Joseph L. Fink III

If a long-serving pharmacist was terminated for violating his employer’s policy about “breaking the law” and he files successfully for unemployment compensation, will the courts uphold a challenge to that administrative decision about eligibility? 

A pharmacist in a Middle Atlantic state had worked for a pharmacy chain for 28 years. He was discharged for allegedly violating a written policy of the employer prohibiting employees from breaking the “law.” Those quotation marks were used by the court when referring to a board of pharmacy regulation, perhaps to differentiate them from statutes which truly are “the law.” The legal standard that the pharmacist allegedly breached was a board regulation specifying that pharmacy technicians are prohibited from “accepting or transcribing an oral order or telephone prescription ...”

The employer’s position was that the pharmacist had violated the law on 2 occasions by permitting a tech with whom he worked to call a prescriber to request “clarification” of issues related to prescriptions presented for dispensing. One instance involved a call to clarify the prescriber’s intent when a prescription had been issued for oral contraceptives “for 21 or 28 days.” In the other instance, the tech called the prescriber about directions for use for the prescription container label that read, “Take 2 as directed; take as directed on package.”

About 2 weeks after being terminated, the pharmacist filed an application for benefits under the state’s unemployment compensation program. The local office of the agency that administered that program issued a ruling that the pharmacist’s conduct was not equivalent to willful misconduct, and as a result, he was eligible for unemployment benefits. The employer appealed that administrative determination, and a hearing was held. The administrative law judge who conducted that hearing ruled that the decision of the local office was correct: The pharmacist was eligible for benefits. The statewide unemployment compensation board affirmed that ruling. Having a different view of the situation, the employer elevated the issue to an appellate court that reviews matters involving decisions and actions of state agencies.

Characterizing the appeal as the employer basing the claim of willful misconduct on violation of a work rule, the appellate court upheld the ruling of the administrative agency that the pharmacist was eligible for coverage under the state unemployment benefits program.

The court began its review by emphasizing that where an employer has based “a claim of willful misconduct on the violation of a work rule, it bears the burden of proving the existence of a reasonable work rule and its violation.” An additional burden of proof for the employer is having to show a deliberate or intentional violation of that rule. All relevant circumstances are to be considered.

The appellate court adopted the reasoning of the review board that the regulations in question did not apply to the situation because the prescription had already been written by the prescribers. This meant that they were not “an oral order or telephone prescription” subject to the board of pharmacy regulation. Thus, the employer could not meet its burden of proof to show that the terminated pharmacist had violated the regulation it was citing.

Moreover, the court agreed with the pharmacist that he did not violate the work rule, because he had asked the tech to make the phone calls for clarification, not to actually take prescriptions. The court noted that without clarification, the prescriptions were “effectively meaningless.” In its view, the tech was contacting the prescribers to get additional information to aid the pharmacist’s interpretation of an existing prescription.

The ultimate decision of the court was that the pharmacist’s conduct was not willful misconduct and, therefore, the decision of the unemployment compensation board that he was eligible for benefits was affirmed.

Joseph L. Fink III, BSPharm, JD, DSc (Hon), FAPhA, 

is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy in Lexington.

Articles

The court rules that the employee did not engage in willful misconduct, affirming the compensation board's decision.

Is a Discharged Pharmacist Eligible for Unemployment Benefits?

When a physician who is an employee of a hospital prescribes opioids at a level and period of time that leads to addiction in the patient, will a verdict against both the institution and the prescriber and a multimillion-dollar jury award be affirmed on appeal?

A male patient was suffering from back pain and consulted a physician who was a family practitioner at a private university hospital in a metropolitan area in the Midwest. Starting in 2008, the physician prescribed at various times hydrocodone, increasing the amount to be used over time, followed by oxycodone and morphine. During several visits, the patient told the prescriber that he had increased the amount he was consuming on his own. The patient’s primary care physician had referred the patient to a few specialists, but nothing they did relieved his pain.

Early in the treatment, the opioids allowed the patient to go to work, but eventually they interfered with his work. Indeed, they interfered with his ability to work more than the pain had. Use of the medications also started interfering with his family relationships.

In 2012, a pharmacist declined to dispense more medication, and the patient’s wife had her husband admitted to a rehabilitation program. The couple subsequently filed a lawsuit against the primary care physician and the university hospital where the prescriber was employed. During the trial, an expert witness called by the patient plaintiff characterized the dosages of medications prescribed as “astronomical,” “colossal,” “excessive,” “extraordinary,” and “reckless.”

Before the jury deliberated, the judge instructed the members that they could attribute a percentage of fault to the hospital and physician defendants if they felt that the defendants had “either (a) failed to weigh the risks and benefits of prescribing opioids to him, (b) overprescribed opioids to him, (c) failed to monitor the patient’s opioid treatment, or (d) failed to assess him for dependency and addiction.”

The jury returned a verdict in favor of the patient plaintiff for compensatory damages, an amount calculated to compensate the injured party for the damages suffered. The jury attributed 67% of the fault to the hospital and physician defendants and 33% to the patient. The amount of compensatory damages awarded was $938,000 to the patient and $804,000 to his wife. The jury also awarded punitive damages, ie, those calculated to serve as a penalty for the defendants and not to compensate the plaintiff for injuries suffered, in the amount of $15 million. Importantly, note that an amount awarded as punitive damages cannot be covered by an enterprise’s or individual’s liability insurance policy. That would be against public policy because it would allow the insured to raise the insurance policy as a shield to protect against the punishment assessed by the court.

Both the hospital and the physician filed an appeal, advancing several arguments to support their request that the jury’s verdict and the lower court’s judgment be overturned. They did not dispute, however, that the hospital could possibly be liable for the acts of its employee, the prescriber.

The state court of appeals addressed each of the defendants’ arguments in turn, accepting none of them. The judgment of the trial court was affirmed on appeal.

The first point advanced by the defendants was that their position had been prejudiced by repeated referral during the trial to the “opioid epidemic” in the United States. They felt that such references led the jury to believe that the defendants should be held accountable in some way through this proceeding for this national situation. The appellate court noted, however, that expert witnesses called by the defendants also referred to the “opioid crisis” and the “opioid epidemic.”

The appellants also argued that several errors had occurred while prospective jurors were being interviewed during the process known as voir dire. Those arguments were rejected as well.

Other arguments centered on whether certain statements made by expert witnesses during the trial should have been excluded by the trial court judge and whether the judge’s instructions to the jury about punitive damages being possible were indeed correct. The court rejected the first argument, and regarding punitive damages, the appellate judges pointed to a state statute that authorized such an award when a health care provider demonstrated “willful, wanton or malicious misconduct.”

The court of appeals concluded that the decision to prescribe these amounts of opioids for this length of time was done in conscious disregard of, and with complete indifference to, the patient’s safety and the safety of others. They found the action to be “tantamount to intentional wrongdoing.”

Joseph L. Fink III, BSPharm, JH, DSc (Hon.), FAPhA,

 is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy in Lexington.

Will a lawsuit against both be successful and a jury award upheld on appeal?

A Hospital and Physician Share Liability for Prescribing Opioids

Pharmacy directors should educate hospital administrators about an important case and its implications and limitations on what is permissible and what is impermissible.

This article will review the federal court case 

Portland Retail Druggists Ass’n v Abbott Laboratories

 dealing with with how nonprofit hospitals purchasing medications at preferential prices may use those items. The case went all the way to the US Supreme Court

 and foreshadowed the changing role of hospitals, eg, providing shorter inpatient stays and shifting much more into serving patients who are ambulatory. The discussion follows the case through the federal court system looking at how the courts at various levels addressed the issues. The article will also address 2 follow-on cases, one addressing applicability of the decision to governmental hospitals and another addressing applicability to drug purchases by nonprofit health maintenance organizations (HMOs).

Traditionally, the financial goal of the department of pharmacy has been to maximize the generation of revenue through accurate tracking of charges for medication dispensed. Hospital administrators used this excess of revenue from pharmacy operations to offset shortfalls in other operating subdivisions of the institution. That approach worked fine when institutions were primarily reimbursed for services provided to patients on the basis of the charges incurred while providing needed care. However, Medicare changed the rules of the game when it implemented reimbursement to hospitals based on Diagnosis Related Groups (DRGs).

Under the DRG system, a hospital knows when a Medicare beneficiary is admitted and exactly how much the reimbursement will be for the care of that patient. This approach is oftentimes erroneously described as “prospective payment,” a misdesignation because the payment is not made in advance. What occurs in advance is rate setting, not payment. More recently, Medicare has announced that it will not reimburse participating hospitals for expenses associated with treating a list of maladies falling under a higher-paying DRG because they are deemed acquired or caused by the experience of being in the institution for treatment of something else. Given that Medicare is a principal, if not the primary, payer for care in many of the nation’s nonprofit hospitals, the approaches adopted by that federal program are often mirrored by private underwriters.

All this puts a highly focused spotlight on the ability of pharmacists to reduce total expenditures through cost avoidance for care of a patient by achieving optimal medication selection (eg, use of a more expensive antibiotic because it likely will clear up the infection more promptly so the patient can be discharged earlier, timely intravenous to oral drug substitution so patient can be discharged earlier, initiating stress ulcer prophylaxis). Another example is the enhanced role of pharmacists in the institution working to avoid the occurrence of “non-reimbursable serious hospital-acquired conditions,” such as manifestations of poor glycemic control or certain surgical site infections, appearing on the list for which Medicare does not provide reimbursement.

 featured an article entitled “In Struggle to Cut Expenses, Hospitals Eye the Pharmacy.”

 Several noteworthy points were emphasized. First, pharmacy costs can “make up 10-20 percent of the average hospital’s operating budget.” Second, “unlike other hospital departments, personnel costs represent only about 20 percent of the average pharmacy budget.” An official from the Healthcare Financial Management Association was quoted about the potential role of pharmacists as being valuable because “they’re also always thinking about the clinical effectiveness of that drug. So they truly are marrying the financial and clinical piece of the drug for the best patient outcome.”

Hospital pharmacists’ focus on both the cost of medications along with their relative effectiveness reinforces the importance of pharmacists in nonprofit institutions being aware of limitations or restrictions on how medications obtained preferential prices may permissibly be used. A new generation of hospital pharmacy leaders may well have arrived since the decision of the US Supreme Court in the 

case. If an institution gets a special price for pharmaceuticals due to its nonprofit status, how may those pharmaceuticals be used? That was the issue presented in one of the relatively rare cases involving hospital pharmacy to reach the US Supreme Court.

One business practice that contributes to the profitability of the hospital pharmacy is the practice of pharmaceutical manufacturers giving price breaks to nonprofit institutions such as hospitals. This is referred to as preferential pricing. If all purchasers of pharmaceuticals do not pay the same price to obtain the medications, there are some legal implications.

What is the magnitude of the difference in acquisition cost? Of course, this will vary widely among institutions and suppliers due to hospitals’ practice of purchasing on a bid basis and it may also vary from 1 therapeutic category to another. This author’s experience running an outpatient pharmacy in an academic health center a number of years ago is that it would not be unusual for the institution to pay 10% of the product acquisition cost a community pharmacy would pay, which would be, say, $1.80 for a 1-month cycle of oral contraceptives which would cost a community pharmacy $18 back in those days.

What would motivate a manufacturer to do this—to extend this price concession? There are several possible explanations, the most notable of which is competition in the marketplace. Increasing gross sales volume and increasing market share are constant goals for pharmaceutical manufacturers. Another goal of manufacturers, particularly with teaching hospitals and other units affiliated with academic health centers, is to get their products in use (eg, on formularies) to be seen by medical students, residents, and fellows who will then, hopefully, carry a positive impression of that product with them out into practice.

How can this be financially viable for the manufacturer? The answer to that turns on the distinction between fixed and variable costs. Fixed costs are those that do not vary with the quantity of product produced (real estate, equipment, etc), while variable costs are those costs that do fluctuate with the quantity produced—materials consumed in production, labor costs, and utilities. Thus, if a manufacturer has some reserve capacity at the manufacturing plant, why not keep the capsule machines running for an extra hour in order to sell the additional quantity of product at a reduced price? So long as fixed costs are covered by revenue from standard sales and pricing, why not generate some additional revenue by submitting a bid to sell the “excess” product to a nonprofit institution at a price below that normally charged, especially when such sales can pay dividends in the future because of medical students’ and residents’ exposure to the product while in training?

Furthermore, some would argue that the selling price of pharmaceuticals bears little relationship to the actual expense of manufacturing them due to the need to recoup extremely high research and development expenses along with the expense of collecting and compiling all the information to be submitted for regulatory approval of the product.

In addition, it is worth noting for the context of this decision that the 

case was decided during a time when the role of the hospital was undergoing significant change. The traditional focus almost exclusively on the provision of services to inpatients who occupied a bed at the institution was morphing into a role of hospitals that heavily emphasized using their resources to provide services on an ambulatory basis to outpatients. Imaging services, along with other sophisticated, technologically advanced testing and patient assessment resources, were being made available to outpatients. At the same time, advances in surgical procedures and other modalities were making what once would have required a 2- or 3-day stay in the hospital something that could be done on an outpatient basis. Hospitals operating off-site facilities such as outpatient surgery or imaging centers created new issues in this area.

Congress has enacted a number of statutes over the years designed to protect the critical basis of our economic system—free competition. The Sherman Antitrust Act of 1890 and the Clayton Act of 1914 are 2 notable examples of this legislative activity. Our attention for this discussion is directed to an additional federal statute known as the Robinson-Patman Act, enacted during 1936 at the height of the Great Depression to amend the Clayton Act.

The Robinson-Patman Act is designed to address wrongdoing by sellers of products in the form of price discrimination across groups or categories of purchasers. The objective of this federal statute is to prohibit price discrimination by sellers among purchasers of goods of like grade and quality sold in interstate commerce if the effect of the discrimination is likely to injure competition. The impetus for this legislation came from manufacturers and distributors selling products to chain stores at prices lower than independent retailers could access. The retailers sought the legislation and were joined by wholesalers who wanted to head off large chain stores from dealing directly with manufacturers at lower prices. Several points are deserving of emphasis from this statement:

		The focus of the statute is on the activities of sellers, not purchasers.

		The focus is on sales of goods, not sales of services.

		The discrimination in price must occur with goods of like grade and quality.

		Another focus is on the effect of the discrimination—is 

Enforcement of the provisions in this statute can occur 2 ways. The federal government can file a criminal action in federal court, with the lead agency usually being the Federal Trade Commission. Alternatively, civil actions can be filed in federal court by private parties seeking to recover monetary damages alleged to flow from the violations of the statute. It should be noted in passing that some 20 states also have parallel provisions in their statutes creating a right to sue through state courts. For the federal statute to be brought into play the goods being sold must have been in interstate commerce. In the principal case being reviewed here there was a civil lawsuit filed by an organization of independent pharmacy owners seeking monetary damages and injunctive relief due to what they thought were objectionable sales practices by the defendant pharmaceutical manufacturers.

Should an allegation be advanced that a seller has run afoul of the prohibitions in the Robinson-Patman Act, there are several defenses based on the statute that can a raised to prevent conviction of a violation. One is a cost justification, meaning that if a seller is facing a Robinson-Patman lawsuit it can raise the defense that the price it was charging was based on and justified by differences in costs incurred in manufacturing, selling, or delivering the product.

A second acceptable defense is meeting competition. This means that a seller acting in good faith to meet a low price established by a competitor does not violate the statute. Note that this latter defense is tied to the overarching laudable goal of enhancing competition. However, it is worth noting at this juncture that only the seller/manufacturer knows the basis for the preferential price being charged. Thus, it may be necessary to go to court to have a trial to uncover the actual basis of the priced concessions and their impact on injuring competition.

The most relevant defense for this discussion, however, is sales of products to a nonprofit charitable institution for its “own use.” Those 2 words in the statute were the focus of the court cases being considered here. There is a specific provision added to the elements of the Clayton Act of 1914 and Robinson-Patman Act of 1936 by the Federal Non-Profit Institutions Act of 1938 as follows:

	Nothing in the Act approved June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, shall apply to purchases of their supplies for their 

 by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit.

Note that this amendment came only 2 years after enactment of the Robinson-Patman Act. This subsequent legislative action was prompted by an outcry regarding the adverse effect of the 1936 statute on the prices that could be extended to and accepted by nonprofit organizations. The 1936 enactment had left many questions about whether it was permissible for a seller of goods to give a break on the purchase price of goods being sold to a nonprofit organization. The 1938 amendment was designed to make a clear statement that such actions were indeed lawful.

case was launched when a collection of more than 60 community pharmacies filed suit in US District Court for the District of Oregon against 12 pharmaceutical manufacturers alleging that the defendants were violating the Robinson-Patman Price Discrimination Act of 1936. The federal lawsuit was maintained in the name of the organization of owners of independent pharmacies, the Portland Retail Druggists Association (PRDA). The alleged wrongdoing was that the manufacturers were selling their products to nonprofit hospitals in the Portland area at prices lower than what the community pharmacies had to pay to acquire the same products for patients served there. The filing by the association on behalf of the pharmacy owners sought treble damages and a court-ordered injunction prohibiting continuation of the pricing practices.

In response, the defendant manufacturers pointed to the Federal Nonprofit Institutions Act of 1938, which had amended the Robinson-Patman Act. The amendment specified that purchases of supplies for their 

 by hospitals not operated for profit were exempt from the provisions of the Robinson-Patman Act. This clarified the principal legal issue in the case—what constitutes a nonprofit hospital’s own use of pharmaceuticals purchased at preferential prices?

The PRDA argued in their legal filings with the trial court that use of these medications for treatment of inpatients should be the only permissible use. The defendant manufacturers took a more expansive view of how these medications could be applied to various categories of patients coming in contact with the hospital. In addition to treatment of inpatients they argued that these medications could be used for sale to employees or students, for take-home supplies for patients being discharged, for sale to physicians on the hospital staff, and even for an occasional “walk-in” patient seeking service at a hospital’s outpatient pharmacy.

Before a trial commenced, the defendant manufacturers moved for summary judgment, in essence asking the trial court judge to rule that there was no material fact or issue needing a decision so the case should be dismissed. The trial court judge granted that motion, meaning that no trial was to be held.

The collection of pharmacy owners appealed that adverse decision of the trial court judge to the US Court of Appeals for the Ninth Circuit situated in San Francisco. Their arguments met with more success with this appellate court adopting a much more restrictive meaning of the key phrase, “own use.” The Court of Appeals identified only 2 categories of uses that it deemed permissible for medications purchased at preferential prices:

		Drugs dispensed to emergency department patients

The Court of Appeals labeled as impermissible the following uses of these medications:

Once the Court of Appeals opened the door to categorization of uses of medications aligned with various groups of patients, the issue shifted from the straightforward position advocated by the pharmacy owners, ie, use for inpatients only, to the question of which side of the line—permissible or impermissible&mdash;should various categories of transactions fall.

The group of manufacturers viewed this as a loss and filed a request with the US Supreme Court that it review this issue. The Justices of the Supreme Court did indeed agree to hear the case and then got into their own categorization and line-drawing.

The Court started with a list of permissible uses that had the first 2 categories as being identical with the classification by the Court of Appeals. It then shifted discharge supplies from the impermissible category to the permissible one. Focusing on use of medications by outpatients, the court divided that category in 2 based on where the medications would be used, finally settling on an approach that deemed uses by outpatients as permissible irrespective of where that occurred. Taking up the category of hospital employees as used by the intermediate appellate court, the highest court added students in with employees and then expanded that category to include the dependents of both groups, limiting it to medications being obtained for personal use. The medical staff category that came up from the Court of Appeals was switched from impermissible to permissible and expanded to include dependents with, once again, the limitation for personal use only.

The nation’s highest court designated refills for former patients and walk-in patients at the pharmacy as impermissible uses, both categories where it agreed with the classification made by the Court of Appeals. Turning to the issue of sales of pharmaceuticals to medical staff members, while the Supreme Court viewed such sales as permissible if for personal use by the staff member or a dependent, a different classification as impermissible would apply if the medications were to be resold as part of the practice, eg, medications sold to patients as part of the visit to the physician’s office.

		Drugs dispensed to emergency department patients 

		Outpatients for use on the hospital premises

		Outpatients for use off the hospital premises

		Hospital employees and students (including dependents) but for personal use only

		Medical staff (including dependents) but for personal use only