Earlier this year, CMS issued its Medicare Part D Final Rule addressing DIR fees, among other things. It is important to remember that the rule does not eliminate DIR fees but moves them to the point of sale. The rule becomes effective January 1, 2024, meaning that the pharmacies will face a DIR cliff when they will be required to pay double DIR fees: one large chunk retroactively at the end of 2023 and starting to pay DIR fees at the point of sale beginning January 1, 2024.

The rule applies only to Medicare claims and it is unclear whether private plans will follow the lead and contractually prohibit retroactive fees.

Ambiguity surrounds the final rule  and there are many unanswered questions. But it seems that PBMs will be paying pharmacies the lowest possible reimbursement at the point of sale, providing pharmacies with the opportunity to earn back additional reimbursements based on future performance. Such a roadmap is open to interpretation and potential PBM abuse.

The reform also requires CMS to develop pharmacy performance measures but it is unclear which metrics CMS will use. Lastly, the rule also appears to mandate that PBMs (or Part D plans) adequately describe DIR fees on their remittance advices.

I – personally – have many concerns with the proposed rule as the rule fails to give solid directions as how it will be implemented. All that we know is that the DIR fees under Medicare plans will be moved to the point-of-sale starting January 1, 2024.

Our firm has represented many pharmacists who were investigated only because they were filling scripts written by “problematic” prescribers, mostly those with a restricted ability to prescribe controlled substances.

Many pharmacists complain that it is often difficult (if not impossible) to know if a prescriber has a suspended DEA registration, any prescribing restrictions, or a discipline that would justify rejecting a script.

While it is true that a pharmacy usually has no means of knowing of an open investigation due to the confidential nature of such investigations, there are several ways to research past records of a prescriber:

  1.    Medical Board’s Records

The most obvious one and the most utilized investigation approach is to research the prescriber’s license on the Medical Board’s website.  It will show past and current disciplines. But usually, you need to read the whole disciplinary record to understand if there are any prescribing restrictions or red flags that would warranty denying a script.

  1.    Board of Pharmacy’s Website

As a pharmacist in California, you need to subscribe to the Board of Pharmacy’s email alerts. The Board periodically emails a list of prescribers with restricted authority for prescribing controlled substances. Also, on the Board’s homepage, under “Important Information for Licensee” you can find a link to prescribers with restricted authority for prescribing controlled substances.

  1.    DEA’s Records

I’ve seen plenty of cases where pharmacists were dispensing scripts from prescribers with suspended or restricted DEA registration. But how can a pharmacist know about these issues? According to a Diversion Investigator (“DI”) from a recent DEA case, a pharmacy can request a current DEA registration from the prescriber. But as we all know, it is often difficult to obtain additional information from a prescriber’s office. According to the same DI, if you are unsuccessful in obtaining a DEA registration directly from the prescriber, you can contact your local DEA office and request a copy of this prescriber’s DEA registration or inquire whether the prescriber is in a good standing with the DEA.

While the above sources may help to determine prescribers with restricted authority to prescribe controlled substances, often there are no means of knowing if a prescriber is on the DEA’s or any other agency’s radar. I had cases where the DEA was investigating pharmacies because they worked with the prescribers with unrestricted prescribing privileges but had a discipline pertaining to controlled substances. The DEA considers it a red flag that has to be resolved.

In another case, the DEA argued that a pharmacy should not have supplied controlled substances to a prescriber for his office use (minimal quantities to alleviate shortages) because the prescriber was implicated in a child pornography scheme. When we argued that the pharmacy had no means of knowing about this investigation which did not relate to the prescriber’s medical practice, the DEA responded that the investigation was covered by a local newspaper and the pharmacy should have been familiar with the allegations and should have stopped working with this prescriber.

In a nutshell, when filling a script from new prescribers it is important to verify their licenses. If there is a disciplinary action based on prescribing controlled substances, pharmacists must use their professional judgment on whether to work with such a prescriber. It is also recommended to obtain a copy of the prescriber’s DEA registration (which is easier said than done). For known prescribers, a good practice is to verify prescriber’s good standings every 6 months. And as always, document your due diligence and keep all documents readily available in case of a DEA or BOP investigation.

Earlier this year, the Senate passed the Inflation Reduction Act (a.k.a. Build Back Better Act) which was heavily covered in press. I will only focus on what the Act has in store for pharmacies and will highlight the most important provisions for the pharmacy industry.

The Act – at its core – gives CMS ability to negotiate drug prices for Medicare and Medicaid plans. By 2026, CMS will directly negotiate prices for selected drugs (initially the 10 most expensive drugs ). CMS does not anticipate that these new prices will result in lower pharmacy reimbursements.


But most importantly for pharmacies, the legislation provided for:

  • a $35 out-of-pocket cap for insulin for Medicare beneficiaries (starting in 2023);
  • a $2,000 cap for Part D out-of-pocket expenses (starting in 2025);
  • free vaccines for Medicare beneficiaries (beginning in January 2023).

Further reading: “Understanding Health Care Provisions in the Inflation Reduction Act,” Kaiser Family Foundation.

Starting January 1, 2023, California pharmacies will be required to have a new written policy and procedure addressing controlled substances inventory reconciliations. The amended California Code of Regulations 1715.65 now requires that pharmacies perform inventory reconciliation report:

– on all federal controlled substances;

– for federal Schedule II drugs at least once every three months;

– for products containing the followings substances in the following strengths per tablet, capsule, other unit, or specified volume, at least once every 12 months:

(A) Alprazolam, 1 milligram/unit.

(B) Alprazolam, 2 milligrams/unit.

(C) Tramadol, 50 milligrams/unit.

(D) Promethazine/codeine, 6.25 milligrams of promethazine and 10 milligrams of  codeine per 5 milliliters of product.

– for any other controlled substances no later than three months after discovery of the reportable loss of that controlled substance;

– for all controlled substances at least once every two years.

The new regulation also explains the record-keeping requirements of inventory reconciliation reports, how such reports should be prepared, and clarifies inventory requirements in hospital setting.

You can purchase this new policy and procedure customizable to your practice at our RxPolicy website. (If you are a subscriber, you should have already received this new policy and procedure from us and you will receive a revised Standard Operational Manual for 2023 – with all the updates and requirements for 2023 – in December 2022).

Under various state laws and DEA regulations, every pharmacist must resolve “red flags” before dispensing a prescription for controlled substances. Most of the pharmacy state boards have published lists of what constitutes such red flags. For example, the California State Board of Pharmacy has published the following list of red flags (other states use the same criteria):


  • Irregularities on the face of the prescription itself
  • Nervous patient demeanor
  • Age or presentation of patient (e.g., youthful patients seeking chronic pain medications)
  • Multiple patients all with the same address
  • Multiple prescribers for the same patient for duplicate therapy
  • Cash payments
  • Requests for early refills of prescriptions
  • Prescriptions written for an unusually large quantity of drugs
  • Prescriptions written for duplicative drug therapy
  • Initial prescriptions written for strong opiates
  • Long distances traveled from the patient’s home to the prescriber’s office or to the pharmacy
  • Irregularities in the prescriber’s qualifications in relation to the type of medication(s) prescribed
  • Prescriptions that are written outside of the prescriber’s medical specialty
  • Prescriptions for medications with no logical connection to an illness or condition.

If any of the above are present, the pharmacist must document how the red flags were resolved. The key word here is “document.” I cannot stress enough the importance of documentation. While representing independent pharmacies in DEA audits and investigations for many years, I have seen large monetary penalties imposed simply because there was no documentation on how pharmacists cleared red flags. For example, I recently had a case where the DEA claimed that the red flags were not resolved and was proposing a multi-million dollar settlement. After interviewing the client, I learned that the pharmacist in fact did resolve the red flags. For example, he spoke to the prescribers regarding medical necessity and to the patients to inquire why they were traveling long distances and paying cash. The pharmacist, however, failed to document these inquires and we had no evidence (besides the pharmacist’s statement) that the pharmacy performed its due diligence in filling these scripts.

Specifically, the DEA has recently been targeting pharmacies with excessive filling or ordering, suspicious drug combinations, and pattern prescribing. Some examples of such drug combinations:

– An opioid, a benzodiazepine, and a muscle relaxer for overlapping days of supply

– An opioid, a benzodiazepine, and a muscle relaxer on the same day, and all the prescriptions were written by the same prescriber

– An opioid and a benzodiazepine within 30 days of one another

– An opioid and a benzodiazepine on the same day, and both prescriptions were written by the same prescriber

In the DEA’s opinion, there is no legitimate medical reason for such combinations.

Some examples of excessive dispensing (from recent cases):

– Pharmacy dispensed two short-acting opioid drugs on the same day

– Pharmacy dispensed an opioid prescription of over 200 MME per day

– Pharmacy dispensed more than 210 “days of supply” of all opioids combined in a 6-month period.

Pattern prescribing example: an opioid was dispensed to at least 4 different patients on the same day and the opioid prescriptions were for the same base drug, strength, and dosage form and were written by the same prescriber.

Recently, the importance to resolve red flags was illustrated by a legal action against Walgreens.  The city and county of San Francisco filed a law-suit against drug manufacturers and Walgreens for contributing to the opioid epidemic in San Francisco. A crucial factor in the court’s holding for the city was its determination that Walgreens failed to document red flags.

San Francisco was able to prove that multiple opioid prescription contained red flags which were not resolved by Walgreens’ pharmacists. According to San Francisco’s expert only 5% of the prescriptions were adequately verified and red flags resolved. Walgreens was not able to present documentation on how its pharmacists resolved red flags (such as long distance, cash payment, and dangerous combination of controlled substances). As a result, Walgreens is facing a multi-million dollar settlement.

(By the way, I encourage you to read the court opinion as it goes over the history of San Francisco’s opioid crisis, discusses red flags and pressure that many chain pharmacists face).

In a nutshell: the presence of a red flag triggers a pharmacist’s duty to perform a reasonable inquiry to determine whether the prescription is legitimate before dispensing it. Pharmacists should document how they resolved such red flags. Prescriptions should not be dispensed if the red flags are not resolved and there is no documentation how the pharmacist resolved them.

Remember a guiding principle of pharmacy: “if you didn’t document it, it didn’t happen.”


Today I would like to highlight some practical aspects in appealing PBM audits. Earlier this year, a PBM denied several pharmacy audit appeals because pharmacies were not compliant with the provider manual when presenting their appeal paperwork. Namely, the additional documentation presented by the pharmacy lacked pharmacy NABP number, prescription number, and date of fill. In these specific examples, pharmacies presented patients’ and prescribers’ statements which were missing prescription numbers and pharmacy’s NCPDP.  The PBM rejected this information because under its provider manual, every document submitted during the appeal or audit process must state:

– pharmacy NABP number

– prescription number

– date of fill

– patients’ full name.

And if the pharmacy is providing a prescriber’s statement, it must be on the prescriber’s letterhead clearly indicating the origin of the document (i.e. prescriber’s fax number).

Another practical issue is many PBMs now have a provision in their manuals to hold the new owner of the pharmacy accountable for the previous owner’s audit. Before, we were able to successfully argue that the audit covered the date under the previous ownership and the new owner should not assume responsibility for such acts (especially if the new owner operates under the new NPI and NCPDP). But now most PBMs have a provision that if you continue operating under the Seller’s contract, you remain severally and jointly liable for the conduct of the past owner. This makes due diligence during the acquisition stage even more important, especially when it comes to invoice reconciliation aspect. Prior to closing a pharmacy transaction, the buyer should perform an internal invoice reconciliation to ensure no audit would reveal drug shortages.


The bottom-line is the pharmacy should be familiar with the provider manuals prior to presenting any information or argument to a PBM. Surprisingly, many pharmacies do not even have access to their PBM manuals. Most of them are available through PBM pharmacy portals, make sure you download them and familiarize with their requirements prior to submitting any audit appeal documentation.

Back in 2021, the Secretary of the federal Department of Health and Human Services authorized licensed pharmacists to independently order and administer any COVID-19 therapeutic, subject to certain conditions ( under the Ninth Amendment to Declaration Under the Public Readiness and Emergency Preparedness Act for Medical Countermeasures Against COVID-19).

Recently – on July 6, 2022 – the FDA amended the Emergency Use Authorization (EUA) for Paxlovid, an orally-administered COVID-19 therapeutic drug. The amended EUA expressly permits licensed pharmacists to independently order Paxlovid for individual patients under certain conditions.

The FDA has authorized the emergency use of PAXLOVID – an investigational medicine – for the treatment of mild-to-moderate COVID-19 symptoms in adults and children (12 years of age and older weighing at least 88 pounds) with a positive test for COVID-19, and who are at high risk for progression to severe COVID-19, including hospitalization or death.

In addition, the California State Board of Pharmacy has waived certain provisions of Business and Professions Code to the extent these provisions prohibit pharmacists from independently initiating and furnishing Paxlovid. To access Board’s waiver, click here.

In its waiver the Board lists the following requirement that must be observed by the pharmacists independently initiating and furnishing Paxlovid, such as:

(i) pharmacists must assess renal and hepatic function of the patient through health records less than 12 months old or by a consultation with the patient’s physician, and

(ii) pharmacists must obtain a comprehensive list of medications that the patient is taking to assess potential drug interaction through medical records or a consultation with the patient’s physician, and

(iii) if no sufficient information is available to determine patient’s medical history and potential drug interaction, or if the pharmacist determines that taking Paxlovid may cause adverse reaction, the pharmacist must refer the patient for clinical evaluation.

Due to potential side effects and investigational nature of Paxlovid, pharmacists initiating and furnishing Paxlovid should require an informed consent and release signed by their patients taking Paxlovid. This form should notify patients of potential side effects, drug interactions, and other information pertaining to taking Paxlovid. If you need assistance with drafting such informed consent and release, please contact our office or your healthcare attorney. We also plan to make such forms available on our website: RxPolicyStore.com.

The United States Attorney’s Office for Southern District of Florida has recently announced a settlement with three Florida pharmacies to resolve allegations that they fraudulently used collaborative practice agreements (“CPAs”) to bill federal health care programs for unlawfully prescribed medications.

In its press release, the governments explains that “A collaborative pharmacy practice agreement is a written agreement between a physician and pharmacist that allows the pharmacist to provide specific patient care services for chronic health conditions to the physician’s patients.  Services provided by the pharmacist are outlined in the written agreement and must be in accordance with Florida law.”

The settlement explains that the pharmacies used:

– CPAs that were unlawful pursuant to Florida law because they delegated prescribing authority from a physician to a pharmacist, and

– the same CPAs to write and fill prescriptions without any physician involvement.

The complaint alleged, among other things, that the CPAs allowed pharmacists to:

– modify formulas for compounded prescriptions;

– issue initial prescriptions;

– delegate pharmacists’ tasks to technicians, who modified and billed for compounded medications.

In addition, many CPAs in the case were allegedly expired. More information on the case: United States et al. ex rel. Morales v. Habana Hospital Pharmacy, Inc. et al., No. 17-CV-80871-KAM, S.D.Fla., 2017.

This allegedly fraudulent scheme resulted in the submission of false claims to federal health care programs, including Medicare and Medicaid. To resolve the allegations, the pharmacies have settled with the government for over $831,000.

If you are using CPAs in your practice, make sure you review them on at least annual basis. It is very important that CPAs are compliant with your state laws and do not delegate more responsibilities than state law allows; and – of course – have them reviewed by your legal counsel.



While this is not a new case, it serves as a good reminder that even a small healthcare provider is subject to potential monetary penalties under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Cornell Prescription Pharmacy was a small compounding pharmacy in Denver. A complaint was filed with the Office for Civil Rights (OCR) – which is a branch of US Department of Health and Human Services with HIPAA enforcement functions  – that the pharmacy allegedly discarded hardcopies of prescriptions and dispensing records without shredding such documents. These documents – containing protected health information (PHI) of 1,610 patients – were stored in an unlocked open container on the pharmacy’s premises. The OCR conducted an investigation and confirmed that such records were jeopardized and that the pharmacy failed to implement HIPAA policies and procedures. Due to this findings and to avoid further cost of defense, the pharmacy and OCR agreed on a $125,000 settlement and a corrective action plan requiring the pharmacy to implement proper HIPAA policies and procedure, and to train its staff on compliance with HIPAA and other privacy laws.

While we have previously reported larger HIPAA settlements with chain pharmacies, this is the only case and investigation that we are aware of involving a small independent pharmacy. Our other relevant blog posts: “OCR increases HIPAA audits,” “When was the last time you trained your workforce on HIPAA? Penalties for non-compliance have increased.

We have prepared HIPAA policies and procedures specifically tailored to independent pharmacies. We also assist with training your pharmacy staff regarding HIPAA and relevant privacy laws. You can access our policies here or contact our office for custom policies and training.


Effective July 1, 2022, California pharmacies providing auto-refill services must:

  • have a written policy and procedure describing the auto-refill program listing medications that may be refilled through the program;
  • obtain patients’ written consent to auto-refills;
  • provide a written notice to the patient summarizing the program and on how to withdraw from the program (such written notices must be available in the patient’s language of choice);
  • complete a drug regimen review for each prescription refilled through the program at the time of refill;
  • provide a written notification to the patient or patient’s agent confirming that the prescription medication is being refilled through the program each time the medication is refilled;
  • allow the patient to withdraw a prescription medication from automatic refill or to disenroll entirely from the program;
  • provide a full refund to the patient, patient’s agent, or payer for any prescription medication refilled through the program if the pharmacy is notified that the patient did not want the refill, regardless of the reason, and the pharmacy had been notified of withdrawal or disenrollment from the program prior to dispensing the prescription.

Our firm has prepared policies and procedures (and patient notices) that comply with the above requirements, available for download here.

If your pharmacy is located in another state or/and operates in other states, please keep in mind that many states do not permit auto-refill programs.

As to Medicare, part D beneficiaries can be enrolled into auto-refill programs but under certain circumstances, such as notice, opt-in and opt-out options, refunds for unwanted medications, etc. Basically, California law mirrors Part D requirements.

Many Medicaid programs have similar restrictions. Ensuring compliance with Medicare and Medicaid requirements is particularly important as non-compliance can lead to potential claims and actions against the pharmacy under the False Claims Act (which is very time-consuming and expensive to defended).

PBM manuals (see a related blog post) also require similar safeguards around auto-refill programs, such as:

  • Auto-refill programs should be voluntary, on opt-in basis only;
  • Patient consent is for refills only and shall not apply to any new prescriptions (new consent must be obtained);
  • The pharmacy must provide patients with information on how to disenroll from its auto-fill program and must promptly respond to all disenrollment requests;
  • The pharmacy must confirm at least annually that the patient still wishes to participate in the auto-refill program;
  • The pharmacy must promptly discontinue automatic fill program upon notification that the patient entered a skilled nursing facility or elected hospice coverage.

Please contact our firm for any assistance with drafting or modifying policies and procedures regarding auto-refill programs.