During recent audits, several PBMs required pharmacies to have policies and procedures addressing CMS form 10147. Most pharmacies do not have written policies regarding CMS-10147 because it is not required by state or federal regulations or PBM manuals. Nevertheless, drafting a policy addressing when and how CMS-10147 is distributed is a good idea (especially considering that this policy is usually succinct and easy to draft).

So what is CMS form 10147 and what pharmacies have to do with it?

Federal law requires that each Medicare Part D plan sponsor distributes CMS form 10147 (“Notice”) to its members who receive a prescription fill rejection from the plan. This notice is intended to educate Part D members of their rights when a prescription cannot be filled under the Medicare Part D benefit at point of sale.

If a pharmacy receives the plan’s rejection code 569 , the pharmacy must provide the Notice – which is entitled “Medicare Prescription Drug Coverage and Your Rights” – to the beneficiary whose prescription could not be filled.  The notice instructs members to contact their Part D plan to obtain a coverage determination or ask for a formulary or tier exception if the beneficiary disagrees with the information provided by the pharmacist.

This requirement applies to all pharmacies (including retail, LTC, specialty, and mail order pharmacies). For example, a mail order pharmacy must provide the Notice to the member via the member’s preferred method of communication (fax, electronic, or first class mail) as expeditiously as the member’s health condition requires, but no later than 72 hours from the receipt of the original transaction response indicating the claim is not covered by Part D.

Home infusion pharmacy, for example, may deliver the notice in person with delivery of home infusion drugs or through a nurse, as long as the next scheduled visit is within 72 hours of the rejection code.

An LTC pharmacy must fax or deliver the notice to the member, his/her representative, prescriber, or staff at the LTC facility as soon as possible but no later than 72 hours from the receipt of the rejection code.

The only pharmacy that is exempt from the requirement to provide the Notice is Indian Health dispensing facilities.

Most PBMs require the Notice to be in at least 12-point font, physically distributed to beneficiaries (and not simply posted on a wall) and to have an OMB control number.  Deviation from the content of the Notice is not allowed.

If you anticipate any upcoming PBM visits, it is recommended that you have a policy describing how and when you distribute the Notice. The Notice itself can be obtained here.





 CVS has been dominating the news lately: CVS-Aetna merger, CVS’s free drug deliveries, its efforts to curb opioid epidemic, etc. This post is about a recent litigation commenced by CVS against its ex-executive John Lavin to prevent him from working for a competitor, Pill Pack. After Amazon purchased PillPack last year, CVS’s shares dropped and ever since CVS has been concerned about PillPack’s expansion. Further discussion.

During Lavin’s employment with CVS, he signed a non-compete agreement. After 27 years with CVS, Lavin decided to work in the same position for PillPack. Understandably, CVS panicked and filed a legal action seeking a preliminary injunction for violating the non-compete. Lavin’s lawyers argued that the non-compete was so broad that it effectively prevented Lavin from working anywhere in the pharmaceutical industry and therefore it was unenforceable.

The U.S. District Judge concluded that the non-compete was reasonable and issued an injunction against Lavin. The judge reasoned that because Lavin can use certain trade secrets and internal information to harm CVS’s market, the non-compete in this situation was appropriate. Because Lavin was an executive of the PBM branch – Caremark – the judge ruled that the confidential information obtained and learned while at CVS “poses a significant likelihood of harm.” The position at PillPack was substantially similar as it also involved negotiations between PBM and pharmacies, internal pricing and negotiations, and other proprietary information. And therefore, Lavin could use his knowledge to harm CVS’s share of the market. Lavin filed an appeal.

The healthcare industry is closely watching the case and not for the non-compete application but for any clues on PillPack’s future plans. For example, during a deposition in this case, the PillPack’s chief executive did not deny that PillPack is looking into a PBM model to add to its services.

Are non-compete agreements enforceable?

Non-compete agreements are usually provisions in employment contracts prohibiting employees from working directly or indirectly for any competitor for a certain period of time after terminating the employment .

Contractual relationships are typically governed by state law. But most states disfavor non-compete employment contracts and most courts enforce them only when reasonable or “when the restriction does not extend beyond what is apparently necessary for the protection of those in whose favor they are made.” (As the judge in Lavin’s case said in his opinion).

California, for example, is one of the states that rarely enforces non-compete agreements even if they appear reasonable and narrowly drafted. For a discussion on California’s history and enforceability of non-compete agreements, see Dowell v. Biosense Webster, Inc.case,(2009) 179 Cal. App. 4th 564, 574–75.

Moreover, California Bus. & Prof. Code Section 16600 states:

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

There are only three statutory exceptions to this prohibition on non-compete agreements:

  1. One who sells the goodwill of a business, or all of one’s ownership interest in a business entity or substantially all of its operating assets and goodwill, to a buyer who will carry on the business may agree with the buyer not to carry on a similar business within a specified geographic area, if the business will be carried on by the buyer (Cal. Bus. & Prof. Code § 16601) (i.e. a sale of a pharmacy);
  2. Upon dissolution of a partnership or dissociation of a partner, such partner may agree not to carry on a similar business within a specified geographic area, if the business will be carried on by remaining partners or anyone deriving title to the business or its goodwill (Cal. Bus. & Prof. Code § 16602);
  3. And a member of a limited liability company may agree not to carry on a similar business within a specified geographic area, so long as other members or anyone deriving title to the business or its goodwill carries on a like business (Cal. Bus. & Prof. Code § 16602.5).

Section 16600 expresses California’s strong “public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice.” See Dowell v. Biosense Webster, Inc.

Unlike in other states, employers operating in California are not advised to add a non-compete clause in their agreements (unless the three above exceptions apply) because an employer’s use of an illegal noncompete agreement may violates the California Unfair Competition Law. (For further discussion on how an illegal non-compete can violate Unfair Competition Laws, see Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 906–908).

So if the Lavin’s case was decided by a California court or if California law was applied, the result would likely have been different.


   The CVS-Aetna merger has been one of the longest mergers in healthcare history. On September 4, 2019, the federal judge issued his final ruling approving the proposed settlement of the federal challenge to the merger. The judicial review took eleven months with multiple applications of the “public-interest” test as provided by the Tunney Act.

The ruling finalizes a merger of the nation’s largest pharmaceutical chain with the nation’s third largest health insurance. Both are the largest providers in Medicare Part D arena. To avoid conflict of interests, the settlement requires CVS to divest Aetna Medicare Part D to WellCare.

The judge concluded – after the first-ever live hearing under the Tunney Act – that the two companies will continue to compete despite the merger and the harm to the public was unlikely. (The judge was also focusing on potential harm to HIV and AIDS patients – no such was found). The Judge explained:

“The court’s function is not to determine whether the resulting array of rights and liabilities is one that will best serve society, but only to confirm that the resulting settlement is within the reaches of the public interest.”  

As a result, welcome another  800-pound healthcare conglomerate.

       The California State Board of Pharmacy has published an inspection checklist to guide pharmacies on what to inspect during an inspection.

The brochure elaborates on the process to be followed by the inspector. For example, the inspector must provide the pharmacy with:

  • a business card;
  • a receipt for any records taken from the premises;
  • a copy of the inspection report (TIP: This is a the most important document during the inspection. Review it with your counsel to determine on how to address the inspector’s concerns (if any) to avoid an administrative action);
  • information about pharmacy laws and regulations (TIP: This is your chance to ask any burning questions. But be prepared that you may not receive answers to all the questions that you may have).

During the inspection, the pharmacy should provide access to:

  • All stock of dangerous drugs and devices;
  • All records of manufacture, sale, acquisition, receipt, shipment and disposition.

TIP: The inspector is allowed to take samples of products (e.g. compounds).

To streamline  the inspection, you should have the following records readily available (TIP: have an inspection folder):

  • Past inspection reports.
  • Pharmacy self-assessments.
  • Copies of staff licenses.
  • Master list of pharmacist and technician initials.
  • DEA 222 forms.
  • Power of attorney to execute DEA 222 forms.
  • DEA biennial inventory.
  • Drug take-back records.
  • Wholesaler invoices.
  • Records of drug returns.
  • Records of destruction.
  • Off-site records waiver.
  • Pedigrees for drugs purchased.
  • Inventory reconciliation reports.
  • Controlled substances refill reports.
  • Policies:
    • Quality assurance reports.
    • QA for medication errors.
    • Theft and impaired licensees.
    • Pharmacy technician job description.
    • Pharmacist absence for meals.
    • After hours deliveries.
    • Interpretive services.
    • Repackaging previously dispensed drugs.
    • Automated Drug Delivery Systems.
    • Common electronic files to prevent unauthorized release of patient
  • Protocols:
    • Refusing to dispense on ethical, moral, religious grounds.
    • Emergency contraception.
    • Nicotine replacement.
    • Advanced practice pharmacist.
    • Procedures performed pursuant to BPC section 4052.2.

Additional documentations and issues that the inspector will review:

  • DEA registration.
  • Drug expiration dates.
  • Drug take-back receptacles.
  • Hot/cold running water (separate from restroom).
  • Confidential waste disposal.
  • Interpretive services poster.
  • Notice to consumers poster.
  • Restroom location.
  • Patient consultation.
  • Posted pharmacy license and renewal.
  • Out-of-state licenses.
  • Prescription labeling.
  • Prescription records.
  • Quarantine area for expired and recalled drugs.
  • Refrigerator/freezer temperature.
  • Security features.
  • Staffing ratio.
  • Transmission of CURES data.
  • Wearing identification or name tag printed in at least 18-point type.
  • Possession of keys to the pharmacy

TIP: Keep the Board’s guidance at the Pharmacy to serve as a checklist of all documents that have to be readily available for an inspection. Update and review your inspection folder periodically.

Sometimes the inspector may ask information that is not on this checklist. For example, I represented pharmacies in inspections where they were required to produce tax returns, articles of incorporations, billing records, etc. Such requests should be discussed with your legal counsel to analyze the validity and the Board’s authority for such requests.

    According to the most recent federal decision on the topic, state regulations of outsourcing facilities are not preempted by federal law. And therefore, facilities should comply with both.

The state-preemption challenge was brought by a federally-registered outsourcing facility against California on a ground that it denied its application under certain pharmacy-related regulations. Namely, a California regulation prohibits outsourcing facilities from operating under the same address as a registered pharmacy. This facility was attempting to do just that.

In the complaint, the outsourcing facility argued that California pharmacy rules do not extend to federally registered outsourcing facilities because Congress did not intend state laws to apply. The facility also argued that California rules pertaining to outsourcing facilities conflict with the federal law and impermissibly interfere with interstate commerce.

California Federal District court judge disagreed holding that section 503B does not contain express preemption of state regulations of outsourcing facilities. It also found that (1) regulations pertaining to outsourcing facilities were not meant to be solely dominated by federal law; (2) state and federal law do not contradict each other; and (3) state laws do not materially impact interstate commerce. In addition, the court decided that the facility failed to exhaust administrative remedies as required by California law (meaning that the facility should have gone through an administrative process prior to bringing this action).

For more information see: Fusion IV Pharm., Inc. v. Becerra, No. CV 18-2561 PA (FFMX), 2018 WL 6137606, at *1 (C.D. Cal. July 16, 2018)


  For a period of time, federal and state agencies made concerted efforts to control the cost of prescription drug spending, agreeing to use a reimbursement methodology that best reflects actual drug costs. Many states, however, used different methodologies to calculate drug cost. According to the U.S. Health and Human Services (HHS), such fluctuations in methodologies actually inflate drug costs. As a result, HHS enacted rules that changed the basis of payment for Medicaid-covered drugs from an “estimated acquisition cost” (EAC) to an “actual acquisition cost” (AAC).  The states were given some discretion which benchmark to use to determine AAC. One of such benchmarks is National Average Drug Acquisition Cost (NADAC). The California Department of Healthcare Services (DHCS) conducted a study and determined that NADAC adequately reflects actual drug cost acquisition in the state. It promptly notified CMS of the intent to switch to NADAC in reimbursing the pharmacies and obtained CMS approval.

The DHCS, however, did not immediately implement the changes approved by CMS. Instead, it continued to pay pharmacies through the Medi-Cal claims processing system consistent with the rate methodology used prior to the use of AAC. This lead to overpayments to pharmacies. Currently, the DHCS is recouping the overpayments resulted from the state’s delay in switching to NADAC.

As a result, California pharmacies are facing large monetary recoupments (particularly for specialty medications). Many NADAC prices do not even cover acquisition cost.

And in May 2019, California pharmacies filed a law suit against DHCS and HHS alleging irreparable harm to pharmacies and “a looming public health crisis.” Pharmacies complain that  large numbers of Medi-Cal patients will be denied access to critical life-saving specialty drugs. A motion for preliminary injunction is currently scheduled to be heard on August 30th, 2019.

For more information, visit California Pharmacists Association webpage (where you can also support the action financially).


         A survey conducted by the National Community Pharmacists Association (NCPA) revealed that almost all independent pharmacies experience significant increase in drug acquisition cost while reimbursements are not simultaneously adjusted to reflect the increase. Often, reimbursements are adjusted but with remarkable delays. When pharmacies appeal these MAC reimbursements and delays in adjusting generic pricing, the appeals are often denied or not even considered.

(The most frequently cited generic medications for which pharmacists receive below-cost reimbursements include benazepril, clomipramine, digoxin, divalproex, budesonide, haloperidol, hydroxychroloquine, levothyroxine, methylphenidate, morphine, nystatin/triamcinolone, pravastatin, tamsulosin, and tizanidine).

A few years ago, 29 pharmacies filed an action in Pennsylvania against a major PBM to prevent unfair and below-cost MAC pricing arguing breach of contract and bad faith in carrying out contractual obligations. Because most of the pharmacies had an arbitration clause in their contracts, their cases were sent to arbitration. But one pharmacy – Lakeview Pharmacy – proceeded with litigation. Later in the proceedings, the court found that the PBM failed to promptly respond to the pharmacy’s appeals and to retroactively reimburse successful appeals.

This precedent opens a door to successfully alleging breach of contract claims against PBMs on arbitrary MAC pricing and appeals. The law firm who represented Lakeview Pharmacy considers California an ideal forum to continue the momentum. California has a strong precedent under the “Unfair Competition and Unfair Business practices” litigation as well as under California MAC law. The firm is looking for California pharmacies and pharmacy groups to step up and open an issue of the below-cost-reimbursement and reimbursement discrimination (where chains and PBM mail orders are reimbursed substantially more than independent pharmacies). Please note, the case will be based on contingency fee. Therefore, pharmacies are not required to make monetary contributions or advance costs.

If you want to know more on how you can participate, as a plaintiff or by submitting information on your reimbursements, please contact our firm. We want to reach as many pharmacies as possible, so please share this post. If we have enough pharmacies stepping up and escalating the movement across the nation – we could establish a similar precedent in California as Pennsylvania pharmacies did.

     The Medicare Modernization Act (2003) allows states to enact their own drug importation laws. The Act specifies that such laws would only be valid if the federal government reviewed and approved a state’s proposal to import prescription drugs. Despite the length of time since the passage of the Act, no state has enacted such law and submitted the proposal for federal approval.  In 2018, Vermont was the first state to enact a prescription-drug importation law but it has never submitted the law for federal approval.

Things might change with the newly enacted Florida law allowing prescription drug importation from Canada and possibly other countries in the future. The law 1) authorizes a Canadian supplier to export drugs into Florida under certain circumstances, 2) establishes an international export pharmacy permit for participation in the International Prescription Drug Importation Program; 3) authorizes the state to inspect international export pharmacy permittees to ensure that the products are not adulterated or misbranded.

The governor of Florida is optimistic that there would be no hurdles in obtaining federal approval as President Trump is very vocal about his commitment to lower drug prices. In addition, the bill analysis cites that U.S. spends 30%-190% more on prescription drugs that other developed countries and pays up to 174% more for the same prescription drug. Therefore, Florida decided that an effective way to reduce prescription drug spending was to import cheaper drugs.


A pharmaceutical research group – representing the Big Pharma interest – expressed concerns that the law would allow the importation of potentially counterfeit, misbranded or ineffective prescription drugs. However, certain assurances and oversights are built in the law, such as licensure and inspections. Also, these medications are taken by Canadian folks and such medications are effective in treating their conditions. Why the same medications should receive an inflated price if sold in U.S.?

But will Canada permit its lower-cost drugs to be imported into the U.S. thereby reducing the overall supply available for Canadians? Because the U.S. population takes more drugs than its Canadian neighbor, the adequate supply simply might not be available. And how about enacting a law – as Canada has done – imposing limits on how much pharmaceutical companies can charge?

  Last month, the U.S. Supreme Court extended the time in which a private party may bring a suit under the False Claims Act (FCA). The decision – United States ex rel. Hunt v. Cochise Consultancy – extended the statute of limitation to bring an FCA action up to 10 years from the date of the alleged violation.

 The FCA permits a private person to bring a civil action in the name of the federal government against “any person” who “knowingly presents … a false or fraudulent claim for payment” to the Government or to certain third parties acting on the Government’s behalf. See 31 U.S.C. §§ 3729(a), (b)(2). Two limitations periods apply to a civil action under the FCA: (1) An action must be brought within either 6 years after the statutory violation occurred or (2) 3 years after “the official of the United States charged with responsibility to act in the circumstances” knew or should have known the relevant facts, but not more than 10 years after the violation. See 31 U.S.C. § 3731(b)(2). The period providing the later date serves as the limitations period.

In this case, Hunt brought an FCA suit more than six years after the alleged misconduct. But the suit was filed within three years of when Hunt informed federal government of the alleged misconduct and within ten years of such misconduct. The defendant argued that the suit is time-barred (it was not filed within the above 6-year period) because the government declined to intervene and therefore the suit was untimely. The Supreme Court disagreed holding that the 10-year limitation applies no matter if the government intervenes or not.

The holding means that now private parties have up to 10 years to file an FCA action, during which time more evidence of potential misconduct could be collected. A potential loophole still exists. Arguably, a party bringing the action must notify the government of the alleged misconduct starting the statute of limitation clock. If the action is not brought within 6 years, the defendant might have a good defense that the action should be dismissed under the Statute of Limitations.


    Despite many articles, seminars, and educational opinions written on compliance and legal implications of dispensing, ordering, and storing controlled substances, it still remains the number one reason for disciplinary actions across the nation. This article focuses on the most cited violations of state or federal laws pertaining to working with the controlled substances.

  1. Improperly performed inventories. It’s common for pharmacy inventory to omit
  • Time of the date the inventory was taken (beginning or end of the business day);
  • Finished form of the substance (e.g., tablet or vial).

Many states have updated or modified their requirements on proper inventory. California, for example, now requires a manual count of all Schedule II drugs at least every three months. For other schedules, the count could be estimated, unless the container holds more than 1,000 tablets or capsules.

  1. Records of receipt and dispensing. Dispensing records must state number of units dispensed, name and address of the person to whom it was dispensed, the date of dispensing, the name or initials of the individual who dispensed. Very often, pharmacy records omit patient addresses or/and the DEA number of the prescriber (or state an incorrect number).

Invoices and ordering records (such as 222s) must be properly prepared and have the information on the supplier, date of receipt, number of containers.

  1. Power of attorney. All ordering personnel must properly execute a power of attorney with the registrant. Often, the power of attorney is not dated, not coming from the registrant, or missing altogether.
  2. Physical controls. It is recommended that all Schedule II drugs be locked and Schedules III-V be separated from the rest of the inventory in some high-visibility place (not at the back of storage or by the bathroom or a locker room). The keys to the controls should be in the possession of a pharmacist at all times.
  3. Employee screening.Per federal regulations, a pharmacy shall not employ anyone who has access to controls, if such person has been convicted of a felony relating to controls or whose application with the DEA had been denied, revoked, or surrendered for cause. Pharmacy should run state, county, and federal background checks on all employees with access to controls.
  1. Reporting theft/loss. Pharmacy must report any theft or substantial loss of controls within one day of discovery by filing Form-106. If not filed timely, the DEA may “visit” the pharmacy to investigate the delay. It is common to delay filing 106 while the investigation is pending. However, the DEA requires that the registrant file the report first and then perform the investigation. If the pharmacy determines that there was no loss or it was not significant, the report may be withdrawn or amended. States vary on reporting requirements.

7. Security features on prescriptions. Many states have updated their requirements on what information should be stated on a prescription. California – for example – now requires a new security feature, a uniquely serialized number attributable to a prescriber.

If a prescription for Schedule III-V medications is missing any of the security features, a pharmacist may treat a noncompliant form as an oral prescription. The pharmacist, however, must verify the order with the prescriber and include notations on the prescription form.

  1. Corresponding Responsibility. Pharmacists usually 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’s or Medical Board’s radar.

Remember,every record-keeping violation could potentially turn into a monetary penalty. Therefore, training staff on proper record-keeping, following every state requirement and regulation of Title 21 Code of Federal Regulations (starting with § 1300) and incorporating them into your policies and procedures is a part of a solution to comply with state and federal regulations on dispensing and handling controls and avoiding potential disciplinary actions, DEA’s administrative actions, and monetary penalties.