FSA's HSA's AND OVER-THE-COUNTER REIMBURSEMENT: NEW RULES AND NEW REQUIREMENTS
By: Michael J. Schoppmann, Esq.
As part of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, patients can now seek reimbursement for the cost of certain over-the-counter (OTC) medicines and drugs. The rule affects 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, these new changes 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.
As of January 1, 2011, reimbursement for medicines and drugs as permissible medical expenses can only be obtained if the medicine or drug requires a prescription; is available without a prescription (i.e., an OTC medicine or drug) and the individual obtains a prescription; or is insulin.
As patients seek to utilize these reimbursement vehicles, physicians are increasingly being asked to provide the documentation required to do so. While the patient simply needs to obtain a receipt of payment, according to the IRS, the documentation that a physician would be required to provide (other than for insulin) is nothing short of an actual prescription (regardless of the fact that the medications might be available over the counter and medically, do not require a prescription). 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. (Affordable Care Act § 106(f), § 223(d)(2)(A) and new § 220(d)(2)(A)).
Moreover, in responding to recent requests for clarification from the physician community, the IRS has posted a specific response to this very “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.
For purposes of the new rule, a prescription means “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 that is issued by an individual who is legally authorized to issue a prescription in that state.”
It should be noted that the new rule is inapplicable 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 are certain to be increasingly seeking reimbursement for over the counter medications and thereby, physicians should be prepared for a dramatic increase in the number of “prescriptions” they are asked to issue. However, before simply issuing such documents as “claim documents” or “reimbursement forms,” physicians and medical practices should consider the liability concerns for issuing what will still be a prescription – and thereby intended to treat a known medical condition - without having first fully examined the patient and properly documenting the propriety and medical necessity of that “prescription.” Further, an additional problem may well arise when an established patient seeks numerous “OTC prescriptions” to be written and yet is also already taking other medications. Such a situation clearly requires the prescribing physician to assess the possible interaction of all the drugs (both OTC and non-OTC) which the physician is now "prescribing" for the patient.
Moreover, those physicians who are contemplating charging for the initial prescription may well face later regulatory problems. A physician cannot write a prescription without examining and evaluating the patient (unless it's an established patient and the physician reasonably believes a new examination is not required to write a new prescription). So in many cases, if a physician wants to charge for writing the initial prescription, it is anticipated that such a charge would be in addition to the office visit fee – yet, if a patient complains, such a combination of fees may well be later viewed as "excessive." Therefore, as a result of this new rule, it is anticipated that both new and established patients will want to come in once a year (i.e., now) and have as many of their OTC prescriptions written at that office visit as possible, with as many refills authorized as possible. In fact, some practices are already charging patients (having provided advance notice of such a policy) for writing prescription refills in between visits to incentivize patients to follow such a “once a year” protocol.
Looking ahead, every physician and practice should be strongly cautioned not to casually “back-date”, “re-write” or “post-date” prescriptions in order to ease the burdens imposed upon the practice by passage of these new rules. Whatever later issues may arise, the falsification of a prescription, whether for OTC or non-OTC medications, will take greater precedence and pose a far greater threat to the practice than any underlying or originating issue.
Kern Augustine Conroy & Schoppmann, P.C., Attorneys to Health Professionals,www.DrLaw.com, is solely devoted to the representation of physicians and other health care professionals. The authors of this article may be contacted at 1‐800‐445‐0954 or via email at info@DrLaw.com.