In Advisory Opinion 17-05, posted by the U.S. Department of Health and Human Services Office of Inspector General (OIG) on September 7, 2017, the OIG approved a pharmacy’s customer loyalty/discount program (Benefit Program). Under the arrangement, members of the Benefit Program pay a fixed annual fee for access to the following benefits:

  • Discounts on generic drugs, other prescription drugs listed on the Benefit Program’s formulary, pet prescriptions, nebulizer devices and related supplies, blood glucose testing meters and related supplies, and immunizations paid for by members entirely out-of-pocket (i.e., products for which no insurer, including any federal healthcare program, would be billed).
  • A 10 percent discount on any in-store clinic service when the member pays for the service entirely out-of-pocket (e.g., physicals, immunizations, and health screenings and testing, such as lipid panel testing).
  • A 10 percent credit toward future eligible retail purchases of certain pharmacy-branded products, including over-the-counter medications that may be reimbursed by certain Medicare Advantage plans and in-store photo-finishing. Members cannot, however, redeem earned credits to purchase prescriptions, immunizations, clinic services, alcohol, gift cards, postage stamps, prepaid cards, milk products, or tobacco products, nor can they redeem earned credits for retail pharmacy or clinic cost-sharing amounts.

The OIG analyzed the Benefit Program under the Civil Monetary Penalties Law (CMPL), SSA §1128A(i)(6)(G) and 42 C.F.R. §1003.110, and the Anti-Kickback Statute. The arrangement, according to the OIG, would implicate both the Anti-Kickback Statute and the CMPL, because the discounted items and services and earned credits could induce a beneficiary to select the pharmacy for federally reimbursable items or services (e.g., pull-through).

The OIG, however, found that the Benefit Program met the requirements of the retailer rewards exception under CMPL, which permits rewards if:

  1. The items or services consist of coupons, rebates, or other rewards from a retailer,
  2. The items or services are offered or transferred on equal terms available to the general public, regardless of health insurance status, and
  3. 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 or Medicaid programs.

With respect to the first requirement, the OIG found the pharmacy was a retailer “because it owns and operates retail pharmacies that sell items, including prescription drugs, non-prescription drugs, and a variety of other merchandise, directly to the public.” The OIG further concluded that the discounts constituted a “coupon” (“something authorizing a discount on merchandise or services”) and the earned credits constituted a rebate (“a return on part of a payment”).

While finding that the Benefits Program was available on equal terms to the general public, as anyone over the age of 18 could purchase a membership, regardless of health insurance status or plan, the OIG acknowledged that:

A de minimis amount of goods could be covered under certain Medicare Advantage plan supplemental benefits.

Drug purchases in the Part D donut hole could receive the discount.

The pharmacy had no mechanism to prevent members from submitting claims directly to third-party payers.

Nonetheless, the OIG concluded the Benefit Program was not tied to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs and that the potential leakage was not sufficient to be problematic.

With respect to earning and redeeming the credits for future purchases, the OIG likewise found that they did not involve items or services reimbursed in whole or in part by the Medicare or Medicaid programs except in de minimis instances. However, the OIG noted that “if a Member could only earn or redeem, or could preferentially accumulate or use, credits based on the purchase of federally reimbursable items and services, [it] would reach a different conclusion.”

Under its anti-kickback analysis, the OIG concluded the Benefit Program posed a minimal risk of fraud and abuse as it did not:

“include any features to specifically steer beneficiaries to Requestor’s retail pharmacies or Clinics to purchase federally reimbursable items or services … and would not offer Members any direct incentive to transfer their prescriptions to, or fill them at, [the pharmacies], or to receive services at [the clinics].”

Interestingly, the OIG did not expressly comment on the general and indirect impact of the Benefit Program on purchases of reimbursable items. Finally, the OIG noted that the program would not reduce cost-sharing amounts and would be unlikely to result in overutilization.

The loyalty program considered in Advisory Opinion 17-05 differs from those in Advisory Opinions 12-05 and 12-14, involving supermarkets’ and pharmacies’ gas discount loyalty programs, which allowed customers to earn loyalty program discounts based upon their out-of-pocket expenses for co-payments and deductibles for prescriptions covered by Medicare and Medicaid. In those Advisory Opinions, the OIG stated that the “rewards … would not be tied to the provision of other items or services reimbursable in whole or in part by the Medicare or Medicaid programs” on the redemption side of the loyalty program.

On the earning side of the transaction, the OIG found “no tie to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs.” Consequently, some of the limitations on earning rewards under the program considered in Advisory Opinion 17-05 may not have been necessary to obtain OIG approval.