Is your pharmacy located in California and selling over-the-counter Covid-19 at-home test kits? If so, you must be careful on how much you charge for these Kits.

On January 8, 2022, Governor Newsom signed Executive Order prohibiting excessive charging for the Kits in order to allow access to these products for as many people as possible.

The order explains that:

“…the heightened transmissibility of the Omicron variant has increased the need for widely available, affordable COVID-19 At-Home Test Kits that can be administered by members of the public at their convenience. it is vital that residents of California have access to COVID-19 At- Home Test Kits in order to protect public health and safety, and enable the continued operation of California schools, businesses, and other institutions in as safe a manner as possible.”

“COVID-19 At-Home Test Kit” is defined as a test that

(i) is authorized for use by the FDA,

(ii) detects the presence of the SARS-CoV-2 virus, and

(iii) is intended for non-prescription home use by an individual.

If your pharmacy was selling the Kits on December 1, 2021, the Order prohibits the pharmacy (until March 31, 2022) to sell the Kits at a price that is more than 10 percent greater than the highest price charged by the pharmacy on December 1, 2021.

If the pharmacy did not sell the Kits on December 1, 2021, then it is prohibited from selling the Kits at “unconscionably excessive price,” which is defined as more than 50 percent greater than the amount paid for the Kit. This restriction is also in effect until March 31, 2022.

Even before this Executive Order, California had (and still has) a provision prohibiting price gouging in the times of distress. Penal Code Sections 396 prohibits entities from taking unfair advantage of consumers by greatly increasing prices during a declared emergency. It provides that:

“…for a period of 30 days following that proclamation or declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels for a price of more than 10 percent greater than the price charged by that person for those goods or services immediately prior to the proclamation or declaration of emergency, or prior to a date set in the proclamation or declaration.

However, a greater price increase is not unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide the services, during the state of emergency or local emergency, and the price is no more than 10 percent greater than the total of the cost to the seller plus the markup customarily applied by that seller for that good or service in the usual course of business immediately prior to the onset of the state of emergency or local emergency. If the person, contractor, business, or other entity did not charge a price for the goods or services immediately prior to the proclamation or declaration of emergency, it may not charge a price that is more than 50 percent greater than the cost thereof to the vendor as “cost” is defined in Section 17026 of the Business and Professions Code.” [Emphasis added].

So essentially, the Executive Order mirrors this already existing section by specifying that the Kits constitute emergency medical supplies. Note that a violation of Section 396 is a misdemeanor punishable by imprisonment in a county jail for a period not exceeding one year, by a fine of not more than ten thousand dollars ($10,000), or by both for each violation. This means that if you sell hundreds of Kits at an excessive mark-up, you could potentially face many years in prison and millions of dollars in fines. Something to keep in mind. ..