Skip to Content

LB 37: Its Adverse Effects on Nebraska Hospitals, Large and Small

on Monday, 8 June 2015 in Health Law Advisory: Zachary J. Buxton, Editor

LB 37, amending the Nebraska Pharmacy Act, will become effective in September 2015, and may have a surprising effect on Nebraska hospitals. First, it will be much more difficult for hospitals to dispense prescription drugs to emergency department patients when a pharmacist is not on duty. Second, Federal Trade Commission rulings under the Robinson-Patman Act, allowing health systems great latitude to use pharmaceuticals purchased with a charity discount for patients served by the various institutional affiliates of the health system, may be undermined as hospital pharmacies are limited to dispensing for patients confined to the hospital.

LB 37 and the Raymond Order

Rural hospitals were aided by a 2005 Declaratory Order issued by Richard A. Raymond, MD, Director of Regulation and Licensure for the Nebraska Department of Health and Human Services. Dr. Raymond had been called upon to interpret NEB. REV. STAT. § 38-2850(7), which provides:

“38-2850. Pharmacy; practice; persons excepted. As authorized by the Uniform Credentialing Act, the practice of pharmacy may be engaged in by a pharmacist, a pharmacist intern, or a practitioner with a pharmacy license. The practice of pharmacy shall not be construed to include:

(7) Hospitals engaged in the compounding and dispensing of drugs and devices pursuant to chart orders for persons registered as patients and within the confines of the hospital, except that if a hospital engages in such compounding and dispensing for persons not registered as patients and within the confines of the hospital, such hospital shall obtain a pharmacy license or delegated dispensing permit;” (NEB. REV. STAT. § 38-2850(7)).

Dr. Raymond concluded that this exception allowed hospital personnel to provide the unused portion of drugs or devices to patients upon discharge from the hospital for continued use in treatment of the patient under certain circumstances. Perhaps based on his history as a family practice physician in rural Nebraska, Dr. Raymond added:

“the same analysis applies to situations where patients are discharged from the hospital after receiving treatment when the responsible licensed healthcare professional with prescription authority determines that additional drugs are needed to continue that treatment until the patient is reasonably able to access a pharmacy. I conclude that providing to hospital patients who are being discharged a sufficient quantity of drugs adequate, in the judgment of the responsible licensed healthcare professional with prescription authority, to continue treatment begun in the hospital until the patient is reasonably able to access a pharmacy is also within the exemption set forth in [NEB. REV. STAT. § 38-2850(7)].”

This Order was the basis for hospitals’ current practice of allowing the ED practitioners with prescription authority to dispense from the hospital pharmacy a small supply of prescription drugs to see the emergency department patient through until he/she can access a commercial pharmacy to fill a prescription.

Unfortunately for the hospitals that have relied upon this exception, LB 37 deleted section 38-2850(7) in its entirety. There is no longer an exception for hospital pharmacy dispensing. The deletion of this subsection has the effect of vitiating the Raymond Order, effective September, 2015. There will no longer be an exception from the requirement of a pharmacy license based on hospital pharmacy activities. This amendment to the Nebraska Pharmacy Act eliminates the dispensing authority of physicians and mid-level practitioners to ED patients when they believe it necessary to provide take home medications to sustain the patient until he/she can access a community pharmacy.

There is one other possible exception that could be relied upon for dispensing by physicians (but not physician assistants or nurse practitioners) under the circumstances described in the ED. Section 38-2850(2) excepts “practitioners” from the practice of pharmacy, but also specifies by licensure the practitioners who do not qualify to rely upon this exception. This section provides physicians the ability to dispense incident to their practice without a pharmacy license as long as the patients are not charged for the drugs. Prior to enactment of LB 37, the statutory exception had allowed physicians to dispense (with charges assessed for the drugs) without a pharmacy license as long as they did not do so “regularly.” LB 37 deleted the word “regularly” with the result that any dispensing of drugs with charges assessed would require a pharmacy license on the part of the physician. This amendment made the exception very difficult to rely upon, since even one instance of a physician dispensing prescription drugs with the hospital charging for the drugs would require a pharmacy license. LB 37 added “physician assistants” to the list of practitioners who do not qualify for this exception:

38-2850. Pharmacy; practice; persons excepted. As authorized by the Uniform Credentialing Act, the practice of pharmacy may be engaged in by a pharmacist, a pharmacist intern, or a practitioner with a pharmacy license. The practice of pharmacy shall not be construed to include:

(1 2) Practitioners, other than veterinarians, certified nurse midwives, certified registered nurse anesthetists, and nurse practitioners, and physician assistants, who dispense drugs or devices as an incident to the practice of their profession, except that if such practitioner regularly engages in dispensing such drugs or devices to his or her patients for which such patients are charged, such practitioner shall obtain a pharmacy license;

It is important to note that emergency department physicians and mid-level practitioners can continue to dispense pursuant to the Department’s interpretation of section 38-2850(7) under the Raymond Order until LB 37 is effective in September 2015. After that date, hospitals will need solutions to ensure that patient needs are met as well as possible in view of the new statutory restraints.

(1) Not Charging the Patients for the Prescription Drugs. For physicians, LB 37 excepts from the practice of pharmacy (and the requirement of a pharmacy license) those “practitioners … who dispense drugs or devices as an incident to the practice of their profession, [unless] such practitioner engages in dispensing such drugs or devices to his or her patients for which such patients are charged”. If the practitioner dispenses drugs for which patients are charged, he/she must obtain a pharmacy license. Accordingly, if a physician dispenses these drugs and the hospital does not charge patients for the drugs, the physician falls within the exception and he/she will be permitted to dispense without a pharmacy license. This interpretation is not without risk. If a physician dispenses and the patient is charged, the physician will have practiced pharmacy without a license (as required). This solution is helpful to critical access hospitals only when a physician is present in, or on first call for, the ED. If a PA or NP is on first call, this solution would require the supervising or collaborating physician to dispense the pharmaceuticals from the Hospital pharmacy without charge to the patient for the drugs.

(2) On-Call Pharmacist. Maintain an on-call pharmacist to dispense prescription drugs to patients discharged from the ED.

(3) Hold Patient in the Emergency Department. Keep the patient in the ED for administration of the prescription drugs pursuant to 38-2850(7) from a chart order of a physician, NP or PA, discharging the patient only when the last dose provided is sufficient to see the patient through to the regular business hours of a commercial pharmacy where a prescription for the prescription drugs can then be filled.

LB 37 and the Robinson Patman Act

The Robinson-Patman Price Discrimination Act makes it unlawful for one engaged in commerce to discriminate in price between different purchasers of like commodities, where the effect may be to lessen competition. The Non Profit Institutions Act exempts certain organizations from the Robinson-Patman Act. To fall within the NPIA exemption to the Robinson-Patman Act, an organization must be an “eligible entity” and must use the exemption to purchase supplies for its “own use.” Under the “eligible entity” test, the NPIA exempts from the Robinson-Patman Act hospitals and charitable institutions not operated for profit. 15 U.S.C. § 13c.

The principal authority on the meaning and scope of an organization’s “own use” is Abbott Laboratories v. Portland Retail Druggists Association, 425 U.S. 1 (1976). In Abbott, the hospital resold drugs to patients in various situations. The U.S. Supreme Court stated that the “own use” test applied to purchases that “reasonably may be regarded as use by the hospital in the sense that such use is part of and promotes the hospital’s intended institutional operation in the care of persons who are its patients.” 425 U.S. 1, 14.

In Abbott, the U.S. Supreme Court found that pharmaceuticals were purchased for the hospital’s “own use” when they were resold to hospital:

  1. Inpatients (consumed on the premises);
  2. Emergency room patients (consumed on the premises);
  3. Registered outpatients for consumption on the premises;
  4. “Take-home” prescriptions upon discharge (sufficient for 1-2 days) for hospital inpatients, ER patients and registered outpatients as a continuation of, or supplement to, treatment administered at the hospital;
  5. Dispensed to a hospital employee, a student, or a non-employee member of the hospital medical staff for his/her use or the use of a dependent.

However, the Supreme Court concluded that pharmaceuticals dispensed to former patients (through refills of the take-home prescriptions), sales to non-hospital patients of staff physicians and sales to walk-in customers of the hospital pharmacy were not for the hospital’s “own use.” The Supreme Court reasoned that these customers were not sufficiently related to the hospital’s institutional function and therefore outside the NPIA exemption.

Thus, for some time, there was a sense that the Robinson-Patman Act protected for-profit retail pharmacies from unfair competition from hospitals that enjoyed the nonprofit discount on pharmaceuticals. For pharmacy customers who were ambulatory and could get to a for-profit pharmacy, it was initially thought that a hospital’s discounted drug supply could not be used for dispensing/filling prescriptions.

Over the years, however, the Federal Trade Commission (FTC) has responded to requests for advisory opinions, in which it recognized that the nonprofit discount is not extended to hospitals alone, but rather to nonprofits. Since many hospitals are merely one component of a much larger nonprofit health system, the question became whether discounted drug inventories maintained in a hospital’s pharmacy could be administered and/or dispensed by other affiliated Medicare-certified providers and through related nonprofit corporations. In each instance, the FTC’s answer to those questions has been yes. The FTC has disregarded corporate lines and distinctions among Medicare providers as long as the pharmacy and the administering or treating entity were affiliated with the same nonprofit health system.

However, LB 37 may have the effect of making impractical those liberal FTC rulings, with the following new language, inserted into the Nebraska Pharmacy Act at NEB. REV. STAT. § 71-403:

(1) A hospital in which drugs or devices are compounded, dispensed or administered pursuant to chart orders is not required to obtain a separate license for the hospital pharmacy, except that if the compounding or dispensing of drugs or devices is done in the pharmacy at the hospital for persons not registered as patients within the confines of the hospital, the hospital shall obtain a pharmacy license. Compounding in a hospital pharmacy may occur for any hospital which is part of the same health care system under common ownership or which is a member of or an affiliated member of a formal network or partnership agreement. (Emphasis added.)
Hospitals and their pharmacists-in-charge will need to review their practices with regard to pharmaceuticals purchased with the NPIA discount, and their reliance upon the hospital pharmacy to compound, dispense, and/or administer such drugs.

Barbara E. Person

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500