Courtney H. Ginn

You see it emblazed on e-mails, memos, and documents, but how do you know if the information really is privileged? Creating and maintaining attorney—client privilege is fact-dependent, and you should always consult with legal counsel when in doubt. However, there are some general guidelines and practice tips that can help specialty pharmacies keep communications related to day-to-day operations, contract negotiation, and mergers and acquisitions privileged.

The attorney—client privilege is intended to foster frank conversations between attorneys and their clients. The privilege protects written and oral communications, and generally applies if a communication (1) is between the client and attorney, (2) concerns a legal matter of interest to the client (not a business matter), and (3) is disclosed only to “privileged persons” and other agents of the client who reasonably need to know of the communication in order to act for the entity.

Any employee or agent of the client/company can make privileged communications, depending on the circumstances. The key is whether that employee or agent has been designated by the company to make legal communications on the issue. However, if the communications are broadly shared beyond those who “need to know” the information, the privilege will likely be waived. Both outside legal counsel and in-house legal counsel can have privileged communications.

The privilege only applies to legal analysis and not facts. You cannot protect bad facts by channeling them through your attorney. Also, a business cannot insulate itself from discovery simply by CC’ing an attorney on its communications. Instead, the communication with the attorney must be made for the purpose of soliciting or providing legal advice—whether it is applying the law to a set of facts, reviewing client conduct based on statutes and regulations, or advising clients about trends in the law.

Even with these general guideposts, it can be difficult to determine when the attorney is offering a mixture of business and legal advice, which is often the case when an attorney provides input concerning specialty pharmacy operations, contract assistance, and mergers and acquisitions. We will consider privilege in these 3 areas and review scenarios for each.

Operations questions are often fact-dependent and may involve representatives from multiple business units. The factual nature and the breadth of involved parties often results in a lack of privilege surrounding operations questions.

: A specialty pharmacy’s chief compliance officer (CCO) learns that Sally Salesrep is giving nurses expensive purses to gain referrals. CCO and Alice Ace-Attorney, the specialty pharmacy’s legal counsel, interview several employees and take notes, which are marked “privileged.” The CCO and Alice Ace-Attorney discuss the legal implications of the action in private. The specialty pharmacy asks Alice to provide training for the pharmacy sales staff, which the CCO also attends.

During the group training, an employee announces that he knows Sally used to give purses out regularly and asks whether that is a problem. The CCO responds, “Sally’s actions are absolutely a problem. Alice Ace-Attorney and I have met on this, and I know Sally was operating outside of the law. That is why we are having this training, so the rest of you will act in compliance with the law.”

The interviews are not privileged because they are fact-finding exercises. The CCO’s notes are likely not privileged; the attorney’s notes from the interviews may be privileged, but she should limit her notes to analysis and rely on the CCO to keep track of the facts. The conversation between CCO and Alice Ace-Attorney is privileged, but the CCO’s statement during the training waives privilege on the legal analysis that Sally was not in compliance with the anti-kickback laws.

Attorneys are well suited to help specialty pharmacies parse long and complicated contract terms and interpret their meaning and effect; however, this type of guidance is not likely privileged. Conversely, guidance on how the contract terms intersect with regulations likely is privileged.

: A specialty pharmacy director of sales consults with an attorney on a data sale contract. The contract contains complicated language regarding the pharmacy’s obligations to provide certain data in an accurate and timely manner. The attorney explains to the specialty pharmacy employee that the provision requires that 100% of the data elements be provided each month. Additionally, the pharmacy is informed that some of those elements are protected health information under HIPAA and cannot be shared without violating the regulation.

The attorney’s explanation of the page of legalese—that it requires 100% of the data to be provided&mdash;is not legal advice and did not require legal interpretation. However, the attorney’s guidance that some of the data elements are considered protected health information is likely privileged, as is the guidance that sharing the data required by the contract is a HIPAA violation.

Add to this scenario that the pharmacy’s attorney speaks with the other party in the data sale contract, and explains her interpretation of the law and how it should be applied to the contract. That conversation likely waives the otherwise privileged nature of the advice.

Buyers need to understand a seller’s legal exposure to potential litigation or government enforcement actions. The seller may need to disclose privileged legal analyses to the buyer’s executive team and attorneys, which would normally terminate the privileged nature of the analyses. However, these communications may remain privileged under the “common interest” exception. This exception protects privilege in situations where it would otherwise be waived if the communication is to promote a shared legal interest between the parties.

Such shared legal interest may arise during a transaction. Determinations of whether the parties share a common legal interest are often highly contextual. Specialty pharmacies should always consult with their attorneys on how best to maintain privilege in these circumstances. Generally, information shared early in negotiations—particularly when the parties are not engaged in exclusive negotiations and there are multiple suitors&mdash;are not likely to be privileged.

Some courts have even required a signed purchase agreement for privilege to apply. Specialty pharmacies should also consider how the acquired company’s privileged information will be handled post-acquisition. States apply the law on this issue differently. Some courts find that the seller retains control of pre-merger privileged communications that relate to the merger and its negotiations.

: After several months of financial diligence led 2 parties to enter into a contract generally outlining the terms of a deal and requiring exclusivity, a seller specialty pharmacy’s attorney and CEO meet with a buyer specialty pharmacy’s attorney and CEO to discuss a prior arrangement with a pharmaceutical manufacturer. The seller’s attorney advises that she worked with the seller to implement the arrangement and determine if it is defensible under the anti-kickback statute.

She further states that she could envision a regulator misunderstanding the relationship and finding a kickback. The acquisition occurs, and months later, the government files an action against the buyer specialty pharmacy, claiming that the arrangement was a kickback. The buyer would like to use an “advice of counsel” defense and rely on the seller specialty pharmacy attorney’s advice as a defense. Unless the seller agrees to this strategy, or the parties negotiated which party “owns” the privilege in the acquisition agreement, the court will likely get involved.

In that event, a court may find (1) that seller specialty pharmacy waived privilege by sharing the information with the buyer, (2) that the seller did not waive privilege but that the privilege transferred to the buyer in the acquisition, or (3) the seller did not waive privilege and still maintains the privilege after the transaction.

Determining whether attorney—client privilege can be invoked depends greatly on the details of the situation. It is not a way to shield “bad facts” from scrutiny. Taking advice from counsel on how to preserve attorney–client privilege can ensure that your specialty pharmacy is protected appropriately, if a government investigation or private litigation puts you under the microscope.&ensp;

 is a member of Bass, Berry & Sims PLC and leads its Specialty Pharmacy, Pharma Services, and Distribution Practice, and is based in the firm’s Memphis, Tennessee, office. He is the former chief counsel and vice president of Strategic Development at Accredo Health Group and assistant general counsel for Accredo’s parent, Medco Health Solutions. Bass, Berry & Sims PLC has more than 220 attorneys representing numerous publicly traded companies and Fortune 500 businesses. The firm has 3 offices in Tennessee (Nashville, Memphis, Knoxville) and 1 in Washington, DC. 

 is is an associate of Bass, Berry & Sims PLC in its Specialty Pharmacy, Pharma Services, and Distribution Practice and is based in the firm’s Memphis office. 

is is an associate of Bass, Berry & Sims PLC in its Healthcare Practice and is based in the firm’s Nashville office.

Articles

Guidelines and tips that can help specialty pharmacies keep communications related to day-to-day operations, contract negotiation, and mergers and acquisitions privileged. 

Attorney-Client Privilege: What It Covers, What It Doesnâ€™t Cover, and How to Maintain It

On December 7, 2016, the Department of Health and Human Services (HHS) issued the long-awaited final rule regarding Anti-Kickback Statute (AKS) safe harbors and Civil Monetary Penalty Law (CMP) exceptions.

The rule addresses topics central to many specialty pharmacy (SP) operations, including waivers of patient cost-sharing obligations, the provision of items that increase access to care, and retail rewards programs. The AKS is a criminal statute that prohibits the exchange of value to induce federal health care program referrals.

If even 1 purpose of an arrangement is to induce referrals, then the AKS is violated. However, some arrangements are protected by safe harbors and deemed to not violate the AKS. The final rule addresses some of these safe harbors, including pharmacy waivers of patient cost-sharing obligations.

The CMP imposes monetary penalties against any person that offers or gives remuneration to a federal health care program beneficiary to influence the receipt of reimbursable items or services. The CMP expressly adopts the AKS safe harbors, so if an arrangement meets an AKS safe harbor, then it will not be a violation of the AKS or the CMP. The reverse is not true, however: CMP exceptions do not create safe harbors under the AKS. The final rule addresses the access to care and retail reward exceptions, among others.

The AKS safe harbor for waiver of patient cost sharing is familiar to most SPs. Under the safe harbor, co-pay waivers cannot be advertised or solicited, cannot be routine, and can only be done after making a good faith determination of financial need or an attempt to collect from the patient. The rule clarifies that the safe harbor applies to all federal programs, not just Medicare Part D and Medicaid, but is available only to pharmacies.

Accordingly, physicians that buy and bill under Part B cannot rely on the safe harbor. The rule emphasizes the prohibition on “advertisement” and “solicitation,” which are interpreted consistent with “their common usage.”

Posting waiver information on a website would be advertising, but responding to a patient’s inquiry or discussing financial need with a particular patient would generally not be advertising. Further, advertising “insurance accepted as payment in full” would not meet the safe harbor, the rule states.

HHS warns that when determining whether waivers are routine, it will look at waivers to all patients—including those for private-pay patients and Part D subsidy—eligible individuals (both of whom SPs are permitted to waive). The rule cautions that automatic waivers will likely be considered routine, although a waiver can be routine even if it is not automatic, acknowledging that pharmacies may employ different methods of determining financial need so long as they are appropriate for the applicable locality.

Appropriate methods may include applying a multiple of the federal poverty guideline, taking into account family size and location, or considering a family’s medical expenses. Although documented proof of financial need is not required, there must be more than a patient’s statement that she or he is in need.

Also, while not required, a written policy describing the pharmacy’s process and evidence that the written policy was followed will demonstrate compliance. Reasonable efforts to collect patient obligations include billing the patient (repeatedly if necessary), collection letters, and/or telephone calls.

Preemptive decisions not to request payment or pursue collection efforts would not be considered a reasonable collection effort, however, a patient’s historic inability to pay may be a factor in making reasonable efforts. If a pharmacy is statutorily prohibited from collecting a co-pay from a patient, such as a Medicaid beneficiary, there is no co-pay to be “waived”; thus, no safe harbor protection is needed.

The access-to-care CMP exception allows the provision of items that promote access to care and pose a low risk of harm to patients. An item promotes access if it improves a patient’s ability to obtain items and services payable by Medicare, such as smoking-cessation programs, nutritional counseling, or disease-specific support groups.

The rule warns that drug compliance rewards do not meet the exception (although, they may be otherwise permitted). Also, rewards, such as providing movie tickets when a patient attends an appointment, do not promote access to care. An item poses a low risk of harm if it, among other things, is unlikely to increase costs through overutilization or improper utilization.

The rule clears up that pharmacy offerings are not automatically deemed a “low risk of harm” even though pharmacies only dispense drugs pursuant to a prescription, which ensures medical necessity, warning that pharmacies “are no less likely to … encourage overutilization and inappropriate utilization” by encouraging a beneficiary to switch to more expensive drugs.

However, the rule reiterates the need to avoid the overall increase in health care costs. For example, a cost to the government might increase because of prescribed drugs, but overall health care costs may decrease because the patient will be managing a condition with a drug rather than risking hospitalization.

The rule clarifies the existing retail rewards statutory exception and incorporates it into regulation. The exception protects “coupons, rebates, or other rewards” from a retailer that are made available on equal terms to the general public, regardless of health insurance status.

The rule clarifies that pharmacies, whether big box or stand-alone, can be “retailers” because they sell items (drugs). However, the rule cautions that pharmacies may have trouble qualifying if they only sell items reimbursable by federal programs. The exception prohibits rewards that can only be earned or received by purchasing an item or service reimbursable by federal health care programs.

For example, rewards cannot be given for transferring prescriptions because that ties earning the reward to purchasing an item reimbursed by federal programs. Similarly, the exception is not met if a pharmacy had a rewards program that offered 2 points for every dollar spent on prescription co-pays, but 1 point for every dollar spent elsewhere in the store.

Likewise, a co-pay waiver reward would be unacceptable, but a coupon that could be used on anything in the store, including co-pays, would be acceptable. Bonus Guidance Also through the rule, HHS updated the CMP nominal-in-value exception. Items that are nominal in value are not considered remuneration under the CMP; therefore, they do not need to meet an exception.

The thresholds were raised from $10 per item and $50 in the aggregate per patient on an annual basis to $15 and $75, respectively. The rule also spells out how to calculate the value of a lottery or raffle entry under the CMP. The amount of the “winnings” should be divided by the number of entries, and each participant is deemed to receive the value of their entries. If the value to the participant is under the nominal-in-value threshold, there is no CMP violation.

The rule provides detailed guidance on safe harbors and exceptions permitting certain patient benefit programs utilized by many SPs. However, each element of the safe harbor or exception must be met to gain protection. SPs should consult with legal counsel on the effect of the rule on their existing patient benefit programs to ensure compliance and explore opportunities for additional offerings.&ensp;

 is a member of Bass, Berry & Sims PLC and leads its Specialty Pharmacy, Pharma Services, and Distribution Practice, and is based in the firm’s Memphis, Tennessee, office. He is the former chief counsel and vice president of Strategic Development at Accredo Health Group and assistant general counsel for Accredo’s parent, Medco Health Solutions. Bass, Berry & Sims PLC has more than 220 attorneys representing numerous publicly traded companies and Fortune 500 businesses. The firm has 3 offices in Tennessee (Nashville, Memphis, Knoxville) and 1 in Washington, DC.

 is an associate of Bass, Berry & Sims PLC in its Specialty Pharmacy, Pharma Services, and Distribution Practice and is based in the firm’s Memphis office.

 is an associate of Bass, Berry & Sims PLC in its Healthcare Practice and is based in the firm’s Nashville office.

Specialty pharmacies will need to carefully consider the effect of the final rule regarding Anti-Kickback Statute safe harbors and Civil Monetary Penalty Law exceptions on their existing patient benefit programs.