In August 2024, a federal district court dismissed a lawsuit filed by the Community Oncology Alliance (“COA”), holding that the “in-office ancillary services” exception to the Stark Law does not permit physicians to dispense medications through the physician’s office and then mail prescriptions to the patient’s home. COA v. Becerra, Case No. 23-cv-2168, Doc. 40, United States District Court for the District of Columbia (Aug. 30, 2024).

COA sued the Secretary of Health and Human Services (the “Secretary”) and CMS challenging the policies presented under certain of CMS’s Stark Law “Frequently Asked Questions” (“FAQs”) as violating the Medicare Act and Administrative Procedure Act. COA alleged that prior to the COVID-19 pandemic, the regulations regarding the “in-office ancillary services” exception permitted mailing prescription drugs to patients. In September 2021 and May 2023, CMS published FAQs taking the position that the “in-office ancillary services” exception does not apply when a patient receives an item outside the physician’s office, including prescriptions delivered by mail, as the prescription would not be dispensed to the patient in the physician’s office. COA argued the FAQs violated the Administrative Procedure Act by not following required rule-making procedures. COA also alleged that if physicians are prohibited from mailing prescriptions to patients such regulation would violate the Tenth Amendment of the U.S. Constitution by preventing states from regulating how physicians may dispense cancer drugs to patients.

From March 2020 to May 11, 2023, in response to the COVID-19 pandemic, the Secretary suspended penalties and issued waivers for certain referrals that would otherwise violate the Stark Law. One of the waivers applied to the “in-office ancillary services” exception and permitted physicians to mail “medically necessary” drugs and devices to a patient’s home.

The Stark Law prohibits physicians from making referrals for “designated health services” including outpatient prescription drugs, to an entity in which the physician has a financial relationship (including the physician’s own group practice) if such services are reimbursed by Medicare, unless an exception applies. 42 U.S.C. § 1395nn, et seq. The Stark Law aims to prevent Medicare abuse through self-dealing and the overutilization of health services. Congress created the “in-office ancillary services” exception in part to permit physicians to refer designated health services to their own group practices. The Stark Law also empowers the Secretary to promulgate regulations to further define how and when the statutory exceptions apply, and to also enact regulations for other exceptions for “any other financial relationship which the Secretary determines, and specifies in regulations, does not pose a risk of program or patient abuse.” Id. § 1395nn(b)(4). 

COA alleged that mailing prescription drugs to a patient’s home was permitted as the health care service (dispensing of medication) was “furnished” “in the location where the service is actually performed upon a patient” and where the drugs are “dispensed to a patient in a manner that is sufficient to meet the applicable Medicare payment and coverage rules.” 42 C.F.R. § 411.355(b)(5). Because Medicare payment and coverage rules permit mailing prescription drugs, COA argued that the “in-office ancillary service” is met with physicians mailing drugs to a patient’s home. Although the Court noted that “[t]here is something to [COA’s] argument” it ultimately denied COA’s Administrative Procedural Act claim, holding that the FAQs are consistent with preexisting requirements of the Stark Law and implementing regulations. The Court was persuaded by the “most natural reading of the regulation” which requires an “in-person” dispensing of medications and prohibits mailing of prescription drugs. Thus, because the FAQs did not alter preexisting requirements, CMS did not need to comply with notice and procedural act requirements when it issued the “interpretive” FAQs.

The Court also denied COA’s Tenth Amendment claim. COA alleged that prohibiting physicians from mailing prescription drugs regulates the practice of medicine which is reserved to the police power of the states. The Court disagreed, holding that the Stark Law and the FAQs do not restrict the practice of medicine—“they only place conditions on physicians seeking Medicare payments.” Further, because Congress possesses broad powers to “attach conditions on the receipt of federal funds,” there is no Tenth Amendment violation. 

Although COA was unsuccessful in its judicial challenge to the Secretary’s interpretation of the “in-office ancillary services” exception to the Stark Law, COA and other physicians may obtain the relief they seek from Congress. In September 2023, House Bill 5526, titled “Seniors’ Access to Critical Medications Act of 2024” was introduced with bi-partisan House of Representatives sponsorship, with 39 Republicans and 28 Democrats supporting the bill. As currently drafted, House Bill 5526 adds a prescription drug specific sentence to the statutory “in-office ancillary services” exception to the Stark Law which eliminates the requirement for the drugs to be furnished in a “building in which the referring physician … furnishes physicians’ services unrelated to the furnishing of designated health services.” Thus, H.R. 5526 essentially provides that delivering medicines by mail, courier, or other methods and allowing a family member to pick up medicines on behalf of a patient would not violate the Stark Law, so long as the prescriber as an ongoing preexisting relationship with the patient (not including telehealth). H.R. 5526 as currently proposed would be effective January 1, 2025. On September 23, 2024, the House of Representatives passed H.R. 5526, the bill was read twice in the Senate and referred to the Committee on Finance. During Congressional debate, Representative Dr. Larry Bucshon (Ill.) urged passing of H.R. 5526 and stated: “a silver lining of the COVID-19 pandemic, if there is one, was the proliferation of new, effective ways to deliver healthcare.”