers such as homeless shelters and methadone counselors.

A new litigation is brewing up against OptumRx’s arbitrary MAC pricing. A recent case was filed by 29 pharmacies against OptumRx in Pennsylvania, arguing breach of contract and bad faith in carrying out its contractual obligations. OptumRx filed a motion to dismiss and to compel arbitration. As a result, 28 pharmacies were sent to arbitration, but one – Lakeview Pharmacy- was allowed to proceed because the contract between OptumRx and Lakeview Pharmacy’s PSAO did not contain an arbitration clause.

Later in the proceedings, the court found that OptumRx failed to promptly respond to the pharmacy’s appeals and to retroactively reimburse successful appeals. The Court further found that the factual allegations were enough to establish a plausible claim that the MAC pricing appeals were not reasonable and were conducted “arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties,” i.e. a claim for bad faith. Thus, Lakeview Pharmacy is now able to continue its action against OptumRx.

Subsequent to the court’s decision, Lakeview Pharmacy added two additional contract claims against OptumRx: (1) setting reimbursement prices below acquisition costs; (2) failure to set a single reimbursement amount for similar drugs. The court allowed the pharmacy to proceed on this amended complaint. OptumRx filed an Answer to the Amended Complaint. As a result, the pharmacy now can litigate on the merits of the facts alleged.

This precedent opens a door to successfully alleging breach of contract claims against OptumRx on arbitrary MAC pricing and appeals. California is an ideal forum to bring such an action due to our strong precedent on “Unfair Competition and Unfair Business Practices” litigation, as well as California’s MAC law. See Cal. Bus. & Prof. Code § 4440

California statute requires, among others,

“a PBM to review and make necessary adjustments to the MAC of each drug on the list using the most recent data sources   available at least once every 7 days.”

It also provides that pharmacies can

“challenge the MAC if (A) the MAC is below the cost at which the drug is available for purchase by similarly situated pharmacies in the state from a national or regional wholesaler or (B) the drug does not meet the conditions for inclusion.”

If you have unsuccessfully appealed OptumRx’s (or Catamaran’s) MAC pricing, we want to hear from you. Please contact our office for more details on how to join the lawsuit and get it off the ground in California.

A physician and his wife were recently sentenced to pay fines of $7,500 and $3,000, respectively, for receiving in interstate commerce and delivering misbranded drugs, a misdemeanor. Read the Department of Justice’s summary of the case here.

The physician specialized in the treatment of cancer patients. His wife was managing the practice and was responsible for ordering the drugs that her husband prescribed. For a period of over two years, she had ordered various discounted oncology drugs from foreign sources. These drugs had not been approved by the FDA for distribution or use in the United States, and their labeling did not contain information required by law.  As such, these prescription drugs were “misbranded” and illegal to receive and provide to patients in the United States.

Among the drugs purchased was a prescription drug labeled “Mabthera.” It contains rituximab, the same active ingredient found in the FDA-approved drug legally used and marketed in the United States as “Rituxan.”  However, the drug ordered came from an unapproved, foreign source, and its label did not bear adequate directions for use and other information required by the FDA. As a result, the physician – who had no actual knowledge of where the drugs were coming from – and his office manager received misdemeanors.

But wait, there is more to the case… In February 2018, the couple agreed to pay $500,000 for violating the False Claims Act by knowingly submitting false claims to Medicare for unapproved chemotherapy drugs. The False Claims Act piggybacks on almost any violation of law by a healthcare provider if the provider was billing Medicare, Medicaid or any other federally-sponsored program.

 Lessons to be learned from the case:

  • 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.

It seems that the physician and his wife in the above case were not excersising due diligence in purchasing oncology drugs. However, 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. but who was selling counterfeit Avastin obtained from a foreign source. It was almost impossible to determine where Avastin was coming from.

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

Many pharmacies and clinics run background checks on their employees to assure that individuals have not been excluded from any federal health care program. Most healthcare providers incorporate this procedure into their Policies & Procedures requiring to check the OIG’s List of Excluded Individuals/Entities, as well as state databases before any employment decision is made.

However, many employers are still confused on whether they should perform exclusion checks on all employees and contractors or only on healthcare professionals. The Social Security Act states that individuals and entities are prohibited from submitting – or causing to be submitted –  claims to Medicare, Medicaid, or any other federal health care program for items or services furnished during the exclusion period. See sections 1862(e) and 1902(a)(39) of the Act. If a provider contracts with or employs these excluded individuals, the provider may also be sanctioned.

Recently, Office of Inspector General (OIG) issued an opinion addressing when a provider can employ an excluded individual.  An excluded individual – requestor – submitted the follow scenario:

            Company would employ the excluded individual to market emergency medication discounts to long  term care (LTC) pharmacies that would bill federal health care programs. The marketer would be paid a fixed salary plus a commission based on how many pharmacy accounts he brings to the company. Compensation would not be determined based on the volume, value, frequency, price or selection of any medications ordered by the LTC pharmacies and paid for by a federal health care program. Company would charge the LTC pharmacies the discounted rate plus a mark-up, which the OIG presumed included the cost to employ the requestor. The LTC pharmacies independently determine the volume, type, and frequency of any needed medications. In addition, the requestor and the company would not prepare or submit claims for items or services provided in connection with the proposed arrangement that are paid for by any federal health care program.

            The OIG found that the emergency medications fit the definition of “items or services” and that if the reimbursement the LTC pharmacies received included the LTC pharmacies’ acquisition cost, then the federal health care programs would be indirectly paying for the marketing services requestor provides to the Company. Thus, requestor would be indirectly furnishing an item or service for which a claim is submitted to a federal health care program. Accordingly, the proposed arrangement would effectively fall within the statutory prohibition against furnishing an item or service while excluded. However, the OIG concluded it would not impose sanctions on the requestor because the services were “so far removed” to “pose minimal risk”to Federal health care programs and beneficiaries.

The opinion means that providers should continue exercising extreme caution when contracting with individuals that have been excluded from participating in federal health care programs. If you employ or plan to employ such individuals analyze the following:

  •  Does the individual have any direct or indirect role in submitting claims to any federal health care program?

  •  Does he/she have direct or indirect control over business operations?

  • Do his/her immediate family members have any direct or indirect ownership or control interest.

  • Do the salaries of such individuals depend on volume, value, frequency, price, or selection of any medications, including federally reimbursable medications?

Document the analysis, consult your attorney, and keep all the records readily available in case of an audit or an inspection.

Walmart and Sam’s Club have agreed to pay $825,000 to resolve allegations that they have violated the False Claims Act by automatically refilling Medicaid prescriptions. The allegations came from the state of Minnesota, which – as many other states – does not allow automatic refill of Medicaid prescriptions without an explicit request from the beneficiary for each refill.

According to the allegations, Walmart and Sam’s Club pharmacies routinely enrolled Medicaid beneficiaries in their auto-refill program, and billed the state for prescriptions in violation of state rules and regulations. In addition – according to the allegations – pharmacy employees reported the violation to company managers, yet Walmart and Sam’s Club continued to automatically refill Medicaid prescriptions.

The case originally was brought by a whistleblower under the qui tam provisions. Both state and federal government were involved in litigation. Under the settlement agreement, Walmart and Sam’s Club will pay $412,500 to the federal government and $412,500 to the State of Minnesota to settle the claims.

There were several other federal and state-level investigations of auto-refill programs of large chain pharmacies. For example, a few years ago, The U.S. Department of Justice’s Civil Fraud Division, California Department of Health & Human Services, and the California State Board of Pharmacy investigated claims that CVS Caremark wrongly refilled prescriptions and billed California Medicaid program without the knowledge or the approval of its customers.

A key issue in this case was whether CVS pressured pharmacists to increase refills — and hence revenue — through use of internal quotas that made pharmacists’ pay and bonuses contingent on how many patients they could enroll in the company’s automatic ReadyFill program. CVS’s internal memorandum produced during the investigation, which were issued by CVS management to the pharmacists confirmed that the pharmacists were expected to enroll at least 40% of patients into ReadyFill.

Likewise – under Medicare – pharmacists are required to obtain patient consent to deliver a prescription (new or refill) prior to each delivery. Under CMS’s guidance, PBMs contracting with the pharmacies must assure this compliance through periodic audits. This is specifically relevant and applies for mail-order pharmacies.

Many private payors also prohibit automatic refills as it presents waste of the resources (if shipped and refused – as with mail orders – medication cannot be put back into stock and a claim cannot be reversed). Therefore, before you auto-ship that refill, consider confirming that the patient still needs it.

Audits of healthcare providers are inevitable. Negative findings and allegations of overpayment are almost certain too. Because of voluminous records to be reviewed and scrutinized, auditors use extrapolation, reviewing only a snippet of all claims submitted. If any of the claims reviewed do not comply with applicable regulations and generally accepted practices – or contain clerical errors – such discrepancies are extrapolated across the total number of claims submitted. For example, if a PBM reviews a sample containing 100 claims and finds that 10 of them contain errors, it may seek recoupment of 10% from all claims submitted (not just these 100 claims reviewed but thousands of claims submitted by pharmacy during the audit time-frame).

Extrapolation has been widely criticized as an auditing technique because it does not accurately determine error rate. Many pharmacy advocacy groups – such as NCPA – consider extrapolation as a means to inappropriately enhance PBM’s audit revenues. As a result, a number of states have passed legislation to prohibit or limit extrapolation in healthcare audits.

States prohibiting extrapolation:

Arkansas

Florida

Georgia

Indiana

Kansas (unless Medicaid or Medicare audits)

Maryland (unless pharmacy agrees to extrapolation)

Minnesota (unless required by state or federal regulations)

Missouri

New Mexico

South Carolina

Tennessee

Texas

Vermont

 

PBMs’ use of extrapolation in California:

In auditing California pharmacies, PBMs rarely use extrapolation. It might be due to a fact that California has a provision in its Business & Professions code Sec. 4438 providing that if a PBM “uses extrapolation to calculate penalties or amounts to be recouped, the pharmacy may present evidence to validate orders for dangerous drugs or devices that are subject to invalidation due to extrapolation.” Therefore, it becomes imperative for a pharmacy being audited to determine if PBM uses any extrapolation methods, and if so, exactly what they are. If extrapolation has been used, pharmacy should present evidence that the claims assumed to be erroneous are actually clean claims. It might be necessary to present actual accounting of all claims paid to rebut the extrapolated amount.

 

Extrapolation in Medicaid and Medicare:

With respect to medical assistance programs like Medicaid and Medicare, it is well established that federal and state auditors may use an extrapolation method to calculate overpayments if the number of claims is “voluminous.” State regulations, however, may limit how and when extrapolation may be used in such audits. For example, New York provides that a provider may present counter-evidence to the extrapolation method and an expert testimony to invalidate the extrapolation method. For an opinion, describing extrapolation methods that may be used in Medicaid, see Bulmahn v. New York State Office of Medicaid Inspector General (N.Y. App. Div. 2013) 106 A.D.3d 1504.

In Bulmahn’s opinion, the state’s extrapolation method was invalidated because the state did not consider an amount underpaid to the pharmacy. The extrapolation method used in this case was invalidated because the administrative law judge gave no credit to the testimony of pharmacy’s expert that the failure to consider the underpayment resulted in an inaccurate determination of the amount the state had overpaid the Pharmacy.

As to extrapolation in Medicare, the Centers for Medicare & Medicaid Services has set forth in detail the method for extrapolating overpayments made by medical assistance programs in the Medicare Program Integrity Manual (MPIM). The MPIM specifically provides that “[i]n simple random or systematic sampling the total overpayment in the frame may be estimated by calculating the mean overpayment, net of underpayment, in the sample and multiplying it by the number of units in the frame.”

 

It becomes critical for a pharmacy to determine whether extrapolation is used to calculate overpayments. Next, research your state’s regulations on extrapolation and whether it is prohibited or limited in use. If Medicare or Medicaid claims are reviewed, determine if underpayment is included in the extrapolation methodology.

 

So much talk about lowering healthcare cost, especially when it comes to medications! But how about providing information on drug cost to prescribers who can compare drug costs prior to prescribing? This is an approach taken by a Bay Area startup – Gemini Health – who came up with a platform that enables prescribers to view and compare drug cost. San Francisco Chronicle describes the platform as “an online ‘shopping’ tool for doctors that, as they’re preparing to prescribe medications to their patients, generates a list of similar drugs and their out-of-pocket costs to patients — based on each patient’s insurance plan.”

Gemini Health integrates drug information with electronic health records at the point-of-care, meaning that before physicians write prescriptions they can view and discuss the cost of medication, including the cost of alternative drugs (e.g. a tablet versus an inhaler) and mail-order options. The platform also enables employers to compare and better control drug spending.

Interestingly, prescribers usually have no idea how much medications cost and whether there are cheaper alternatives available. As a result, patients often do not fill their prescriptions because they simply cannot afford them. A possible solution to this problem is the informed decision approach, which is welcomed by many prescribers. For example, Blue Shield of California has signed up with Gemini Health which now provides drug information to its prescribers.

Recently, media, pharmacy groups, and policy makers have been focusing on so-called “gag clauses” in PBM contracts, which prevent pharmacies from discussing cheaper payment alternatives with their patients. Watch NBC’s coverage here.

So what exactly is a gag clause? As applicable to pharmacy, a gag-clause is a provision in a PBM contract that prohibits contracted pharmacies from disclosing cheaper cash prices to patients covered by PBM plans. For example – as described in SF Chronicle “Gag Clause, Keeping Pharmacies From Revealing Lower-Cost Drug Options” – a typical co-pay for amoxicillin 100mg is $20, the cost to the pharmacy, however, is $1.97. The patient’s overpay (clawback) in this example is $18.03. Considering that PBMs manage millions of claims, the profit is enormous.

A recent study prepared by USC Schaeffer “Overpaying for Prescription Drugs: the copay clawback phenomenon.” determined that

       “In 2013, almost one quarter of filled pharmacy prescriptions (23%) involved a patient copayment that exceeded the average reimbursement paid by the insurer by more than $2.00. Among these overpayment claims, the average overpayment is $7.69. Overpayments are more likely on claims for generic versus brand drugs (28% vs. 6%). In 2013, total overpayments amounted to $135 million in our sample, or $10.51 per covered life. With over 200 million Americans commercially insured in 2013, these findings suggest the practice of overpayments may account for a nonnegligible share of overall drug spending and patient out-of-pocket costs.”

The proponents of anti-gag and anti-clawback laws, argue that if a pharmacy informs a patient of these cheaper alternatives, the pharmacy risks losing a contract with a PBM because many PBM contracts prohibit disclosure of such information to a patient. For example, National Community Pharmacists Association argues in its March 22, 2018 Issue Brief that the following provisions in PBM contracts are violated if a pharmacy discusses alternative payment methods with a patient:

       “Confidentiality:  Provider acknowledges and agrees that in the performance of services hereunder, Provider will comply with the Confidentiality provisions set forth in the Provider Manual and as set forth in this Agreement.

        Contacting Sponsors or Media.  Provider hereby agrees (and shall cause its affiliates, employees, independent contractors, shareholders, members, officers, directors and agents to agree) that it shall not engage in any conduct or communications, including, but not limited to, contacting any media or any Sponsor and/or Sponsor’s Members or other party without the prior consent of [PBM].”

However, as a transactional attorney who reviews, drafts, and often litigates contractual provisions, the above clauses do not prohibit pharmacy personnel from discussing alternative payments with a patient. First, payment options do not fall into the definition of confidential and proprietary information (cash prices are not supplied or generated by a PBM. In fact, such information is publicly available). Second, discussing payment options with a patient does not fit within “Contacting Sponsors or Media” description because usually payment conversation occurs while a patient is in the pharmacy during the provision of pharmacy services. And very often a patient initiates such conversations.

Before writing this post, I have reviewed many recent PBM contracts and none has an express prohibition stating that a pharmacy shall not discuss alternative payment options with patients. I also have not heard of any PBM terminating a contract with a pharmacy for discussing payment options. If you know of any, please share below.

However, even if there is no express prohibition, discussing such options is not in the best interest of a PBM and therefore it is possible that PBMs may terminate a pharmacy based on providing such information.

To prevent such terminations and in attempt to curb ever-rising drug prices, many states have passed prohibitions on pharmacy gag-clauses and clawbacks.  At least a dozen states have such legislation pending. California’s AB-315 is one of them. If passed, AB-315 would require PBMs to:

  1.  register with the Department of Managed Health Care;

  2.  exercise a duty of good faith and fair dealing in the performance of the contractual duties to a plan sponsor;

  3.  periodically disclose to a plan certain information such as drug acquisition cost, rebates, and pharmacy negotiated rates.

The bill would also prohibit PBMs from:

  1.  sending a pharmacy termination notice to beneficiaries until the required notice has been provided to the pharmacy.

  2.  including in a pharmacy contract provisions that prohibit the pharmacy from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication.

Reading some of the legislative history of the bill and working in this area, I am not convinced that requiring PBMs to perform the above would change pharmacy market and would help lower the prescription drug prices. (Contact me to know why). But it is definitely a step in the right direction. It would also be interesting to see whether similar laws in other states will reshape the industry and in which direction.

It’s getting harder and harder to fill an opioid prescription. Many pharmacies – particularly chains – are very reluctant to dispense them in the first place. Many require a patient to go through various procedural issues such as signing a lock-in contract. While others are capping the amount of opioids to be dispensed. The latter is becoming more and more popular.

For example, this month Walmart joined the move and announced that it will start capping the initial dispensing of opioids to a seven-day supply. Walmart’s announcement. In addition, Walmart is capping the dosage to a maximum of 50 morphine milligram equivalents per day.

Walmart has been really proactive in curbing opioid epidemic (and minimizing its legal exposure) this year. It started offering free counseling to its patients on proper opioid use, possible overdose, and addiction. Earlier this year, Walmart also started offering a first-of-its kind free opioid disposal solution, DisposeRx.

DisposeRx contains powder which is to be emptied in a pill bottle containing opioids with warm water. According to manufacturers of DisposeRx, their product effectively and responsibly disposes of opioids.

By 2020, Walmart plans to switch to e-prescribing, which will enable its pharmacists to receive controlled substance prescriptions electronically, reducing the error rate and tampering issues.

Walmart is not the first in the industry to implement such comprehensive measures on preventing over-dispensing and potential overdose/addiction of opioids. For instance, CVS started the move last year after the Centers for Disease Control and Prevention (CDCP) issued its recommendations on capping initial opioid dispensing to seven-days only. CDCP’s guidelines.  Some states also limit opioid prescriptions to seven days or fewer.

In February 2018, Caremark announced a seven-day cap as well. Pharmacies – within the Caremark network – which are not adhering to this policy would not be reimbursed beyond the seven-day dispensing and could potentially face contractual issues.

The industry is reshaping how the opioids are dispensed. It is important for pharmacies to watch the move and ever-changing standard of care. These changes are attributed not to altruistic motives but to the level of enforcement against pharmacies, wholesalers, pharmaceutical companies, and prescribers. In California, for example, dispensing controls is still a number one violation cited in the California State Board of Pharmacy disciplinary actions. The Board does not issue citations or fines associated with the dispensing of controls but goes straight to filing the Accusations (which are publicly available). The California State Board of Pharmacy regularly seeks to revoke pharmacist licenses and pharmacy permits based on common record-keeping errors when dispensing controls (and not just on diversion or ignored red flags). In addition, DEA has been proactive in enforcing federal controlled substances laws on the pharmacy level, collecting many millions in settlements and leaving many pharmacies without DEA registration.

See a related blog post on overprescribing.

See “Tips from recent DEA audits and importance of suspicious order monitoring.”

Last year, I had a heated discussion on LinkedIn on whether Amazon would enter the pharmaceutical distribution chain in 2018. Being a compliance attorney, I expressed some concern that selling drugs is not as easy as selling books and requires tremendous resources to keep up with federal and state compliance. And Amazon would be an easy and a lucrative target. One of the commenters called me naïve (I actually am!) in thinking that something can stop Amazon. Well, after exploring pharmaceutical business models for quite some time, Amazon publicly announced that it was shelving its plan to enter the pharmaceutical arena.

CNBC reports  that the primary reason in the change of plan is due to the inability to convince bigger hospitals to change their traditional purchasing model. Relationships in drug distribution are built over years. Many healthcare providers are part of group purchasing arrangements, which are not easy to disrupt.

As a healthcare compliance attorney, I again think that compliance and potential liability are to blame. Simply put: the risk outweighs the benefit! I believe that if Amazon wants to contract with someone, it will find the means to do so, but the amount of money and resources that Amazon would have to spend on compliance, licensing, logistics and potential liabilities/defense is huge. And speaking of logistics, it would have to be very different from the prior model of delivering “non-sensitive” products, such as books, clothing, etc. Throwing so much resources into pharmaceutical distribution might not be worth for Amazon.

Instead, Amazon decided to proceed with selling medical devices of Class I (such as elastic bandages) and Class II (e.g. wheelchairs and pregnancy kits), which are less problem-prone and involve less compliance and potential liabilities.

Amazon’s announcement does not mean that it will never enter pharmaceutical distribution but for now it will continue with its present model plus adding Class I & II medical devices to its Amazon Business. So I still may be proved naïve.