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OIG Approves Pharmacy’s Benefit Program

The Office of Inspector General for the U.S. Department of Health & Human Services (OIG) recently issued Advisory Opinion 17-05, in which it approved a retail pharmacy chain’s (Requestor’s) proposal to allow federal health care program beneficiaries to participate in its paid membership benefit program. Membership to its benefit program would be open to anyone over the age of 18 who pays an annual membership fee and who provides certain personal information. Potential members would not be required to provide information about their insurance coverage or lack thereof.

The proposed benefit program would give its members access to three categories of benefits: (1) access to discounts on specific items, such as generic drugs, specific prescription drugs, and immunizations, when members pay for the items entirely out-of-pocket; (2) access to a ten percent discount on any clinic service when members pay for the service entirely out-of-pocket; and (3) the ability to earn a ten percent credit toward future eligible purchases when they purchase specific retailer-branded products and in-store photo finishing services. Certain members could earn the ten percent credit by using a preloaded debit card provided by their Medicare and Medicaid managed care plan to purchase retailer-branded over-the-counter medications. All members would be unable to use the ten percent credit on purchases of prescriptions, immunizations, clinic services, and other specified items.

The Proposed Benefit Program Does Not Violate the Civil Monetary Penalty Law

The OIG found that the proposed Benefit Program did not violate the Civil Monetary Penalty law (CMP law) because it fit within the retailer reward exception to the definition of “remuneration.” This exception was codified into regulation in December 2016. Under the exception, retailer rewards are excluded from the definition of “remuneration” if “(i) the items or services consist of coupons, rebates, or other rewards from a retailer; (ii) the items or services are offered or transferred on equal terms available to the general public regardless of health insurance status; and (iii) the offer or transfer of the items or services is not tied to the provision of other items or services reimbursed in whole or in part” by the Medicare program or a state health care program. Social Security Act § 1128A(i)(6)(G); 42 C.F.R. § 1003.110; 81 Fed. Reg. 88,368 (Dec. 7, 2016).

The first prong of the exception was met because the Requestor was a retailer, the discounts were coupons, and the earned credit was a rebate. In coming to this conclusion, OIG relied on its previous interpretations of “retailer,” “coupon,” and “rebate” that were set forth in the December 2016 Final Rule. Specifically, the Requestor was a retailer because it owns and operates pharmacies that sell items directly to the public; the benefit program discounts were the equivalent of coupons because a coupon authorizes “a discount on merchandise or services;” and the benefit program earned credit was a rebate because it was “a return on part of a payment.”

The second prong of the exception was met because the benefit program would be available to all members of the public who would be willing to pay the annual fee, regardless of their health insurance status.

The third prong of the exception was met because of the structure of the benefit program. The Requestor certified that it would not submit a bill or claim to any third-party payor for items or services purchased at a discount through the benefit program. Additionally, the benefit program terms and conditions specified that members would be responsible for the entire cost of discounted items and services purchased through the benefit program and that the benefit program could not be used in conjunction with any form of insurance. Finally, OIG found it significant that the earned credit aspect of the benefit program did not differentiate between items and services that might be federally reimbursable and items and services that are not federally reimbursable. If the benefit program had done so, OIG “would [have] reach[ed] a different conclusion.”

The Proposed Benefit Program Presents a Minimal Risk of Fraud and Abuse Under the Anti-Kickback Statute

The OIG also concluded that it would not impose administrative sanctions on the Requestor because the proposed benefit program presented a minimal risk of fraud and abuse under the anti-kickback statute. According to the OIG, the benefit program was unlikely to specifically steer beneficiaries to Requestor’s pharmacies or to purchase federally reimbursable services or items because it “simply would allow Federal health care program beneficiaries access to the Benefit Program’s discounts and rebates.”  The benefit program did not require members to purchase health care-related items or services from the Requestor; did not offer members any direct incentive to transfer their prescriptions to the Requestor from a competitor; and did not offer direct incentives for members to receive services from the Requestor’s clinics.

Similarly, the OIG determined that the benefit program was unlikely to result in overutilization because the Requestor certified that it would not submit a claim to a federal health care program for a prescription drug purchased through the benefit program. The OIG also noted that the benefit program did not involve a waiver or reduction in cost-sharing amounts incurred by a federal health care program beneficiary and that, except in limited situations, members would earn and redeem credits on items not paid for by federal health care programs.


While the Advisory Opinion is only issued to the Requestor and cannot be relied upon by any other individual or entity, it provides insight into the newly-codified retailer reward exception and reiterates OIG’s interpretations of “retailer,” “coupon,” and “rebate.”