Understanding the Texas Attorney General’s efforts on enforcement of healthcare fraud and abuse matters often is challenging. Recent activities, however, give physicians and other providers insight into the agency’s priorities. Earlier this year, a compounding pharmacy and several affiliates filed a petition to partially set aside two Civil Investigative Demands (CIDs) issued to several of the pharmacy’s investors by the State of Texas as part of an investigation by the Attorney General’s Consumer Protection Division. See Petition to Partially Set Aside Civil Investigative Demands and for Protective Order, In re Healthscripts Specialty Pharmacy et al., No. D-1-GN-15-000380 (53rd Dist. Ct., Travis County, Tex. Jan. 30, 2015). The Consumer Protection Division investigates and files civil lawsuits on behalf of the State of Texas under the Texas Deceptive Trade Practices Act (DTPA) and other consumer protection statutes. Although the Texas Attorney General has investigated compounding pharmacies before, the CIDs involved here focus on physician ownership, investment, and financial relationships, which may indicate increased enforcement activity in an area that has seen relatively little scrutiny.

According to the petition, the CIDs are part of an investigation based on the DTPA, a consumer protection statute that generally prohibits false, misleading, or deceptive trade acts or practices. The CIDs focus heavily on physician investment and financial relationships with the pharmacies. For example, requesting copies of documents “showing all prescribers who have purchased an interest in in [sic] any compounding pharmacy” or “showing the amount of remuneration of any kind paid to these prescribers who invested money or other types of investments in any compounding pharmacy.” In a CID issued to a physician investor, the state requested copies of all documents “showing where each and every prescription for compounded drugs written by you or pursuant to your authorization was sent to be filled.” The CID also requested copies of all prescription pads provided to the physician by pharmacies, documents related to the physician’s investment in pharmacies, remuneration provided to the physician by a pharmacy, handouts given to patients related to the pharmacy, and copies of lists of compounded drugs available to prescribe from the pharmacies.

The compounding pharmacy argued in its petition that the CIDs should be partially set aside because they: (i) seek material from investors who are not in possession, custody, or control of the material as contemplated by the Texas Rules of Civil Procedure, (ii) seek material that is confidential or protected by attorney-client privilege, and (iii) are unduly burdensome due to their breadth and lack of specificity.

What appears unique about this investigation is the focus on physician financial relationships with the compounding pharmacy. In 2012, the Texas Attorney General investigated a pharmacy for violations of the DTPA, but the claims related mostly to the drugs themselves. The Attorney General there focused on claims that the drugs had benefits which they did not have, claims creating confusion or misunderstanding as to the approval of the drugs by the Food and Drug Administration, and claims that the drugs were of a particular standard, quality, or grade when they were not. Ultimately, that investigation resulted in a permanent injunction issued and $200,000 in civil penalties against the pharmacy, its owner, and a related entity.

Here, the Texas Attorney General appears to be focused on the physician ownership angle, although no suit has been filed so any potential allegations are unclear. While Texas does not prohibit physician ownership in pharmacies, if the physician owner is a referral source, the Texas Anti-Solicitation Statute likely applies to the arrangement. This statute generally prohibits paying or receiving remuneration for securing or soliciting referrals, and it incorporates the safe harbors provided for under the federal Anti-Kickback Statute. Texas law also has certain disclosure requirements for referral sources with financial relationships. For example, a physician that receives remuneration that is otherwise permitted under the Anti-Solicitation Statute must disclose to the patient his or her affiliation with the entity that will receive the referral and the fact that he or she will receive direct or indirect remuneration for the referral both at the time of initial contact with the patient and at the time of the referral. While the Texas Anti-Solicitation Statute has been in place since 1999, a review of recent case law indicates it rarely has been enforced. The Texas Attorney General’s attention on physician ownership in compounding pharmacies could, therefore, signal increasing interest from state regulators in this area. Further, the potential scrutiny may not be limited solely to pharmacies, and may instead extend to physician ownership in other industries, such as laboratories, allergy testing services, or surgical implant distributors.