Retailer Rewards Program under the OIG Proposed Rule: Trick or Treat?

By Monica P. Navarro*

On October 3, 2014, the OIG issued a Proposed Rule that will make it easier for grocery stores, retail drug stores, “big-box,” and other retailers to incentivize and reward customers for filling prescriptions and buying other healthcare goods in their stores, even when reimbursed by Medicare and Medicaid. The OIG has concluded these rewards programs pose no risk for fraud and abuse.

As people in the healthcare sector know (or should know), the Anti-Kickback Statute (AKS) and the Civil Monetary Penalty Rule (CMP) make it unlawful for any person to offer or pay remuneration to another in order to induce the ordering of products or services paid by Medicare or Medicaid. The safe harbors to the AKS and CMP protect certain payment practices and business arrangements from criminal prosecution or civil sanctions under those laws. In its Proposed Rule, the OIG would amend the existing safe harbors by excluding from the definition of “remuneration” rewards programs that meet three criteria: First, the free or less-than-fair-market value items or services must “consist of coupons, rebates, or other rewards from a retailer.” Two, “the items or services must be offered or transferred on equal terms to public, regardless of health insurance status.” And, three, “the offer or transfer of items or services [must] not be tied to the provision of other items or services reimbursed … by Medicare or an applicable State health care program.” For example, under the Proposed Rule, a big-box store can offer a $20 coupon to customers, including Medicare beneficiaries, when they spend $100 out of pocket in the store, even if a portion of the $100 included co-payments for prescription drugs. Further, the $20 coupon could be redeemable on anything in the store, including the customer’s out-of-pocket costs for federally reimbursable items.

To be clear, the Proposed Rule offers a number of factual permutations that could take the program out of the safe harbor. Further, the three-part criteria in the Proposed Rule are not entirely new, having previously been included in the Affordable Care Act. However, many retailers offering rewards programs previously excluded federal health care program beneficiaries in order to avoid triggering the remuneration prohibitions of AKS and CMP. With the Proposed Rule, federal and state healthcare program beneficiaries can soon expect a flood of reward program offers.

With that said, then, is the Retailer Rewards Programs under the OIG Proposed Rule a trick or a treat? To big-box stores, it’s a treat. To independent pharmacies, it is not.

Many independent pharmacies were driven out of business when big-box and retail chain pharmacies proliferated in the 1980s. Although independent pharmacies held their own over the past decade and represented in 2012 $92 billion in U.S. annual health-care spending and nearly 40 percent of all retail prescriptions, their profit margins are on the decline. Ten years ago, the average pre-tax net profit for an independent pharmacy was 4%; in 2011, that figure was 3%. Last year, it was 2.9%. While pharmacy economics are much too complex to cover here, one thing is clear in this era of consolidation and shrinking margins: independent pharmacies will not be helped in any way by the OIG Proposed Rule.

I like my $20 reward as much as the next, but what I will ponder on as I review the avalanche of new reward programs in my mailbox - courtesy of the OIG Proposed Rule - is not how much I’ll save or how honest the program is. What I ponder on are the likes of the Zawaideh Family Pharmacy in Royal Oak or the Lytle Pharmacy in Rochester Hill, just to name two independent pharmacies in Michigan, where shopping is a uniquely delightful experience whether it is to fill a prescription or buy hand-made soap. Losing them to a big-box rewards program is not a prospect anyone should look forward to.

Trick or treat.

*Monica P. Navarro specializes in healthcare law and related litigation, including fraud and abuse. She represents a wide array of healthcare entities and professionals, including independent pharmacies. She can be reached at mnavarro@vezinalaw.com