Is a pharmacy a 'health care entity' under Tennessee's physician self-referral law, so that a doctor with an ownership stake in a pharmacy generally cannot send prescriptions there?

Plain-English summary

Tennessee's physician self-referral statute, Tenn. Code Ann. § 63-6-602(a), prohibits a physician who has an investment interest in a "health care entity" from referring patients to that entity unless the physician personally performs the health care services there or the investment interest complies with the exceptions in § 63-6-603 (the state-law analogue to the federal Stark law).

The question was whether a pharmacy counts as a "health care entity" for purposes of that prohibition. The AG said yes.

The statute defines "health care entity" to include health care facilities and any "agency, company or health care professional, other than the referring physician, providing health care services." Tenn. Code Ann. § 63-6-601(1). It defines "health care services" as "a diagnostic, treatment, therapy or rehabilitation service." Id. § 63-6-601(3). A pharmacist is a state-licensed health care provider whose practice is defined as "a patient-oriented health service profession" that includes drug evaluation, regimen review, patient counseling, drug-related research, and other clinical services. Tenn. Code Ann. § 63-10-204(37)(A). Those map cleanly onto "treatment, therapy or rehabilitation" services. The opinion treats the pharmacist as the health care professional and the pharmacy (the licensed pharmacy practice site) as the agency or company through which the pharmacist provides those services. The Board of Pharmacy's rules reinforce the tight pharmacist-pharmacy nexus: a pharmacy practice site cannot operate without a licensed pharmacist present, with only one one-hour-per-day absence allowed and the prescription department closed off by physical barrier during that absence.

The practical implication is that a Tennessee physician who owns part of a pharmacy generally must run his investment through the § 63-6-603 exceptions to permissibly send patients there. The opinion does not catalogue the exceptions or address how they interact with federal Stark and Anti-Kickback rules.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What is an "investment interest" under § 63-6-602?
A: The opinion does not catalogue the definition. In general, the statute covers ownership and similar financial interests in an entity to which referrals are made. The Tennessee statute is the state analogue to the federal Stark physician self-referral regime, but they are not identical.

Q: Does the rule apply if the physician fills the prescription himself at his clinic's in-house dispensary?
A: Section 63-6-602(a) has an exception when the physician personally performs health care services at the entity. The application of that exception to an in-office dispensary depends on the specific facts and the Board of Medical Examiners' rules. The opinion does not analyze that scenario.

Q: Did this opinion change anything?
A: It clarified the scope of "health care entity." Before this opinion, a physician could plausibly argue that a pharmacy was a retail business rather than a health care entity. The opinion forecloses that argument as a matter of state law.

Q: Does this affect pharmacist-only ownership?
A: No. The self-referral rule reaches physicians, not pharmacists.

Background and statutory framework

The statute sits in Title 63, Chapter 6 (medicine and surgery), and is administered through the Board of Medical Examiners with input from the Board of Pharmacy on the operational realities of pharmacy practice. The opinion's most useful contribution is its careful walkthrough of why both the individual pharmacist (a licensed health care professional providing diagnostic/treatment/therapy services) and the pharmacy (the licensed practice site) fall within the statutory definition. The opinion grounds that conclusion in the Board of Pharmacy's regulations on what a pharmacy practice site must do and how tightly it is tied to a licensed pharmacist.

The federal companions to this state regime are the Stark physician self-referral law and the federal Anti-Kickback Statute. The opinion does not analyze federal law. Practitioners structuring physician-pharmacy ownership arrangements would also have to clear those federal hurdles in addition to the state self-referral analysis.

Citations and references

Statutes and regulations:

• Tenn. Code Ann. § 63-6-601 (definitions: entity, health care facility, health care service)
• Tenn. Code Ann. § 63-6-602(a) (prohibition on physician self-referral)
• Tenn. Code Ann. § 63-6-603 (compliant investment-interest exceptions)
• Tenn. Code Ann. § 63-10-204(32), (34), (37)(A), (41) (definitions: pharmacist, pharmacy, practice of pharmacy, provider)
• Tenn. Code Ann. § 68-11-1602 (cross-referenced definition of "health care institution")
• Tenn. Comp. R. & Regs. 1140-01-.01(24), (26) (definitions: pharmaceutical care, pharmacy practice site)
• Tenn. Comp. R. & Regs. 1140-01-.13(7) (pharmacist presence requirement)
• Tenn. Comp. R. & Regs. 1140-03-.02 (pharmacy practice site licensure)
• Tenn. Comp. R. & Regs. 1140-03-.07 (one-hour temporary absence rule)
• Tenn. Comp. R. & Regs. 1140-08-.01(3) (civil penalties)

Subject

Opinion No. 14-100, Pharmacies as Health Care Entities, October 31, 2014

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-100.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
October 31, 2014
Opinion No. 14-100
Pharmacies as Health Care Entities

QUESTION

Is a pharmacy a "health care entity" for purposes of Tenn. Code Ann. § 63-6-602(a)?

OPINION

Yes. A pharmacy falls within the definition of a "health care entity" as that term is defined in Tenn. Code Ann. § 63-6-601.

ANALYSIS

Tenn. Code Ann. § 63-6-602(a) provides that "[a] physician having an investment interest in a health care entity shall not refer patients to the entity unless" the physician performs health care services at the entity or the investment interest complies with Tenn. Code Ann. § 63-6-603. Tenn. Code Ann. § 63-6-601 defines "health care entity" for purposes of this statute:

(1) "Entity" or "health care entity" means and includes a health care facility and an agency, company or health care professional, other than the referring physician, providing health care services;

(2) "Health care facility" means and includes any real property or equipment of a health care institution as that term is defined in § 68-11-1602;

(3) "Health care service" means and includes a diagnostic, treatment, therapy or rehabilitation service.

A "pharmacy" is defined in Tenn. Code Ann. § 63-10-204(34) as "a location licensed by this state where drugs are compounded or dispensed under the supervision of a pharmacist, as defined in the rules of the board [of pharmacy] and where prescription orders are received or processed." A "pharmacist" is defined as "an individual health care provider licensed by the state of Tennessee . . . to practice the profession of pharmacy." Tenn. Code Ann. § 63-10-204(32) (emphasis added). The "practice of pharmacy" means "a patient-oriented health service profession in which pharmacists interact and consult with patients and other health care professionals to enhance patients' wellness, prevent illness and optimize outcomes." Tenn. Code Ann. § 63-10-204(37)(A) (emphasis added). The "practice of pharmacy" involves:

(i) Interpretation, evaluation and implementation of medical orders and prescription orders;
(ii) Responsibility for compounding and dispensing prescription orders, including radioactive substances;
(iii) Participation in drug, dietary supplement and device selection, storage, distribution and administration;
(iv) Drug evaluation, utilization or regimen review;
(v) Maintenance of patient profiles and other pharmacy records;
(vi) Provision of patient education and counseling;
(vii) Provision of patient care services and activities pursuant to a collaborative pharmacy practice agreement;
(viii) Drug or drug-related research; and
(ix) Those professional acts, professional decisions or professional services necessary to maintain all areas of a patient's pharmacist-provided care.

Id.

A pharmacist is therefore a "health care entity" under Tenn. Code Ann. § 63-6-601(1), because a pharmacist is a "health care professional . . . providing health care services." Id. The services enumerated above constitute "diagnostic, treatment, therapy or rehabilitation service[s]." Tenn. Code Ann. § 63-6-601(3). See also id. § 63-10-204(41) (defining "provider" or "necessary health care provider" to include "a pharmacist who provides health care services within the scope of pharmacy practice").

A pharmacy is also a "health care entity" under § 63-6-601(1), because of the close nexus that must exist between the pharmacist and the pharmacy. The rules of the Board of Pharmacy fully support this conclusion. A pharmacy is the separately licensed location, or "pharmacy practice site," where certain functions associated with the practice of pharmacy take place only under the supervision of a pharmacist. See Tenn. Comp. R. & Regs. 1140-01-.01(26) (defining "pharmacy practice site" in pertinent part as "any place within this state where prescription drugs or prescription devices are dispensed and where pharmaceutical care is provided").

A pharmacist may compound and dispense prescription drugs, devices, and related materials only in a pharmacy-practice site that is duly licensed by the Board, id. 1140-03-.02, and a licensed pharmacy-practice site, in turn, requires the presence of a licensed pharmacist.

A pharmacy practice site where prescription drugs and devices and related materials are received, stored, compounded and dispensed shall not be opened for business or any other reason unless a licensed pharmacist is present. Furthermore, no medical or prescription order shall be dispensed except during the presence and under the direct supervision of a pharmacist.

Id. 1140-01-.13(7). Indeed, the Board's rules permit a pharmacist only one temporary absence from the pharmacy-practice site for a period not exceeding one hour per day. During such absence, a sign containing the words "pharmacist not on duty" must be conspicuously displayed at the pharmacy practice site. No medical or prescription order may be compounded or dispensed during the absence of a pharmacist, and during the pharmacist's absence, "the prescription department shall be closed off by physical barrier from floor to ceiling." Id. 1140-03-.07. Civil penalties may be assessed for each day "any person, partnership, firm, or corporation or agency causes or permits a pharmacy practice site to be conducted in violation of any statutes, rules or orders" enforceable by the Board. Id. 1140-08-.01(3).

HERBERT H. SLATERY III
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

SARA E. SEDGWICK
Senior Counsel

Requested by:
The Honorable Harry Brooks
State Representative
117 War Memorial Building
Nashville, Tennessee 37243