Firm News & Legal Alerts

Tuesday, February 1, 2011


As part of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, patients are now subject to new rules governing reimbursement of the cost of certain over-the-counter (OTC) medications. These rules affect reimbursements under employer-sponsored health plans, health flexible spending arrangements (health FSAs), and health reimbursement arrangements (HRAs), as well as health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs).

Presently, the cost of OTC medicines and drugs are deemed “medical expenses” that are eligible for reimbursement from group health plans (and are “qualified medical expenses” eligible for distribution from HSAs and Archer MSAs). However, the changes in the law amend the definition of what is considered a “medical expense” and restrict the reimbursement of funds used to purchase OTC medicine and drugs going forward after December 31, 2010.

Under these new changes, “a distribution from an FSA, HRA, HSA or an Archer MSA for a medicine or drug is a tax-free qualified medical expense only if (1) the medicine or drug requires a prescription, (2) is an over-the-counter medicine or drug and the individual obtains a prescription, or (3) is insulin.1

As patients seek to utilize these reimbursement vehicles, this will seriously affect the potential liability of physicians who are now frequently asked to provide the documentation required for their patients to be reimbursed. Although, according to the IRS, the patient simply needs to obtain a receipt of payment, the physician must provide documentation which (other than for insulin) is nothing short of an actual prescription , regardless of the fact that OTC medications do not require a prescription for purchase.

In responding to recent requests from the medical community for clarification of the need to provide prescriptions for OTC drugs, the IRS has posted a very specific response to this frequently asked question (“FAQ”) on its website:

“If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.”2

For purposes of the new rule, a prescription is defined as “a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and issued by an individual who is legally authorized to issue a prescription in that state."3

However, the new rule does not apply to items that are not medicines or drugs, including equipment (e.g., crutches), supplies (e.g., bandages), and diagnostic devices (e.g., blood sugar test kits). These items will continue to qualify, if they otherwise meet the definition of medical care, which includes expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

In light of these new requirements, patients will likely seek reimbursement for OTC medications on a more frequent basis.


Therefore, physicians should be prepared for a dramatic increase in the number of “prescriptions” they are asked to issue. This is also the area where the risk of potential liability exists. Before simply issuing such documents as “claim documents” or “reimbursement forms,” physicians and medical practices must not issue what will still be legally considered a prescription, thereby intended to treat a known medical condition without having first seen and fully examined the patient for that condition. That also requires properly documenting the propriety and medical necessity of that “prescription.” Further, an additional problem may well arise when an established patient requests that numerous “OTC prescriptions” be written, yet is also already taking prescribed medications which may interact negatively with the OTC medications, and result in patient injury and a lawsuit. Such a situation clearly requires the prescribing physician be aware of and assess the possible interaction of all the medications and drugs, both OTC and non-OTC, which the physician has now "prescribed" for the patient.

There may also be additional ramifications for those physicians who contemplate charging for the initial prescription. They may well face regulatory problems at a later date. A physician should not write a prescription without first examining and evaluating the patient, unless this is an established patient and the physician reasonably believes a new examination is not required to write the new prescription. Further, if the physician wants to charge the patient to write the initial OTC prescriptions, this charge would likely be in addition to the fee for the office visit. However, if the patient complains to a regulatory agency or insurer, such a combination of fees may well be viewed as "excessive." This could trigger an investigation into the documentation about the prescription with subsequent disciplinary action.

Therefore, as a result of this new rule, we anticipate that both new and established patients will want to come to see the physician at least once a year and have as many of their OTC prescriptions written at that office visit as possible, with as many refills as can be legitimately written. Some practices which have provided advance notice of such a policy are already charging patients for writing prescription refills between visits, in order to encourage patients to adhere to a “once a year” protocol.

Looking ahead, every physician and practice must be strongly cautioned not to casually “back-date”, “re-write” or “post-date” prescriptions to ease the burdens imposed upon them by passage of these new rules. Whatever issues may later arise, the falsification of a prescription, whether for OTC or non-OTC medications, will take greater precedence in disciplinary or other regulatory investigations and proceedings and pose a far greater threat to the practice than any other underlying issues.



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