Saturday, May 31, 2003

WASHINGTON — An OIG Special Bulletin has put providers on notice that pharmacy management agreements are now under increased scrutiny for possible kick-back violations.

The April 23 bulletin addressed joint ventures, and as a “potentially problematic contractural arrangement” provided the following example:

— A mail order pharmacy suggests that a DME form its own mail order pharmacy to provide nebulizer drugs. Through a management agreement, the mail order pharmacy runs the DME’s pharmacy, providing personnel, equipment and space. The existing mail order pharmacy also sells all nebulizer drugs to the DME’s pharmacy for inventory.

The OIG doesn’t like joint ventures where one partner shoulders most of a business’ costs and risks while the other, in this case the DME, appears to get something for very little investment. The OIG views such arrangements as paying for referrals, which violate anti-kickback violations.

“I think it is over,” said an official at one company that offers pharmacy management agreements. “They gutted it. They went right at the heart. I can’t see any way you can get around this.”

Whether or not it’s over, is a matter of opinion.

MP Totalcare, the largest company to provide pharmacy management agreements to HMEs, feels it has its bases covered. Company officials declined to discuss the OIG bulletin, but did issue the following statement:

“We have reviewed the recently issued OIG Special Advisory Bulletin on Contractural Joint Ventures and we are confident that the services we provide are in compliance with all applicable laws and regulations. From inception, our arrangements have included significant and substantial business responsibilities and risks for the owners of the pharmacies and are otherwise distinguishable from the arrangements described in the Special Advisory Bulletin.”

It’s difficult to say how many HME providers have entered into pharmacy management agreements, but the consensus among industry watchers is that the number is fairly small.

Providers enter into such agreements because it allows them to provide respiratory medications to their oxygen patients. By doing this they can better compete with Lincare, Apria and other industry giants.

The latest bulletin harkens back to the OIG’s crackdown in the mid and late 1990s on fee-for-service contracts. Under a fee-for-service contract, a mail order pharmacy would pay an HME $30 to set up a patient with a nebulizer and to call the patient each month to make sure he still needed his respiratory medication. The OIG interpreted that arrangement as the pharmacy paying for referrals.

“Medicare said that is illegal,” said Mickey Letson, president of drug wholesaler Letco Medical. “Thirty days later they were handing down lawsuits against providers who were doing that.”

The recent OIG bulletin has many thinking that pharmacy management agreements spur the same kind of scrutiny.

Said one healthcare attorney who requested that his name not be used: “I’ll have to have a heart to heart with my clients and let them make a business decision. I’ll say, ‘What do you want to do? If you want to be safe, let’s unwind it and go do something else.’”