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Self-Referral Prohibition Applies to Pharmacies

On May 16, 2024, the Commonwealth Court issued a significant decision in the combined cases of 700 Pharmacy v. Bureau of Workers’ Compensation Fee Review Hearing Office (State Workers’ Insurance Fund), No. 560 C.D. 2020 and State Workers’ Insurance Fund v. Bureau of Workers’ Compensation Fee Review Hearing Office (700 Pharmacy), No. 617 C.D. 2020.    The Court held that the WC Act’s Medical Reimbursement provision prohibiting self-referral applies to pharmacies.

The background of the case is complex.  Simply stated, 700 Pharmacy filed five fee review applications in connection with prescriptions it filled for the claimant.  The claimant’s “treating physicians, Drs. Miteswar Purewal and Shailen Jalali, whose office is upstairs from the Pharmacy, wrote or supervised the prescriptions for the medications at issue….They acknowledge that they have a financial interest in the Pharmacy.”  The evidence revealed that, in addition to the physicians, various levels of ownership were involved in 700 Pharmacy, including a leasing company which employed the pharmacists and other personnel, and a management company which set up and administered the pharmacies.  The Hearing Officer determined that the prescriptions were violative of the anti-referral provision of the WC Act and found that the prescriptions were not payable by the insurer.

On appeal, the Commonwealth Court noted that the anti-referral provision of the WC Act provides in relevant part that “it is unlawful for a provider to refer a person for laboratory, physical therapy, chiropractic, radiation oncology, psychometric, home infusion therapy or diagnostic imaging, goods or services pursuant to this section if the provider has a financial interest with the person or in the entity that receives the referral.”  77 P.S. §531(3)(iii).  Further, that provision states that “no claim for payment shall be presented by an entity to any individual, third-party payer or other entity for a service furnished pursuant to a referral prohibited under this section.”  The Pharmacy argued that the  provision does not apply inasmuch as it does not specifically contain the word “pharmacy,” and that drugs are not “goods and services” as contemplated by the Act.  The Court disagreed.  In a somewhat lengthy opinion in which it applied the principles of statutory construction, the Court concluded that the anti-referral provision applies to drugs and pharmaceutical services, thus applying to the Pharmacy and the prescriptions which were the subject of the Applications for Fee Review.  Noting that the physicians had an ownership interest in the Pharmacy, the Court held that a referral to that pharmacy constituted a prohibited self-referral and therefore charges from that pharmacy did not have to be paid.

The case clarifies the self-referral prohibition set forth in the Act and emphasizes that insurers should be wary of physicians or other health care providers who have financial interests in the pharmacies, surgical centers, or other organizations to whom they refer claimants for medical treatment.  If a violation of the anti-referral provision is suspected, the pharmacy or other provider should be asked to provide a complete list of the entities and/or physicians (or other individuals) who have an ownership interest in said pharmacy or other provider.  Please keep in mind that, as in the 700 Pharmacy case, there may be multiple levels of ownership, requiring extensive investigation.  Nevertheless, depending upon the proximity of the physician’s office to the pharmacy (or other provider), as well as the frequency of the prescriptions issued by the physician to the pharmacy (or other provider), an investigation may be warranted.  Medical bills are to be paid within 30 days of receipt, such that an investigation would need to be undertaken quickly.  Failure to pay medical bills in a timely fashion may result in penalties.  Declining to pay medical expenses on the basis of a suspected self-referral will not provide a defense to a Petition for Penalties.  Proof of a prohibited self-referral would be required.