09.17.08
After speaking with many of our pharmacy customers and pharmacy shoppers many of the FSA (Flex Spending Account) cardholders are choosing IIAS certified stores for the convenience of having their transaction auto-substantiated. This means their transaction is automatically accepted by their plan administrator and they do not need to keep receipts or file them with their FSA card issuer. The intent of the IRS ruling was for the convenience of the consumer and to reduce the paperwork for flex spending account administrators.
Note: Where FSA is used it also covers the use of HRA (Health Reimbursement Account) or HSA (Health Saving Account).
During 2008, non-IIAS certified pharmacies have been exempt and have had the ability to continue taking FSA cards through the standard credit processing networks. Beginning January 1, 2009 the ability for processing FSA transactions will be turned off unless you are IIAS certified.
Benefit administrators are already steering their cardholders to the new IIAS paperless system. Here is an example of an actual email recently received by a customer – (names have been changed to maintain privacy.)
Sample:
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To: johndoe@aol.com
From: Card Services
Dear John,
Your transaction for $28.56 at My Independent Pharmacy, Duluth, Ohio on July 3, 2008 needs a receipt. This transaction did not Auto-Substantiate. Please submit a claim form and a receipt.
The Auto-Substantiate parameters the Office of Group Benefits has authorized are the automatic repayment of your Debit Card swipes when used at pre-determined Medical, Dental and Vision Provider Merchant Codes.
Additionally, purchases made with your debit card at Wal-Mart, Walgreens and Drugstore.com will also not require submission of receipts. We are able to offer this feature at these locations because they utilize an IRS approved inventory purchasing method, which only allows qualified medical expenses to be charged to your Debit Card.
If you have any questions please contact our office at 800-000-0000.
Thank you,
Your Benefit Administrator
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Until now benefit administrators have offered these cards primarily to large employers. In 2009 you will see many smaller employers issuing debit cards to their employees for their convenience. This will increase the number of cards everywhere including rural areas. Some benefit administrators are also suggesting that members go to the IIAS list of pharmacies on the SIGIS (Special Interest Group for IIAS Certification) website.
Pharmacists are still under the assumption that the new IRS regulations regarding Inventory Information Approval Systems (IIAS) and Point of Sale (POS) Systems will not apply to them.
The IRS allowed for a 90% exemption rule–If 90% of your store’s gross receipts during a taxable year consisted of items that qualify as medical care expenses (this includes prescriptions and qualified non-prescription products) then you may receive an IRS exemption.
What does the exemption mean? It means that if you are exempt and were able to process an FSA card, it would extend your ability to process non-substantiated transactions; however, your customer would still have to submit the receipt and benefit administrators would continue to encourage their members to go elsewhere.
Additionally, the IRS has not clearly defined the exemption rule and has not developed a process for you to complete in order to register for the exemption. There is one important fact that you need to know: a credit processor does not have the authority or guidelines to approve you under the 90% exemption to allow you to process FSA transactions after January 1, 2009. The IRS has not provided any guidelines as of this writing for credit processors to approve the 90% exemption. Many believe that SIGIS will step in and develop a guideline for processing pharmacies under the 90% rule in order for processors to be able to approve stores to process non-substantiated transactions. If this happens you will probably have to join SIGIS the same as you would to be IIAS certified. That could be one bit of good news, it would be the same membership you need to get IIAS if this is accomplished by SIGIS.
If there is a successful lobby of the IRS to move the date, it would let you continue processing non-substantiated transactions as well. This may buy you a little time getting IIAS certified, but how do you keep the customers from the convenience of substantiated transactions and the benefit administrators from directing your customers away? Many benefit administrators have already mailed out packages to members for their election of how much they want set aside to their FSA. Many of these letters are directing their members to a list of IIAS pharmacies in their area. Would you rather be on that list or the 90% exemption list?
With the amount of money at stake ($150 billion by 2010) can you truly afford to delay this implementation? Like it or not, today’s customer has come to expect convenience and the latest in technology. At this point the question you have to ask yourself is not am I exempt or will the deadline be delayed, but how many customers have I already lost and how can I provide the best service to all my customers?
About the Author
Greg Phillips is president/CEO of Emporos Systems Corporation. He has over 30 years of experience in the computer systems field in software development, system integration, marketing, sales and service. A Charlotte, NC-based company, Emporos is one of the leading providers of pharmacy point of sale solutions. Emporos serves independent pharmacies, hospital, clinics, and regional chains.