Patient Qualifications

July 2024

I. INDUSTRY OVERVIEW

Increasing market demand for enhanced pharmacy services to high-risk patients and the growth of novel pharmacy models to meet that demand has broadened the patient population receiving pharmacy care under the long-term care class of trade. Reimbursement to long-term care (LTC) pharmacies are generally designed to compensate pharmacies for the provision of pharmacy services to patients residing in Skilled Nursing Facilities, Assisted Living Facilities, and Intermediate Care Facilities for the Developmentally Disabled. The number of patients requiring long-term care support in their own residence exceeds the number of patients residing in long-term care facilities, a gap that will continue towiden. The difference between the standard of pharmacy care provided in LTC versus retail settings creates disparities in health outcomes that many pharmacies address through unique pharmacy models seeking to mimic a skilled nursing level of care to home-based patients.

Due to the increased cost of care associated with providing enhanced pharmacy services, including delivery, compliance packaging, medication reconciliation, and care coordination, pharmacies providing these services seek increased reimbursement over the applicable retail rates. Some pharmacies have negotiated value-based care payments from health plans by demonstrating better patient outcomes and significant health care cost savings. LTC Pharmacy Services Administrative Organizations (PSAOs) and other interested pharmacy advocates have worked with Pharmacy Benefit Managers to allow LTC pharmacies to bill claims at retail rates under their LTC contracts as opposed to retail rates under a retail PSAO contract. This allows pharmacies to receive higher dispensing fees and ingredient cost reimbursement as compared to contracts available through retail PSAOs. While pharmacies and LTCPSAOs do not believe this solution adequately compensates pharmacies, the compromise allowed for some relief while PBMs take time to understand the changing market conditions and establish programs to qualify pharmacies to receive additional reimbursement.

Many pharmacies utilize patient residence codes (PRC) reflecting a patient residence in a long-term care facility to achieve increased reimbursement for LTC pharmacy services provided to patients residing in their own home. Typically, these pharmacies submit these claims with a PRC of “04” to indicate the patient resides in an Assisted Living Facility. Pharmacies employing this billing practice typically do so on the advice of legal counsel on referral from a LTC PSAO. Due to the confidential nature of the legal opinions provided to specific pharmacies, it would not be appropriate to publicize or specifically cite those opinions; however, this memorandum will seek to summarize and evaluate the legal reasoning supporting these billing practices.

II. ISSUE

Whether under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Medicare Part D Regulations”) and the subsequent final rule revising Medicare Advantage and the Prescription Drug Benefit Program (the “Final Rule”), pharmacies may utilize a Patient Residence Code other than that which accurately describes the patient’s actual place of residence to achieve reasonable and relevant terms associated with the level of service provided.

III. DISCUSSION

The opinions we reviewed identify the Patient Residence Code (PRC) as a mechanism the pharmacy can utilize to achieve reasonable and relevant terms associated with the institutionalized level of service provided to (1) patients not residing in a long-term care (LTC) facility or (2) patients residing in a facility in which the level of services provided exceed that typical to the facility type (ex. Assisted

Living Facility requiring a level of service typical of Intermediate Care Facilities).

While under the non-interference clause of the Social Security Act, CMS may not intercede in negotiations between Program Sponsors and pharmacies or dictate pricing and formularies to Program Sponsors, CMS does require that “contract terms and conditions offered by Part D plan sponsors remain reasonable and relevant in light of the changes and innovations in pharmacy practice and business models since the beginning of the Part D program.” 83 Fed. Reg. 16440, 16590. Further, “. . . Program Sponsors may not exclude pharmacies with unique or innovative business or care delivery models from participating in their contracted pharmacy network on the basis of not fitting into the Program Sponsor’s pharmacy type classifications.” 83 Fed. Reg. 16440, 16590. In addition to the any willing pharmacy component to the rule, CMS highlights that rigid adherence to traditional pharmacy types and patient residence types should not prevent Program Sponsors from having the flexibility to provide reasonable and relevant terms to emerging pharmacy models.

In order to be reasonable and relevant, such terms and conditions must pertain to the business and services as allowed under its license(s). While traditionally such terms and conditions could easily be established based upon classification as a retail or mail-order pharmacy, our intent is to illustrate that those traditional labels likely do not sufficiently encompass today’s evolving pharmacy practice.

83 Fed. Reg. 16440, 16591. The argument for utilizing the PRC as a level of service code seeks to remedy the Program Sponsor’s offer of unreasonable terms specific to the patient’s residence by viewing the rate exhibit within the contract as a menu the pharmacy can unilaterally choose from by manipulating the PRC without ever alerting the Program Sponsor of the pharmacy’s unique service type.

The use of a differentiated PRC to achieve higher reimbursement follows from the fact that Program Sponsors impute a level of service from the PRC. The argument states that a pharmacy is privileged to utilize any PRC to indicate the level of institutionalized service provided to the patient regardless of where the patient resides. Utilizing the example of a patient receiving enhanced behavioral health support from a facility not licensed as an Intermediate Care Facility for Individuals with Intellectual Disability (ICF/ID), one opinion noted that billing the prescription claim with the accurate PRC would not result in payment to the pharmacy that reflects the level of service provided, and the pharmacy may submit the claim as if the facility were a licensed ICF/ID to receive the appropriate reimbursement. The same reasoning applies in cases where a patient residing in their own home receives institutional level of service from the pharmacy. In this case, pharmacies are advised to indicate that the patient resides in an Assisted Living Facility (PRC 04) to achieve higher reimbursement.

It is important to note that for LTC patients residing at home, the pharmacy bills the claim for an Assisted Living Facility level of service while actually providing a Skilled Nursing Facility level of service. If a pharmacy believes that contract terms must compensate for the level of service provided to be reasonable and relevant, and the pharmacy is providing a skilled nursing level of service, it should follow that reasonable and relevant terms can only be achieved by submitting the claim with a PRC of 03 to denote that the patient resides in a skilled nursing facility. This gap in reasoning is best explained by risk management. Like ICF/IDs, Skilled Nursing Facilities are federally defined and licensed at the state level. The opinions appear to indicate that because CMS has not defined an Assisted Living Facility, leaving that function to individual states, pharmacies have access to an alternative legal theory that when a patient receives long term care support in their own residence, that residence becomes an assisted living facility. We believe that this secondary argument is flawed because there is a significant public interest in CMS leaving regulation of assisted living facilities to states as states are in the best position to oversee those sites of care specific to the needs of their population.

Asserting that the primary function of the PRC is to indicate the level of service provided ignores the history of the PRC and CMS guidance to pharmacies relative to PRC reporting. First, Program Sponsors have imputed a level of service from the patient’s residence long before the PRC as we use it today existed in the NCPDP data set. The PRC variable was new in 2013 and replaced the older Patient Location Code in the Part D Event File (PDE) and indicates where the patient resided at the time the prescription was dispensed. In CMS guidance dated June 20, 2013 titled “2014 Requirements for Coding Patient Residence and Pharmacy Service Type on Claims Transactions” CMS reiterated that “claims with a missing or invalid code may be rejected at point-of-sale . . . .” Additionally, because a LTC pharmacy is in a better position than a retail or mail order pharmacy to know whether the patient resides in their own residence or in a facility, LTC pharmacies have a heightened duty to reliably report an accurate and valid PRC on all claims. While Program Sponsors certainly utilize the PRC to impute a level of service to support reimbursement determinations, the PRC submission requirement originates from CMS and the need for CMS to accurately determine where Medicare beneficiaries reside and receive health care services.

While on its own, a factual misstatement of the patient’s residence to receive additional reimbursement would constitute a fraudulent claim, attorneys argue that because (1) Program Sponsors impute a level of service from the PRC, and (2) CMS guidance indicates that patients residing in their own home receiving an institutionalized level of service qualify for long-term care reimbursement, it follows that (3) in the absence of reasonable and relevant contract terms providing for long-term care reimbursement for qualified patients, the pharmacy is privileged to utilize the PRC coding available to indicate that an institutionalized level of service was provided to receive the long-term care reimbursement rate associated with the submitted PRC.

This reasoning is partially correct in that Program Sponsors have a duty to negotiate in good faith with pharmacies to provide appropriate reimbursement based on the level of service the pharmacy provides even when the pharmacy evades classification into traditional pharmacy types. In other words, the defect in the reasoning lies not in the premise but in the conclusion. In the Final Rule, CMS addressed a concern that Program Sponsors typically offer a standard retail network contract and do not publicize other network contracts that may be a better fit to the pharmacy type. CMS responded:

Part D plan sponsors must provide the standard terms and conditions that are requested by the pharmacy. While pharmacies may request any standard terms and conditions offered by the Part D plan sponsor, it is incumbent upon the pharmacy to request terms and conditions that are applicable to the business model(s) and types of services the pharmacy provides so that the terms and conditions offered are reasonable and relevant.

The pharmacy cannot expect to receive reasonable and relevant terms and conditions if the Part D plan sponsor is not made aware of different types of services the pharmacy seeking network participation provides.

83 Fed. Reg. 16440, 16591. Notably, this statement is not cited in any of the opinions we reviewed. Even if pharmacies are operating under terms not reasonable or relevant to the services they provide, and Program Sponsors have not provided a mechanism for those pharmacies to indicate the level of service provided outside of PRC reporting, it is incumbent upon the pharmacy or PSAO negotiating on behalf of the pharmacy to advise the Program Sponsor of the services provided by the pharmacy. The opinions we reviewed recommend an improper remedy to the absence of reasonable and relevant terms offered to pharmacies. Because the pharmacy or PSAO has a duty to inform a program sponsor of unique and novel pharmacy types necessitating a differentiated network to receive reasonable and relevant terms, entering into a contract without such notice and with the intent of securing reasonable and relevant terms through inaccurate claims coding is not only breach of contract, but potentially fraud in the inducement of the contract.

IV. CONCLUSION

The Long Term Care at Home Pharmacy Quality Commission certainly believes that pharmacies should be properly compensated for creating new and novel pharmacy models to solve the growing health disparities experienced by our aging and disabled population either without recourse to placement in a long term care facility or choosing to remain in their own home. Unfortunately, some actors in the industry have taken a short cut to realizing fair reimbursement for their services by utilizing inaccurate patient residence codes instead of exercising their duty to engage in good faith negotiations with Program Sponsors to realize the reasonable and relevant terms appropriate to their business model. We are troubled that many pharmacies have instituted these billing practices in reasonable reliance on advice from their LTC PSAO and legal counsel and find themselves at risk of audits and potential prosecution under the False Claims Act. Our aging population desperately needs access to the highest standard of pharmacy care and the market cannot deliver that care without collaboration between pharmacies, LTC PSAOs, and their Program Sponsor partners. We hope that pharmacies currently providing these services with improper billing practices relying on guidance from their trusted LTC PSAO partner and legal counsel be provided the clarification and education necessary to become compliant without depriving their patients of the valuable care they receive.