Weiss Zarett Brofman | Sonnenklar & Levy, P.C. | Attorneys At Law

High Quality Services And Personal Attention


On Behalf of | Feb 1, 2011 | Healthcare Law

As part of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, patients are now subject to new rules governing reimbursement of the cost of certain over-the-counter (OTC) medications. These rules affect reimbursements under employer-sponsored health plans, health flexible spending arrangements (health FSAs), and health reimbursement arrangements (HRAs), as well as health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs).

Presently, the cost of OTC medicines and drugs are deemed “medical expenses” that are eligible for reimbursement from group health plans (and are “qualified medical expenses” eligible for distribution from HSAs and Archer MSAs). However, the changes in the law amend the definition of what is considered a “medical expense” and restrict the reimbursement of funds used to purchase OTC medicine and drugs going forward after December 31, 2010.

Under these new changes, “a distribution from an FSA, HRA, HSA or an Archer MSA for a medicine or drug is a tax-free qualified medical expense only if (1) the medicine or drug requires a prescription, (2) is an over-the-counter medicine or drug and the individual obtains a prescription, or (3) is insulin.1

As patients seek to utilize these reimbursement vehicles, this will seriously affect the potential liability of physicians who are now frequently asked to provide the documentation required for their patients to be reimbursed. Although, according to the IRS, the patient simply needs to obtain a receipt of payment, the physician must provide documentation which (other than for insulin) is nothing short of an actual prescription , regardless of the fact that OTC medications do not require a prescription for purchase.

In responding to recent requests from the medical community for clarification of the need to provide prescriptions for OTC drugs, the IRS has posted a very specific response to this frequently asked question (“FAQ”) on its website:

“If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.”2

For purposes of the new rule, a prescription is defined as “a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and issued by an individual who is legally authorized to issue a prescription in that state.”3

However, the new rule does not apply to items that are not medicines or drugs, including equipment (e.g., crutches), supplies (e.g., bandages), and diagnostic devices (e.g., blood sugar test kits). These items will continue to qualify, if they otherwise meet the definition of medical care, which includes expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

In light of these new requirements, patients will likely seek reimbursement for OTC medications on a more frequent basis.


Therefore, physicians should be prepared for a dramatic increase in the number of “prescriptions” they are asked to issue. This is also the area whe