Last week, I wrote about Walgreen’s settlement with state and federal governments for unlawfully soliciting Medicare and Medicaid beneficiaries to enroll in its Prescription Savings Club.

However, OIG has finalized a final rule extending safe harbors related to coupons, rebates, and other rewards from a retailer if:

  • The reward is offered on equal terms available to the general public and

  • The reward is not tied to the provision of other items or services reimbursed in whole or in part by federal funds.

(OIG has clarified that pharmacies are retailers unlike physicians or hospitals).

The above appears to allow Medicare patients to participate in loyalty programs by Walgreen or any other retail pharmacy, then why Walgreens is facing this huge settlement?

First, the retailer rewards exception creates a pathway for pharmacies to include Medicare and Medicaid patients in their reward programs without violating “the beneficiary inducement” aspect of the Civil Monetary Penalties. But such enrollment must be strictly structured following OIG’s final rule, which could be found here:

The rule defines:

  • the coupons as discounts on merchandise or services, such as a percentage discount on an item or a “buy one, get one free;”

  • rebate is a return on part of a payment. But, a retailer could not rebate an amount that exceeds what the customer spent at the store.

  • other rewards are free items or services, such as store merchandise, gasoline, frequent flyer miles, etc. OIG explains that health care items or services can be “other rewards” but the reward cannot be in the form of a copayment waiver.

A reward program can also be targeted to patients with disease but the reward cannot be tied to other items or services reimbursed by a federal health care program. For example, if a patient accumulates rewards based only on purchases of federally reimbursable items, the reward is tied to the provision of reimbursable items. Similarly, if the reward is a copayment waiver or a reduction, the reward would also be tied to the purchase of a reimbursable item. The bottom line is, a coupon cannot be limited to a reduction in price of a reimbursable item or service.

If a retailer offered a free or discounted item or service covered by Medicare or Medicaid but did not seek reimbursement for that item or service, the reward is likely to be protected. For example, a pharmacy could not have as a “reward” a free box of test strips that a patient could obtain only when filling an insulin prescription. But if a pharmacy offered a rewards program that if a patient spent a certain amount of money in the sore, the patient could obtain a free blood pressure monitor – that reward will be protected if the provider does not bill for that monitor.

Keep in mind, that coupons to transfer prescriptions would not be protected under this exception. But the Final Rule allows pharmacies to waive copayments for the first fill of a covered Part D “generic drug,” as defined in Part D regulations. But this exception will not be available until January 1, 2018.

So it appears that Walgreens’ savings program was tied to the provision of reimbursed services by Medicare and therefore a violation of the kickback and CMP laws and therefore contradicted the OIG’s guidance.