Goldstein: High Court Allows Physician Self-Referrals to Pharmacies

Thursday, June 18, 2026 | 0

Pennsylvania employers and insurers pay more for medications under workers’ compensation than do payers in any other state. Drug payments under workers’ compensation can be 100 times higher than payments for the same drugs under Medicare, Medicaid or private health insurance.

Cliff Goldstein

Pennsylvania lacks many of the cost controls common in other states, such as formularies, employers' ability to keep injured workers within PBM networks, or fee schedules with stated prices. Instead, charges in Pennsylvania workers’ compensation are based on inflated figures included in an archaic compendium published by a for-profit company.

Recently added to the list of problems in Pennsylvania workers’ compensation drug payments is a newer cost inflater involving treating physicians who steer patients to certain “workers’ compensation” pharmacies that typically do not participate in PBM networks and charge payers far more than normal prices. In the most egregious cases, the physician steers the patient to a pharmacy in which he has a financial interest, either through ownership or by participating in a scheme to buy back receivables from the pharmacy at a discount, thereby allowing the physician to profit from payments made by the workers’ compensation payer.

Until June 16, 2026, the working assumption was that the Workers’ Compensation Act’s prohibition on physician self-referrals could be used to rein in the practice of such pharmacies charging more — sometimes a hundredfold more — than normal retail prices while sharing the resulting windfall with the prescribing physician. But in 700 Pharmacy v. Bureau of Workers' Compensation Fee Review Hearing Office (State Workers' Insurance Fund), a divided Pennsylvania Supreme Court held that the anti-self-referral provisions of the act do not apply to pharmacies.

The case turned on a dispute over grammar and statutory interpretation of the anti-self-referral statute:

Notwithstanding any other provision of law, it is unlawful for a provider to refer a person for laboratory, physical therapy, rehabilitation, chiropractic, radiation oncology, psychometric, home infusion therapy or diagnostic imaging, goods or services pursuant to this section if the provider has a financial interest with the person or in the entity that receives the referral.

The majority concluded that the phrase “goods or services” referred only to goods or services associated with the enumerated provider categories, while the dissent concluded that “goods or services” stood independently and prohibited self-referrals for all goods and services, including drugs and pharmacy services. The dissent maintained that the placement of the comma in the paragraph did not limit the self-referral ban to only the eight specified categories of services.

Because the majority interpreted the statute narrowly, physicians now apparently may refer patients to pharmacies in which they have financial interests without violating the Workers’ Compensation Act’s self-referral provisions.

To understand the enormous financial impact of this decision, consider the following common generic drugs frequently used in workers’ compensation cases. Drugs prescribed by doctors with financial interests in the pharmacies to which they steered patients generated charges that were much higher than normal retail prices charged by chain pharmacies with no financial connection to the prescribing physicians:

Drug           doctor-linked            CVS        Walgreens
                   pharmacy charge      

Celecoxib             $395.06             $30.02      $23.98

Pregabalin            $787.93             $22.75      $23.32

Cyclobenzaprine   $1,494.14          $59.84      $60.46

Lidocaine 5%         $838.05            $53.24      $65.10

Total                      $3,515.18         $165.85    $172.86

Not only does this situation raise ethical concerns and the possibility that conscious or subconscious financial incentives could influence treatment decisions, but it is also not clear whether the practice complies with other Pennsylvania laws outside the Workers’ Compensation Act.

The Pennsylvania Insurance Fraud Prevention Act provides:

(2) With respect to an insurance benefit or claim covered by this section, a health care provider may not compensate or give anything of value to a person to recommend or secure the provider's service to or employment by a patient or as a reward for having made a recommendation resulting in the provider's service to or employment by a patient; except that the provider may pay the reasonable cost of advertising or written communication as permitted by rules of professional conduct.

(3) A lawyer or health care provider may not compensate or give anything of value to a person for providing names, addresses, telephone numbers or other identifying information of individuals seeking or receiving medical or rehabilitative care for accident, sickness or disease, except to the extent a referral and receipt of compensation is permitted under applicable professional rules of conduct. A person may not knowingly transmit such referral information to a lawyer or health care professional for the purpose of receiving compensation or anything of value. Attempts to circumvent this paragraph through the use of any other person, including, but not limited to, employees, agents or servants, shall also be prohibited.

The 700 Pharmacy decision contains no discussion of the Insurance Fraud Prevention Act, the discrepancy between charges from physician-related pharmacies and arm’s-length retail prices, or the positions of medical ethics oversight bodies concerning physician self-referrals to pharmacies. These issues may not have been presented to the court. 

In an important footnote, it was also noted that no party raised the issue of whether the involved billing company was a medical provider entitled to use the fee review process.  Under recent case law, it may be possible to challenge the standing of a billing company or other vendor to use the fee review process.

Many other issues concerning drug pricing in Pennsylvania workers’ compensation remain pending before the courts. With respect to physician self-referrals, legislative reform or litigation under other Pennsylvania statutes — including perhaps the Insurance Fraud Prevention Act — may be among the remaining avenues available to challenge the propriety of physician referrals to pharmacies in which they have financial interests.

Cliff Goldstein, Esq., formerly the CEO and a Senior Litigator at Chartwell Law, has 35 years of experience in litigating complex workers' compensation cases. He now concentrates on addressing excessive pricing, fraudulent practices, abuse and waste regarding drugs used in workers' compensation cases. He can be reached at 215-588-4901 and cliffagoldstein@gmail.com.