I’ve come across a very informative article written by William McConnell, “Behind the War Between HealthPlans and PBMs” that I want to share with you today. Click here to access the article.

Interestingly, the author predicts that despite the new administration’s pledge to reduce drug cost and spending, it’s unrealistic to expect that anything will change. The only real change might be coming from  the new head of the FDA, Scott Gottlieb, who has called for “replacing the current PBM model, in which drug manufacturers compete to be included on insurance company approved lists—dubbed formularies—by offering rebates to the PBMs based on the volume of a drug’s sales.” The current system encourages drugmakers to push the initial sale price as high as possible. Gottlieb has called for negotiation of upfront drug discounts instead and the elimination of the rebate system. This change will really benefit healthplans and may prevent unnecessary litigation that we’ve recently seen between the major healthplans and PBMs, such as Anthem v. Express Scripts. If Gottlieb’s suggestion is implemented, the author argues that the role and influence of PBMs in formulary selection would vanish. Several insurers are already experimenting with value-based pricing that pays drugmakers more when their drugs prove effective at lowering costs of treating patient populations, particularly those with chronic conditions like diabetes, multiple sclerosis, hepatitis C and high cholesterol, which account for a huge percentage of health care costs. Some healthplans had been successfully operating their own PBMs (the article talks about such models and why they’ve been successful), and it is likely that we will see more healthplans opening their own PBMs or merging with existing ones. This can potentially dilute the PBM market and increase competition causing a drug price reduction. Stay tuned…

 

Very often a healthcare provider – when confronted during the audit on a recordkeeping deficiency or some other practice – starts arguing with the auditor: this is how it’s always been done, everybody is doing this, I know better what is right for my patients, etc. Not the best tactic when you are facing a substantial recoupment or your contract is at stake. Instead, tell a story: collect your evidence – including legal arguments and precedents – showing that your practice complies with the standard of care and that you have complied with the law and contractual terms. For example, recently Medicaid and Medicare have been recouping (and causing other problems) based on cut-and-paste notes arguing that every service should be individualized and pasting the notes from one patient to another puts legitimacy of the service at doubt.  If that’s the case, do not argue but tell your story: include other individualized records for that specific patient to show that this was a legitimate service provided. The auditor is looking at plain numbers and dry text – turn your records into a story. Also, even if not too much money is involved in the audit, do your appeal anyway. Failure to do so, may result in subsequent increased audits.

I can’t tell how many times we could have helped our client in a more efficient way, if we were engaged earlier on. Even if the question is a technical one, contact your counsel who can protect your legal interest, which can come handy at a later stage. For example, if you are dealing with a Medicare reimbursement appeal (or Medicaid), the counsel can help you navigate the appeal process and make sure the agency or its contractor is complying with the appeal rules, correctly interprets contractual language and applicable rules and regulations (you’ll be surprised how often a government auditing agent neglects these). Also, the counsel can help you with procedural details. For example, with Medicare you have 120 days to appeal, but you should do it in 30 days to prevent recoupments and start the appeal process. Medicare and Medicaid hearings are conducted in a different manner. For example, a Medicare hearing takes forever to schedule – currently over 3 years and it is done via the phone. While Medicaid is an in-person hearing and you can negotiate. When lots of money is involved in the audit, we engage experts to which the agency will listen and who have no interest in the outcome. In other words, your counsel is your asset during an appeal process and not an expense.

Don’t confront but tell stories (with your counsel by your side).

 

A customer brought a class action against Rite Aid for negligent and willful violations of the Telephone Consumer Protection Act (TCPA), in connection with a prerecorded, automated call made to his cell phone alerting him to the availability of flu shots at Rite Aid pharmacies. The court held that flu shot reminders fall within the TCPA’s exceptions for health care messages. The Rite Aid customer argued that these calls were not health care messages but advertising made by a commercial party hired by Rite Aid (and not by a healthcare provider).  Nevertheless, the judge held that the exception applies because there was an established relationship between the parties (patient received flu shots at Rite Aid before) and therefore cell phone reminders of flu shots are exempt within the meaning of the TCPA.

This case contradicts a recent case against Walgreens, which was making robocalls to patients’ cellphones about prescription reminders. Walgreens settled this case for $11M and agreed to modify its policies of verifying consent and establish an opt-out process.

TCPA in a nutshell:

 Every business that uses phone, fax, or text messaging to share or gather information, or to market product or services must have the consent of the recipient or face significant fines and damages.

TCPA provides for statutory damages of $500 per call or text or actual damages, whichever is greater, and up to $1,500 per call for willful or knowing violations. Some exceptions apply: emergency notices, messages from service carriers and healthcare messages

As the above case illustrates, healthcare providers are still targets for class action law suits based on using pre-recorded messages to communicate with patients and it is still a sound practice to obtain express written or verbal consents for such calls.

 

You’ve probably seen online coverage speculating whether Amazon will eventually enter the pharmacy market. Recently, Amazon hired several healthcare professionals (including pharmacists) to analyze the best ways to establish itself on the U.S. pharmacy market.

I’ve always been skeptical of Amazon’s efforts: too many regulations to comply, too much oversight, too much at stake for non-compliance, and the competition is immense. However, Amazon is more serious than ever due to high-deductible plans and more consumers paying for their own health care. It already started selling medical supplies in the U.S. and publicly expressed interest about moving into the healthcare space. To test the ground, Amazon has started selling pharmaceuticals in Japan. If the model succeeds, we are likely to see AmazonRx or something of that sort operating in the U.S., and even more competition for pharmacies (particularly the mail-order pharmacies). On the other hand, Amazon is likely to be more transparent than major PBM-operated mail order pharmacies in its drug pricing and its cost-reduction model – and potentially we could see a reduction in drug pricing.

Further reading analyzing the hurdles and advantages of Amazon’s move into the pharmaceutical arena.

 

I will be discussing hot topics in controlled substances prescribing, administering, and dispensing at the next ABA Health Law conference on June 8th in Chicago. A DEA’s special agent in charge will join me and will describe new trends in DEA’s audits, registration, and explain some red flags that can put you on the DEA’s radar.

I will focus on some “hot topics” in the controlled substances legal arena, such as:

  • DEA registration, suspension or revocation of registration (when do problems still arise?);
  • DEA inspections and enforcement proceedings;
  • Minimizing the risk of investigation and prosecution (strategies and collateral consequences);
  • Developments in e-prescribing and TeleHealth: DEA’s new proposed relaxed standards;
  • State PDMP laws and their effects on physicians;
  • Medical & Recreational marijuana dilemma for physicians: “legal-but-not-entirely-legal-status” and is it possible to comply with both state and federal law?

Registration details

1. Leaving money on the table

When a pharmacy owner decides to sell, often the sale is conducted in a rush with minimum thinking and negotiations. I strongly recommend my clients to slow things down (unless we have a pending Board of Pharmacy matter demanding an urgent sale), reflect on the offer, and engage a professional evaluator. It’s important to talk to a professional who knows the marketplace and is connected to the buyers who will pay the highest price for your pharmacy. Always remember that there are much more pharmacy buyers than sellers and you are in a great position to negotiate.

2. Record-keeping: a notice of discontinuance of business, inventory, and files.

It’s so easy to completely forget record-keeping and Board of Pharmacy’s requirements on disposition when you no longer operate a pharmacy. First, you must file a notice of discontinuance of business with the Board prior to closing the sale. The Board must be notified prior to transferring or selling your inventory. Also, all records of acquisition and disposition of drugs including prescription files must be retained for 3 years from the date of creation. When you file that notice of discontinuance, don’t forget to attach the inventory and the information on record-storage.

3. Confidentiality Agreement.

Another commonly seen mistake when selling a pharmacy is a failure to enter into a confidentiality agreement prior to sharing any information with a potential buyer. This may decrease the value of your business. Do not share any of your proprietary information including the volume details with anyone who did not sign your confidentiality agreement, including a broker. Only when you know your potential buyer is serious enough, present them with the confidentiality agreement prior to disclosing any information about your pharmacy.

And don’t forget your legal counsel, who can help avoid many legal pitfalls down the road. An ounce of prevention worth a pound of cure.

Last year the Office of Civil Rights (OCR) entered into 12 settlements with covered entities and its business associates (total amount in fines $23.51 mil. – more than a triple increase from 2015). It also issued several new guidance documents, launched a new HIPAA audit program, and announced that it will be investigating smaller breaches of PHI. The OCR is already close to beating the last year record due to pending settlements and ongoing investigations. Causes of investigations are theft or loss of the devices containing PHI, unauthorized access, and improper disposal of PHI. Additional penalties are imposed for failure to conduct accurate and thorough risk assessments, no management plans, failure to update or execute business associate agreements, failure to encrypt PHI, no adequate policies and procedures, and failure to restrict access. All these issues could be easily avoided if covered entities or its business associates regularly conducted proper risk assessments and take appropriate actions to address risks identified during the assessments. While risk assessments are normally performed when initiating new HIPAA policies, many healthcare businesses fail to update it on a regular basis.

If there were any changes in your operation: added a new business, new affiliation or a merger, new technologies, or any other new business component – you must perform a new risk analysis. Even if there were no substantial changes in the operation, but you haven’t performed a risk assessment for a period of time, it is time to do so now.

Guidance on Risk Analysis Requirements under the HIPAA Security Rule.

More and more states legalize medical and recreational marijuana while federal law still continues to classify it as a Schedule I drug with a high potential for abuse and no currently accepted medical use. Therefore, no prescription may be written for a Schedule I drug under the federal law, and such substances are subject to production quotas by the DEA. Physicians in states that had legalized medical cannabis, may only recommend marijuana, with no recommendation as to the dosage, refills, or length of use.

            Many recommending physicians are concerned about any potential DEA’s audits or investigations into their practice. And yes, the DEA may threaten a physician’s DEA registration as aiding and abetting in obtaining illegal drug under the federal law. On a number of occasions, however, the U.S. Department of Justice highlighted that the priority is not on individuals in strict compliance with state laws but on individuals presenting threat to public safety, such as those supplying cannabis to minors, drugged driving, etc.[1]

            Nevertheless, recently the DEA has cancelled registrations of two Colorado doctors specializing in recommending medical marijuana to their patients.[2] In these cases, however, the doctors lost their licenses to practice medicine due to a large number of medical marijuana recommendations authorizing high plant counts. Doctors were each accused of recommending hundreds of patients to grow or possess more than the standard six plants per patient as allowed under the state law. The DEA has published a notice in the Federal Register explaining that the revocation was a consequence of the state license suspension.[3]

            In addition, the federal case law established that the DEA’s policy threatening to punish physicians for communicating with their patients about the medical use of marijuana is invalid. For example, in Conant v. Walters, the 9th Cir. Court held that the DEA may not revoke physicians’ registrations merely for recommending medical marijuana as provided under the state law.[4] The case also upheld the injunction prohibiting the DEA from conducting an investigation of a physician based solely on the physician’s recommendation of medical marijuana.[5]

            While the majority of states with medical marijuana laws prohibit disciplining a physician for recommending cannabis for treatment of a serious medical condition, the Medical Board can and does take disciplinary action against physicians who fail to comply with accepted medical standards when recommending cannabis. The Boards in these states outline the standard of care applicable to such recommendations. For example, California Medical Board stated in a precedential decision that “the mere receipt of a complaint that the physician is recommending marijuana for medical purposes will not generate an investigation absent additional information indicating that the physician is not adhering to accepted medical standards.”[6] These accepted standards are the same as any reasonable and prudent physician would follow when recommending or approving any other medication, and include the following:

  1. History and an appropriate prior examination of the patient.

  2. Development of a treatment plan with objectives.

  3. Provision of appropriate consent including discussion of side effects.

  4. Periodic review of the treatment’s efficacy.

  5. Consultation, as necessary.

  6. Proper record keeping and maintenance thereof that supports the decision to recommend the use of marijuana for medical purposes.[7]

            In other words, if physicians use the same care in recommending marijuana to patients as they would in recommending any other dangerous drug, they would not be subject to discipline with the Medical Boards (according to the California Board’s position taken in the above cited precedential decision). The problem, however, is that most of cannabis recommendations take place under the following circumstances:

            (1) no prior relationship exists between the patient and physician;

            (2) the recommender is not a specialist in treating the underlying condition; and

            (3) no follow-up appointments are scheduled.

            This makes physicians prone to licensing issue, violation of ethical duties; and negligence-style type of cases.

            American Medical Association also developed guidelines for physicians to follow when recommending medical cannabis (which mirror California requirements). In addition, many healthcare players are creating their own policies and procedures on cannabis. For example, many hospitals strictly prohibit the possession and use on their premises, while others started working with the patients on cannabis use and the admitted physician is to make a choice whether continued use of cannabis during the admission will benefit the patient. Some hospitals have shifting rules: allowing cannabis for certain patients only (cancer, pediatrics). As more states legalize medical and recreational cannabis, we will see more pressure on the federal government to revise its existing law on marijuana and possibly more leeway to the states in administering their own cannabis programs.

The above is an except from my presentation given at the California Society for Healthcare Attorneys’ conference in Huntington Beach. The handout for the presentation can be accessed here.

[1] 2009 Ogden Memorandum, available at https://www.justice.gov/archives/opa/blog/memorandum-selected-united-state-attorneys-investigations-and-prosecutions-states  and 2013 Cole Memorandum: https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf (accessed on April 29, 2017).

[2] Gentry Reeves Dunlop, M.D.; Decision and Order, 82 Fed. Reg. 8432-8433 (Jan. 25, 2017) and Janet Carol Dean,     M.D. Decision and Order, 82 Fed. Reg. 9224-9226 (02/03/2017).

[3] Janet Carol Dean,     M.D. Decision and Order, 82 Fed. Reg. 9224-9226 (02/03/2017).

[4] Conant v. Walters, 309 F.3d 629 (9th Cir. 2002)

[5] Id.

[6] Precedential Decision No. MBC-2007-02-Q (against Tod H. Mikuriya, M.D.), California Medical Board.

[7] Id. at 36.

The DEA has recently audited several large pharmacies and drug wholesalers finding substantial non-compliance with the Controlled Substances Act (CSA). The non-compliance has resulted in large settlements, corrective action plans, and some business restructuring. The examples below concentrate on major pharmacy chains and large wholesalers, however, a number of smaller pharmacies and wholesalers have settled various allegations of the CSA violations.

Rite Aid:

In March 2017, it paid over $800,000 to settle allegations that some of its pharmacies had violated the CSA. During the investigation, the DEA had determined that pharmacies were using wrong DEA registration numbers as a result of a poorly maintained internal database. DEA also discovered illegal dispensing practices such as dispensing controlled substances based on prescriptions written by one practitioner whose DEA registration number had been revoked.

Costco:

Paid $11.75 million to settle the case for similar allegations:

  • Filing prescriptions from practitioners who did not have a valid DEA number

  • Incorrectly recording the practitioner’s DEA number

  • Filing prescriptions outside the scope of a practitioner’s DEA registration

  • Filling prescriptions that did not contain all required information

  • Failing to maintain accurate dispensing records

  • Failing to maintain records for pharmacies’ central fill location

McKesson:

Paid over $150 million in civil penalties for its alleged violations of the statute: failure to identify and report suspicious orders of CS, such as orders of unusual size, unusual frequency, and those deviating from normal patterns. The settlement also requires McKesson to suspend sales of controlled substances from several of its distribution centers for multiple years.

Cardinal Health:

Agreed to pay $44 million for similar violations.

Lessons to be learned:

  • I might sound like a broken record but No. 1 prevention and remedy for many government investigations, penalties, and disciplinary action is proper record-keeping.

  • When dispensing controlled substances, strictly follow state and federal law on dispensing, record-keeping, and identifying red-flags (which must be documented).

  • Check prescribers’ DEA registration numbers (and re-check after sometime to make sure the DEA numbers are still valid).

  • Make sure a prescription complies with all state and federal laws.

  • Train your staff on the DEA  Pharmacist’s manual. Could be accessed here.

  • If you are a drug wholesaler, design and implement an effective system to detect and report suspicious orders distributed to its independent and small chain pharmacy customers.

 

The bill would require PBMs to be licensed by the California State Board of Pharmacy and provides for greater transparency in PBMs’ dealings with health plans. The proponents of the bill argue that by allowing the Board to regulate PBMs would provide pharmacies with redress when wronged by aggressive PBM practices. In addition, the bill would allow for greater oversight over PBM practices in the state.

The bill will be heard in the Assembly Business & Professions committee and CPhA is currently compiles pharmacies’ stories and personal experiences of working with PBMs. Your support is needed to help AB 315 (Wood) pass. You may share your experience here.

So far, I know only one state that requires PBMs to be licensed as pharmacies: Georgia.  The Board of Pharmacy in Georgia treats PBMs as pharmacies and may inspect their premises whether they are located within or outside the state. Unfortunately, I do not have enough contacts with Georgia to tell you that this law had been beneficial to  pharmacies or improved PBM practices in the state. It’s also unclear how the Board enforces this law. If you know more on this PBM-licensure law and its impact on pharmacies, please share below.

You may access the full text of the California bill here.