Do's And Do Not's of Marketing


The lifeblood of the successful pharmacy is an innovative marketing program.

The lifeblood of the successful pharmacy is an innovative marketing program. In implementing a marketing program, the pharmacy must adhere to multiple federal antifraud laws. This article discusses what those laws are, how marketing programs can be properly structured, and what types of marketing programs must be avoided.

Federal Antifraud Statutes

  • Medicare Anti-Kickback Statute ("AKS") - This statute makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer (or arrange for the referral of) an individual for an item or service covered by a federal health care program.
  • Beneficiary Inducement Statute - This statute imposes civil monetary penalties upon a person or entity that offers or gives something of value to prospective customers covered by a government health care program. However, this statute does not prohibit the giving of a gift that is of "nominal value" (no more than $15 per item or $75 in the aggregate over 12 months).
  • Stark Physician Self-Referral Statute ("Stark") - This statute provides that if a physician (or an immediate family) has a financial relationship with an entity providing designated health services ("DHS"), then the physician may not refer patients to the entity unless an exception is met. DHS includes prescription drugs. One of the exceptions states that a provider can spend up to $393 per year, on behalf of a physician, for non-cash/non-cash equivalent items______________________________________.

Federal Safe Harbors

The Office of Inspector General ("OIG") has issued a number of "safe harbors" to the AKS. If an arrangement falls within a safe harbor, then, as a matter of law, the arrangement does not violate the AKS. If the arrangement does not fall within a safe harbor, it does not mean that the AKS is violated. Rather, it means that a stringent analysis of the arrangement must be made. Two important safe harbors are:

  • Employee Safe Harbor - This states that prohibited remuneration does not include any amount paid by an employer to a bona fide employee.
  • Personal Services and Management Contracts Safe Harbor - This states that prohibited remuneration does not include any payment made to an independent contractor as long as a number of conditions are met, including the following: (i) the parties must sign an agreement with a term of at least one year; (ii) the compensation paid must be fixed one year in advance (e.g., $24,000 over the next 12 months); and (iii) the compensation must be the fair market value ("FMV") equivalent of the payee's services.

OIG Guidance

  • Advisory Opinions - A health care provider may submit to the OIG a request for an advisory opinion concerning whether a current or future arrangement will violate the AKS.
  • Fraud Alerts and Advisory Bulletins - The OIG publishes alerts and bulletins that discuss business arrangements that the OIG believes may be abusive.

Dos of Marketing

  • Use of Employees - The pharmacy can pay commissions to full-time or part-time bona fide employees.
  • Use of Independent Contractors - The pharmacy can compensate 1099 independent contractors for marketing to government program patients so long as the arrangement complies with the Personal Services and Management Contracts Safe Harbor.
  • Expenditures for Physicians - The pharmacy can spend up to $393 per year on a physician for non-cash/non-cash equivalent items such as meals and golf.
  • Expenditures for Physicians' Staffs, Hospital Discharge Planners, and Other Referral Sources - It is permissible for the pharmacy to provide non-cash/non-cash equivalent items to non-physicians so long as the amount spent is modest. For example, while it is permissible for the pharmacy to sponsor lunch (with an in-service) for the physician's staff twice a year, it is not permissible for the pharmacy to sponsor lunch every month. In determining whether an arrangement amounts to a kickback, the "duck" test applies: "If it looks like a duck, walks like a duck, and sounds like a duck, then it is a duck."
  • Medical Director Agreement - It is permissible for a pharmacy to enter into a 1099 independent contractor Medical Director Agreement ("MDA") with a referring physician so long as the MDA complies with the Personal Services and Management Contracts Safe Harbor and the personal services exception to Stark. The safe harbor and exception essentially say the same thing.
  • Employee Liaison - The pharmacy can place an employee liaison at a facility so long as the liaison does not perform services that the facility would normally have to perform.
  • Waiver of Copayments — A pharmacy must make a reasonable attempt to collect copayments. The pharmacy can waive a patient’s copayment only if the patient’s financial condition justifies the waiver.
  • Purchase of Internet Leads - The pharmacy can purchase "raw" or "unqualified" leads (i.e., name, address and phone number) on a per lead basis. If the pharmacy desires to purchase "qualified" leads, then the arrangement must comply with the Personal Services and Management Contracts Safe Harbor.
  • Charitable Contributions - The OIG will approve charitable contributions so long as (i) the contributions are for a bona fide charitable purpose, (ii) the contributions are made in a manner that do not take into account the value or volume of referrals, and (iii) the arrangement incorporates safeguards to ensure that contributions are not tied to referrals or other business generated between the organizations.
  • Joint Venture With Referral Source (e.g., Hospital) - A pharmacy and a hospital can jointly own a pharmacy ("joint venture" or "JV"). Preferably, the JV will comply with the Investment Interest Safe Harbor to the AKS. If this is not possible, then the JV needs to comply with the OIG's 1989 Special Fraud Alert entitled "Joint Ventures" and the OIG's April 2003 Special Advisory Bulletin entitled "Contractual Joint Ventures." In essence, these say that a JV cannot be a "sweetheart deal" for the hospital.
  • Use of Protected Health Information ("PHI") - PHI, as defined by HIPAA, is essentially any information that a pharmacy has on a patient. The pharmacy cannot use or disclose PHI unless a specific HIPAA exception is met. Under HIPAA, a pharmacy can "use" a patient's PHI by educating the patient about other health care products and services offered by the pharmacy.
  • Gifts to Prospective Customers — A pharmacy can provide gifts of minimal value ($15 or less) to prospective customers.

Don'ts of Marketing

  • Use of Independent Contractors - If a 1099 independent contractor is generating government program patients for the pharmacy, then the pharmacy cannot pay percentage compensation to the independent contractor. Rather, the compensation must comply with the Personal Services and Management Contracts Safe Harbor to the AKS. The pharmacy and independent contractor cannot engage in a "carve out" arrangement in which the pharmacy pays (i) the independent contractor percentage compensation for commercial insurance patients and (ii) nothing for government program patients.
  • Expenditures for Physicians - The pharmacy cannot give cash or cash equivalents (e.g., gift cards) to physicians. The pharmacy cannot give non-cash/non-cash equivalent gifts to physicians that exceed $393 in value over a 12 month period.
  • Expenditures for Non-Physician Referral Sources - The pharmacy should not spend more than a modest amount on non-cash/non-cash equivalent items (e.g., meals with an in-service) on physicians' staffs, hospital discharge planners, and other referral sources.
  • Medical Director Agreements - The compensation paid by the pharmacy to a Medical Director cannot vary based on the number of referrals from the Medical Director to the pharmacy. The services by the Medical Director must be important and substantive, not "made up."
  • Sham Clinical Studies - In a "sham" clinical study, a clinical study company ("CSC") brings referring physicians and pharmacies together. The physicians write prescriptions that go to the pharmacies. The pharmacies pay the CSC "X" dollars per patient per month. The CSC retains part of the payments as administrative fees and remits the balance to the physicians. The physicians gather (mostly unnecessary) information from the patients regarding the effectiveness of the prescribed drugs, the physicians transmit the information to the CSC, and the CSC transmits the information to the pharmacies. These clinical studies are not associated with hospitals, medical schools, or Institutional Review Organizations ("IROs"). These types of studies are subterfuges designed to funnel money from the pharmacies to the referring physicians.
  • Sham Copayment Insurance Programs - In a "sham" copayment insurance program, patients pay a small monthly amount to pharmacies or intermediaries. These monthly payments are called "insurance premiums" and are designed to allow the patients to obtain "insurance" to pay copayments. In reality this type of program is a “sham” designed to routinely waive copayments.
  • Purchasing Internet Leads - The pharmacy cannot purchase "qualified" leads on a per lead basis. The only way that a pharmacy can purchase qualified leads is if the arrangement complies with the Personal Services and Management Contracts Safe Harbor.
  • Disclosing PHI - The pharmacy cannot disclose PHI to another company in order to allow that company to market to the pharmacy's customers.
  • Gifts to Prospective Customers — The pharmacy cannot provide gifts to prospective customers in which the value of the gift exceeds $15.

Social Media

Social media allows a pharmacy to add value to its "brand" and make connections that can help build a relationship between a customer/prospective customer and the pharmacy. These relationships create the foundation for what can become one of the pharmacy's greatest marketing assets: customer advocacy. Advocacy is the nirvana of social media, and it is through advocacy that businesses scale and grow. Advocacy shows that a brand is doing such an amazing job that customers are willing to utilize their social media platform to say something favorable about the pharmacy's brand. This type of advocacy is the best marketing a brand can ask for.

A pharmacy must figure out what type of advocates that its brand attracts and then find ways to recognize the advocates for their advocacy. These relationships should be organic and not induced; savvy social media users know when someone is speaking from an individual position versus a representative position.


Jeffrey S. Baird, Esq. is Chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, home medical equipment companies, and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at (806) 345-6320 or

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