Regulatory Compliance Looming for Hospital Owned Specialty Pharmacies

specialty pharmacy

Almost ten years ago we started to raise the alarm of the threat that hospital-owned and operated specialty pharmacies pose to the Specialty Pharmacy (SP) industry given their ability to direct prescriptions ‘in house’. That trend has accelerated to the point where a large percentage of such systems are now in the business.

The article below is the first that I’ve seen that raises another red flag. This time it is a concern for the health systems, and it has everything to do with a practice that has gotten many a provider into hot water – self-referral.

The article points out that health systems that haven’t yet fully jumped into the Specialty Pharmacy pool are now contracting with outside entities to run their SP operations for them under contract. That kind of relationship can actually generate additional compliance issues and state and federal scrutiny particularly surrounding anti-kickback statutes, and how each ‘partner’ is reimbursed.

We learned in the recent merger of Shields Health and ExceleraRx, that they are promoting contract SP deals. Over the past decade they have helped most of the larger health systems open in-house SP operations. Smaller hospitals, however, are more likely to favor the contract vendor solution and wash their hands of day to day operational challenges. In that case the contract vendor would likely take on more responsibilities and, logically, get more compensation.

Regulators will focus on a number of factors to ensure that the arrangement between the health system and management company is compliant with key statutes. Read the article for a short list of red flags that could suggest a questionable contracting arrangements and consider the following excerpts.
“You can’t just have a management company coming in and taking over everything and giving the hospital a fee for this contractual arrangement.”
“If you can reduce costs, keep utilization low, improve patient outcomes and not be anti-competitive, then it should be a very good arrangement under the Anti-Kickback Statute.”

So, is the tsunami of hospitals and systems cannibalizing traditional specialty pharmacy ready to subside? Not likely…… just sayin’.

Hospitals Contracting for Specialty Pharmacy Services Face Compliance Issues

By Gina Shaw, Specialty Pharmacy Continuum
As more and more health systems enter the specialty pharmacy space, many are turning to outside third-party entities to manage their on-site specialty pharmacies. Although the arrangements offer many benefits, those involved in the partnerships need to be ready for state and federal scrutiny surrounding anti-kickback statutes, reimbursement and other compliance issues that could derail these arrangements if not managed proactively.

In these partnerships, the pharmacies are still owned by the hospitals, but they’re managed by outside vendors with specific expertise in specialty pharmacy operations—such as Recept, Shields Health Solutions and Trellis Rx—in exchange for fees and, sometimes, a share of the profits.

“There are core competencies that come with running specialty pharmacies, and depending on what expertise a hospital or health system already has on board, the management companies can really help with those, including access to payor networks, access to limited distribution drugs and assistance with accreditation,” said Todd Nova, JD, an attorney with Hall, Render, Killian, Heath & Lyman, an Indianapolis-based firm specializing in health law.

But contracting with a third-party specialty pharmacy management company poses a set of legal and regulatory issues that hospital and health-system compliance departments will have to navigate, said John W. Jones Jr., JD, a partner in the Philadelphia-based firm of Troutman Pepper Hamilton Sanders LLP.

Anti-kickback regulations are a major focus for HHS OIG, he noted. The regulators have highlighted several areas of concern that would raise red flags suggesting a questionable contracting arrangement, he said:
The owner (the hospital or health system) expands into a related line of business, which is dependent on referrals from, or other business generated by, its existing business.
The hospital or health system neither operates the new business itself nor commits substantial financial, capital or human resources to the venture—in this case, a specialty pharmacy. Instead, it substantially contracts out virtually all of the new business.
The third-party contractor is an established provider of the same services as the new line of business and, absent the contract, would be a competitor, providing items and services in its own right, billing insurers and patients in its own name, and collecting reimbursement.
The owner and third-party contractor share in the economic benefit (the profits) of the business, in the economic benefit of the owner’s new business.
Payments to the third-party management company vary by the value or volume of business generated for the specialty pharmacy by the hospital.

Jones explained that the Department of Health and Human Services Office of Inspector General (OIG)…………….



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