California’s Novel Enforcement Against Mail Order Drug Company Reflects New Level of Scrutiny for Telehealth Platform Companies

The state of California has announced an $18.3 million settlement with The Pill Club (TPC) to resolve allegations that TPC improperly billed Medi-Cal between January 2016 and October 2022. TPC agreed to pay the California Department of Justice (DOJ) $15 million to resolve allegations brought under the state’s False Claims Act (Cal. Gov’t Code § 12650(b)(3)) and the California Department of Insurance (DOI) $3.3 million to resolve allegations brought under the state Insurance Fraud Prevention Act (Cal. Ins. Code § 1871.1) (ICPA). The whistleblowers will split a total of $4.6 million from the state’s settlements.

TPC is a Silicon Valley-based online-only pharmacy providing prescription and delivery services for reproductive health and birth-control-related products. According to its website, TPC serves approximately three million people who menstruate (regardless of gender identity) throughout 49 states and the District of Columbia by combining “telemedicine and direct-to-consumer pharmacy” services. TPC advertises auto-refills and acceptance of most insurance plans, including Medicaid. Accordingly, TPC claims that most patients will pay $0 for women’s health products; if a patient does not have insurance, TPC starts its pricing as low as $8.95 per product.

On March 28, 2019, two nurse practitioners (NPs) formerly employed by TPC filed a qui tam complaint under seal against the digital pharmacy alleging that it had submitted tens of thousands of false claims for reimbursement to Medi-Cal in connection with TPC’s provision of female health products. After a three-year investigation, the California DOJ moved to intervene as to the state FCA claims on April 14, 2022 and the DOI moved to intervene as to the state ICPA claims on January 25, 2023.

The California DOJ described the framework of TPC’s alleged scheme as follows: patients interested in TPC’s virtual pharmacy services first fill out a 23-question “self-screening tool” on TPC’s website or mobile application. An NP employed by TPC reviews the patient’s screener and writes a prescription. TPC then ships products to patients and bills Medi-Cal for the services and products provided. The state enforcement authorities assert that TPC’s claims for reimbursement were rendered false by several of the online pharmacy’s practices:¹

• Billing for female condoms in quantities in excess of medical necessity;
• Billing for emergency contraceptives in quantities in excess of medical necessity;
• Applying CPT codes and modifiers representing real-time in office or telehealth patient visits (synchronous) where visits were conducted via asynchronous telehealth appointments;
• Upcoding patient visits to falsely reflect longer appointments;
• Billing for prescriptions dispensed and sent to Medi-Cal beneficiaries by an unqualified out-of-state pharmacy;
• Billing Medi-Cal at rates significantly higher than retail prices for female condoms (allegedly 250 percent higher);
• Failing to implement proper customer deactivation tools and opt-outs, allegedly resulting in customers receiving, and insurance being billed for, condoms and/or emergency contraception medicines for orders where customers did not order either;
• Pressuring NPs to spend less than two minutes diagnosing and prescribing contraceptives and setting aggressive prescribing quotas for these NPs (as much as 120 prescriptions per day, per NP); and
• Dispensing prescription products into California from an improperly licensed out-of-state pharmacy.

The Take Away

The Pill Club settlement is a significant example of the scrutiny that federal and state enforcement authorities are now placing on telemedicine-enabled prescription medical product sales arrangements, particularly where products are billed to Medicaid or Medicare. The case combines allegations of consumer deception, state licensing violations, and healthcare fraud into one of the first settlements of its kind in the mail order products space. California’s settlement with TPC is one of the first publicized enforcement actions against an online pharmacy services provider, a business model that gained significant popularity during the COVID-19 pandemic. Pharmaceutical companies, diagnostic and wellness services providers, and other healthcare companies utilizing similar virtual-only business models, are encouraged to analyze their telehealth policies and practices and strengthen their compliance programs (including re-training, if necessary) to avoid becoming the subject of a similar investigation.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.