Physician in-office dispensing of Rx drugs


Any physician office that dispenses medications should be informed about its state's legal/regulatory obligations.

Physicians are viewed as healthcare professionals engaged in the practice of treating patients. However, physicians may also engage in direct dispensing of drugs to patients. In-office dispensing programs overseen by physicians often involve acquisition and maintenance of drugs to be dispensed to patients, often as a first dose. The benefits of direct dispensing by physicians should be weighed against the regulatory burdens.

State laws

Unlike with pharmacy licenses, which enable a pharmacy to dispense prescription drugs, most states allow physicians to purchase and dispense drugs under their physicians’ licenses. Nevertheless, states will typically require the dispensing physician to satisfy various requirements, such as: providing a prescription to the patient; requiring a disclosure to the patient of the right to have the prescription filled elsewhere; requiring the physician to obtain additional permits; requiring that medications be labeled properly and dispensed or directly supervised by the physician; requiring secure storage of drug inventory; limiting controlled substance dispensing; and satisfying various pharmacy recordkeeping requirements.

Kickbacks and split fees

Prescribers typically employ pharmacy management companies for assistance in managing and administering in-office dispensing programs. These services include: assisting in formulary development; acquisition, shipment, and storage of pharmaceuticals and related supplies; training and educating physician staff; and billing/collection.

The federal “Anti-Kickback Statute” may affect federal payer program reimbursements. The Anti-Kickback Statute prohibits the knowing and willful offer, solicitation, payment, or receipt of any remuneration in return for or in order to induce any referral for items or services covered under any federal healthcare program, or the purchase, lease, or ordering of such items or services.

In addition, management fees that are based on percentage revenues generated through in-office dispensing could create fee-splitting concerns under the laws of some states with broad fee-splitting restrictions.

Self-referral restrictions

Additionally, the federal “Stark Law” prohibits physicians from referring Medicare patients for designated health services (DHS) to any entity with which the referring physician or family member has any direct or indirect financial relationship, unless an exception is satisfied. The entity furnishing the DHS is prohibited from billing Medicare (or any other payer or the beneficiary) for the DHS referred by the physician.

The regulations under the Stark Law define DHS to include outpatient prescription drugs (i.e., drugs covered under Medicare Part B or D) that are payable by Medicare. Therefore, a self-referral exception would need to be satisfied if Medicare reimbursement will be involved, as well as other Medicare requirements.

Controlled substances and payers

Physicians who dispense controlled substances to their patients must also satisfy security standards to prevent theft and diversion of controlled substances, as well as Drug Enforcement Administration requirements to register, maintain records, report thefts, and properly dispose of controlled substances.

In-office dispensing programs are often limited to certain categories of patients based on payer type for reimbursement. Typically, these are workers’ compensation or personal injury patients, and exclude federal healthcare payers unless requirements are met.

In addition, payer contracts and policies/procedures may place restrictions on the ability of physicians to obtain reimbursement. Payer audits may uncover violations of federal or state laws such as failure to satisfy recordkeeping or reporting requirements, leading to attempted clawbacks by payers seeking to minimize their obligations to reimburse.

Physician dispensing also increases compliance obligations of the physician practice by expanding the responsibilities of the physician practice as well as the potential for audits and other scrutiny from law enforcement agencies, regulators, and payers.

The laws of most states allow in-office dispensing in at least some circumstances, but they also impose restrictions that vary state by state. Physician in-office dispensing requires an understanding of the various legal/regulatory obligations.  

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