On September 13, 2019, a Pennsylvania judge dismissed a lawsuit brought by Liberty Mutual Insurance Companies against nine (9) pharmacies and their minority physician owners over allegations that the physicians were receiving unlawful kickbacks when they prescribed compounded cream medications to workers’ compensation program beneficiaries, which prescriptions were filled by pharmacies in which the physicians held minority ownership interests.
The Philadelphia Court of Common Pleas granted summary judgment to the pharmacies in Liberty Mutual Group, et.al. v. 700 Pharmacy, LLC, et.al., finding that the plaintiffs failed to show that the pharmacies’ ownership structure or the physicians’ “self-referrals” were unlawful. The ruling dismissed the case entirely and cleared the pharmacies and the physician owners of any liability.
Liberty Mutual argued that the ownership of the pharmacies by the physicians provided a means for the defendant physicians to be paid illegal kickbacks for the prescriptions. As stated in the Judge’s opinion, “Physician ownership is not prohibited by the Pharmacy Act as long as the practitioner holding a proprietary or beneficial interest in the pharmacy does not exercise supervision or control over the pharmacist in his professional responsibilities and duties…. The evidence shows that the interest owned by the physicians is not more than 49%, a percentage which has been approved by the Pharmacy Board.” He also noted that the physicians referring patients to pharmacies they partly owned disclosed their ownership interests to their patients.
It is important to note that the pharmacies sold prescription drugs only to workers’ compensation and auto-accident patients, and not to patients who were beneficiaries of the Medicare or Medicaid programs. Physician-owned pharmacies, even with minority physician ownership, are generally prohibited under the federal physician self-referral prohibitions, which are commonly known at the “Stark Law”. The Stark Law defines outpatient pharmacies as a “designated health service” and physicians are strictly prohibited from have ownership interests in entities that provide “designated health services”, unless an exception is satisfied. The pharmacy ownership structures in Liberty Mutual Group vs. 700 Pharmacy, LLC, as described in court documents, do not appear to be able to satisfy the requirements of any exception under the Stark Law and would be considered illegal.
George W. Bodenger, Esquire
Law Offices of George W. Bodenger, LLC
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