Will Compounding Pharmacies Selling Bulk Products be Protected by the Texas Medical Liability Act?

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A significant ruling has come down from the Supreme Court of Texas. The case of Randol Mill Pharmacy v. Miller addressed this question: If a pharmacy that compounds bulk product is sued, will the pharmacy be protected by the Texas Medical Liability Act (TMLA)? If the answer is “yes” then the pharmacy can compound and sell bulk products more aggressively. If the answer is “no,” then the pharmacy will need to be more cautious. This is a significant case in healthcare and for the workers’ compensation industry. Workers’ compensation is experiencing increasing numbers of utilization review requests for compound creams and similar medications.

This case involves an individual named Stacey Miller. She had been suffering from Hepatitis C, an infectious disease primarily affecting the liver, caused by the Hepatitis C virus (HCV). Hepatitis C can lead to scarring of the liver and cirrhosis. When it progresses, it can result in liver failure, liver cancer, and other serious health problems.

In 2011, Miller was treated by Dr. Ricardo Tan. He prescribed intravenous injections of lipoic acid, which is an antioxidant supplement. Miller underwent nine weeks of treatment without incident. However, near the end of 2011 she suffered a severe reaction to the lipoic acid treatment. As a result she was hospitalized for several weeks, received multiple blood transfusions and became permanently blind. Randol Mill Pharmacy had prepared the lipoic acid for Dr. Tan. As an important detail, Randol Mill did not prepare the lipoic acid specifically for Miller. Instead, Dr. Tan had purchased it in bulk for use on his patients as needed.

As a result of her injuries, in 2012, Stacey Miller sued Dr. Tan and Randol Mill Pharmacy, along with other entities. The claims against Dr. Tan were later dismissed. However, the case against Randol Mill proceeded on theories of negligence in compounding, inadequate warnings and product liability.

Randol Mill took the position that Miller was asserting a health care liability claim against a Texas healthcare provider, and that therefore the claim was governed by the TMLA. This Act, set forth by Tex.Civ.Prac.&Rem.Code §74.001-.507, required that an expert report be served on any defendant within 120 days of filing suit. The rationale behind this requirement was that if an expert report could not be generated early in the case, the case probably lacked merit. This measure was designed to weed out frivolous claims while preserving meritorious ones.

At no time in the litigation did Miller (i.e. Miller’s attorneys) serve Randol Mill with an expert report. Randol Mill contended that this was a fatal error that required dismissal of the case against them. To this end, Randol Mill showed that they were a Class A licensed pharmacy, meeting the definition of healthcare provider under the Act. Therefore, they argued, the case should be dismissed. Miller’s attorneys took the position that service of the report was unnecessary because Randol Mill, while a pharmacy, did not “dispense” a “prescription medication” that resulted in a healthcare liability claim.

At the trial level, the court ruled in favor of Stacey Miller. The court believed that Randol Mill had not dispensed a prescription medication and therefore was not provided the protections of the Act. Randol Mill appealed to the Texas Court of Appeals.

The Court of Appeals, like the trial court, ruled in favor of Miller. The court stated that Randol Mill, while a pharmacy under the Act, did not “dispense” the lipoic acid for delivery to the “ultimate user.” As stated earlier, Dr. Tan had obtained the lipoic acid as a bulk purchase, not just to treat Miller. Therefore, Randol Mill did not qualify for protection as a health care provider under the Act. Randol Mill appealed to the Supreme Court of Texas.

The Supreme Court of Texas issued a ruling that surprised many. The court held that Randol Mill’s act of compounding the lipoic acid that Dr. Tan administered to Miller constituted “the dispensing of prescription medications” and that therefore, Randol Mill was protected under the Act. This ruling came despite the facts that Randol Mill did not compound the lipoic acid specifically for Ms. Miller and that lipoic acid is not a prescription drug.

The Supreme Court focused more closely on the term “dispense” in the Texas Pharmacy Act. The Court said that “dispense” includes prepare, package, compound, or label a prescription drug or device for delivery to an ultimate user. The Supreme Court specifically disagreed with how the Court of Appeals interpreted the statute.

The Supreme Court reasoned that the distinction drawn by the Court of Appeals between pharmacies compounding for specific individuals versus compounding in bulk for a practitioner who would administer the drug, was artificial. The Court said that a pharmacist who compounds a drug for office use pursuant to the Pharmacy Act is “dispensing” whether or not the patients to whom it will ultimately be administered are known.

The Court also stated that the TMLA did not define “prescription medicines,” so the court looked closely at the Pharmacy Act for guidance. The Court noted that the Pharmacy Act’s definition of “drug” included a broader definition as a “substance intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease.” The Court seized on this definition. As such, it found that Randol Mill was covered under the Act, even though they were compounding something that is readily available to the public.

Miller’s attorneys have now filed a Motion for Rehearing. But unless the Supreme Court of Texas grants the rehearing, it appears that compounding pharmacies will be afforded the additional protection under the TMLA. This protection would extend to bulk sales as well as to compounding “drugs” that are readily available without a prescription.

Obviously, this case is a boon for compounding pharmacies in Texas. And insurance carriers, TPAs and URAs in Texas can expect more requests for approval and payment of compounded drugs.

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Tom Swiatek

Tom Swiatek

As Assistant Vice President of Regulatory Services, General Counsel, and Editor in Chief of UR Nation, Tom Swiatek draws on his experience as an insurance attorney on both the general liability side, as well as on workers’ compensation matters. As a California Workers’ Compensation Section Member, Tom is leading the discussion with respect to the regulatory challenges and opportunities facing the workers’ compensation system.