Waiving Copays Constitutes Contractual, Legal Violations and Insurance Fraud

Natalia Mazina, JD

Do you remember the old practice of simply waiving copays if a patient could not afford them? If you do, forget it completely because waiving copays presents the following legal issues: 

Contractual violations. All PBMs’ manuals and third-party payer contracts require that participating pharmacies collect deductibles, copays, or coinsurance amounts. If during a PBM audit, the pharmacy cannot present evidence it collected copays or made a fair attempt to collect, the PBM usually initiates a recoupment of all reimbursements paid to the pharmacy for medications on which the pharmacy failed to collect copays. Then, PBMs usually terminate the pharmacy out of their network. 

Violations of state and federal laws. Under federal laws and most state laws, routinely waiving copays raises potential Federal Anti-Kickback Statute, Federal False Claims Act, and state law liabilities. 

Insurance fraud. Waiving copays often constitutes health insurance fraud because the pharmacy misrepresents the correct charge for dispensing medications. Let’s say a patient has a $5 copay. The PBM will reimburse the pharmacy $45 for a $50 drug. If the pharmacy waived the copay, the actual cost of the drug is not $50 but $45. Waiving the copay in this scenario would affect the pharmacy’s usual and customary drug price. 

If a PBM discovers the pharmacy was routinely waiving copays, it usually raises all of the above legal issues. 

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I have represented pharmacies where PBMs claimed millions of dollars for overpaying the pharmacies. Not only did these pharmacies face significant recoupments and contractual terminations, they also faced criminal investigations. 

PBMs are obligated to report any suspected healthcare fraud to the U.S. Department of Justice and state departments of justice  for Medicaid. 

In a recent case, Express Scripts (ESI) terminated HM Compounding Pharmacy from its pharmacy provider network for misrepresenting during a recredentialing process, claiming that it never waived or discounted member copays. HM sued ESI asserting various statutory and common law claims against ESI. 

The evidence established that HM breached ESI’s agreement by failing to collect copays, and therefore submitted manipulated usual and customary cash prices for reimbursement. After four years of litigation, HM pharmacy lost the case and had to pay $20 million to Express Scripts. 

There are only two scenarios when a pharmacy may waive copays: 

1. Financial Hardship. If a patient presents evidence of financial distress, the pharmacy must document such evidence with a financial hardship form and make copies of all information presented by the patient in support of waiving the copay, such as Medicaid cards, pay stubs, tax forms, etc. This practice should never be advertised and should be applied to all patients. In other words, if you allow Medicare patients to submit financial hardship forms, you should do the same for all patients. 

2. Inability to collect copays. This usually applies for delivered or mailed medications. Pharmacies must pursue debt collection against patients and record all conversations with patients regarding financial responsibilities. During an audit, the pharmacy should be able to provide evidence that a good faith effort was made to comply with the law and healthcare contracts. A typical procedure under this scenario is to send an invoice to the patient, follow up, send another letter notifying of collection efforts, and write off the amount as uncollectable copay. 

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Collecting copays will continue to be a focus of government enforcement and PBM audits. Many PBMs require that pharmacies have policies and procedures describing its collection practice and circumstances under which copays may be waived. If you have such policies and procedure, review them, educate your staff, and enforce them regularly. If you do not have such policies in place, it is time to draft them.