PA Supreme Court Rules Anti-Referral Provision of Workers’ Compensation Act Does Not Prohibit Physicians From Referring Their Patients to Pharmacies in Which The Physicians Have a Financial Interest

In a 5-2 decision issued today, the Pennsylvania Supreme Court has ruled that the placement of the phrase “goods or services ” immediately following a list of specific medical services provided in Section 306(f.1)(3)(iii) of the Workers’ Compensation Act, known as the Anti-Referral provision, does not prohibit physician self-referrals to the same physician’s owned facilities. Explaining the decision, the Court ruled that “goods and services” is not a general catch-all that otherwise would apply to “goods” (prescription drugs) and “services” (professional pharmaceutical services). Thus, Employers are required to provide payment for reasonable and necessary prescriptions issued by physicians to pharmacies in which the physicians have a financial interest.

Background

In this matter involving multiple claimants, Dr. Purewal and Dr. Jalali issued prescriptions sent to 700 Pharmacy, a private pharmacy in which they had a financial interest. When SWIF refused payment, the pharmacy filed Medical Fee Review Applications. The Applications were denied and dismissed by Hearing Officer David Torrey, who concluded that the prescriptions forming the basis of the Applications were the product of an unlawful self-referral. On appeal, the Commonwealth Court agreed, pointing to what it found to be the plain language of the Act and concluding that the General Assembly’s choice of the phrase “goods or services” was broad enough to encompass drugs and pharmaceutical services as a prohibited self-referral.

Supreme Court Opinion

In its opinion, the majority of the Supreme Court reversed the holding of the Commonwealth Court and concluded that the “plain language of the statute evidences that the ban on self-referrals is limited to the enumerated list” of medical services which precedes the phrase “goods or services.” Thus, prescription drugs and professional pharmaceutical services, which are not one of the eight categories specifically enumerated, do not fall within the purview of the anti-referral provision.

Justice McCaffery issued a Dissenting Opinion highlighting the intended purpose of the anti-referral provision. He would have held that the General Assembly’s inclusion of “goods and services” was meant to include just that — all possible types of medical goods and services. Justice Wecht issued a separate Dissenting Opinion highlighting his differences with the majority’s interpretation of the statutory language itself.

Comments

This decision is a major setback in the face of clear legislative intent, where progress was made on the cost containment front. Moving forward, the providers’ financial interest in a pharmacy is no longer relevant to whether the cost of the prescription must be paid. Reimbursement remains limited by the cost containment provisions of the Act. Furthermore, the medical treatment provided by these self-referring providers remains subject to utilization review. It will be up to the Pennsylvania legislature to revisit the language it had passed not that long ago, should there be a willingness to clarify the meaning of illegal self-referrals to include what is now, by judicial decision, excluded from cost-containment goals.