In early June 2020, multiple pharmacies received letters from ESI stating that on behalf of TRICARE and the Defense Health Agency (DHA), ESI was recouping money from the pharmacies for compound drug claims submitted in 2015.

According to the letter, TRICARE/DHA had determined that for a number of specified claims in 2015, there was not a proper physician-patient relationship (PPR). Each letter included a report setting out the Rx number, fill date, member identification number, and the discrepancy dollar amounts to be recouped.

The letters were dated April 7, 2020, but were received by the pharmacies in early June 2020. In subsequent correspondence from ESI to pharmacies, ESI acknowledged that the letters should have been dated June 1, 2020, and stated that if pharmacies want to contest the recoupment, then:
 
  • The pharmacy needs to provide medical records establishing that a PPR existed the year prior to dispensing of the drug...and the records must be accompanied with metadata or similar validating facts that substantiate the records creation date.
 
  • The physician and pharmacy need to provide a signed attestation validating that they understand that if they provide false statements, then they are subject to criminal prosecution and termination from the TRICARE program.
 
  • The requirements for documentation are not satisfied by letters from physicians attesting to the PPR.
 
The recoupment letters were driven by TRICARE/DHA. In reviewing the letters, it became apparent that DHA was treating the 2015 claims as “erroneous payments” for which DHA may circumvent the standard auditing procedures set out in the ESI Pharmacy Provider Manual. DHA directed ESI to retroactively deny coverage for the claims and administratively recoup without first affording due process to the pharmacies. In executing administrative recoupments, ESI must follow the procedures set out in the applicable federal regulations. It does not appear that this occurred. 
 
The recoupment letters required pharmacies to produce medical records; however, pharmacies do not create and generally do not maintain such records. The requirement that medical records be supported by metadata and signed certification statements is not found in published law or regulations. Further, the 2015 ESI Pharmacy Provider Manual does not contain a requirement for pharmacies to maintain records evidencing a PPR.

Lastly, in dispensing prescriptions, pharmacies are obligated to maintain such records as the pharmacy’s state law requires. Several arguments against the recoupment action can be made, including the following:
 
  • ESI and DHA did not adhere to the audit and recoupment process set out in the ESI Pharmacy Provider Manual (eg, notice with an opportunity to respond).
 
  • The obligation to prove the existence of PPR during the 365 day period prior to dispensing the drug is not an obligation that a pharmacy generally has to fulfill. It was not until the last half of 2017 that ESI added language to its Pharmacy Provider Manual requiring the pharmacy to confirm a PPR in the event the physician is from outside the pharmacy’s immediate retail service area. 
 
  • The recoupment letters require pharmacies to obtain (1) documents from physicians from five years ago...and such documentation must be accompanied with metadata or similar validating facts and (2) a signed attestation acknowledging that providing false statements can result in criminal prosecution and termination from the TRICARE program. These are requirements that are impossible for most pharmacies to meet.
 
But then everything changed. In a letter dated June 25, 2020, ESI issued a temporary suspension of the recoupment actions. According to the letter, ESI has been directed by DHA to suspend recoupment actions for the claims identified in the April 7, 2020, recoupment letters.

According to the June 25, 2020, letter, the suspension will remain in place until ESI receives further notice from DHA. The letter stated that ESI is to receive further information from DHA in the coming weeks as to the status of the recoupments and will be unable to provide additional information until that time.

ESI also acknowledged that the April 7, 2020, letters should have been dated June 1, 2020. Two unanswered questions resulted from the June 25, 2020, letter:

1. Would ESI refund to pharmacies the money that ESI had previously recouped?
2. Should pharmacies proceed with requesting an administrative review?    

Subsequent to June 25, 2020, pharmacies and industry stakeholders were notified by ESI that (1) the 90-day time period to submit information and documentation in support of a request for an administrative review is being stayed as of June 23, 2020, until further notice; (2) DHA and ESI are reassessing the recoupment actions; and (3) there is no plan to return previously recouped funds, but rather, ESI will hold the funds until the reassessment is completed. 
 
The Alliance for Pharmacy Compounding (APC), National Community Pharmacists Association (NCPA), and other stakeholders are actively engaged in discussions with TRICARE/DHA in order to resolve the challenge that TRICARE, DHA, and ESI have forced on pharmacies. 

In particular, APC and NCPA have taken a leadership role in reaching out to TRICARE/DHA and educating and assisting pharmacies that received the ESI letters.

Click here to access resource materials provided by APC and NCPA.

About the Authors
Jeffrey S. Baird, JD,
is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.

Bradley W. Howard, JD, is Chairman of the Labor and Employment Law Group and a health care attorney at Brown & Fortunato, PC, handling governmental investigations, business disputes, and litigation involving health care providers including pharmacies, DME companies, manufacturers, home health agencies, and hospitals. Mr. Howard is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6310 or bhoward@bf-law.com