The Playbook for a Community Charitable Pharmacy


Thanks to Dorothy Pak, JD, BRADLEY ARANT BOULT CUMMINGS LLP, Birmingham Alabama, for her donations of time and expertise. Presented 2015.

Regulatory Framework

Pharmacy licensing, medication procurement to destruction, professional collaborations, nonprofit status, and more are all highly regulated both on a state and federal level. The pharmacy should comply with federal laws unless the state law is more restrictive, in which case, the state law is followed. A legal partner with expertise in healthcare and general business matters is essential to maintaining best practices.

Regulations include:

  • State Law
    • Boards of Pharmacy rules and regulations
    • Nonprofit Status and Charitable Solicitation rules (may need to review attorney general rulings)
    • (if applicable) Department of Public Health rules for drug reclamation/donation programs. Some states have drug reclamation/donation rules under Board of Pharmacy.
  • Local Law
    • Local/County Business Codes

Governing law or contracts with vendors, donors or manufacturers will likely dictate:

  • Who is qualified to receive medications (patient eligibility)
  • Whether any charge may be made for dispensing
  • Any specific requirements on storage, record-keeping, segregation, etc.

Refer to the board of pharmacy state regulations in the Appendices. For more up-to-date information, check the individual state board of pharmacy website.

In some instances, these regulations may be very detailed and onerous. It is important to keep track of requirements and follow accordingly. Policies and procedures, staff training and use of software help make processes more manageable and trackable. See Manufacturer Bulk Patient Assistance Programs. Tips for an audit are below under Auditing.

TIP: “Phone a Friend” – make contact and consult with State Board of Pharmacy before beginning a charitable pharmacy to ensure all requirements will be met.

States vary widely on how detailed their regulations are for charitable pharmacies, medication reclamation, and collaborative practice.

Policies and Procedures

Most states regulating charitable pharmacies will require policies and procedures be filed and approved prior to licensure. See Standard Operating Procedures.

These are similar to regular pharmacy policies and procedures, with unique variations (and possibly some waivers and exceptions), pertaining to the “charity” and nonprofit status of the pharmacy.

State law may dictate policies regarding:

  • Qualifying patients, in addition to contractual requirements or simply internal policies
  • Determining whether patients may be charged and if so, how much
  • Unique record-keeping requirements to track donations
    • Could vary slightly depending on where medications are sourced
  • May have more leniency in staffing and equipment requirements

DSCSA – Track and Trace Legislation

The Drug Supply Chain Security Act (DSCSA) was implemented to facilitate tracing products through the pharmaceutical distribution supply chain. This act requires manufacturers, wholesalers and pharmacies to exchange and track transaction information, transaction history and product tracing information. Tools for compliance are found in Tracking the Medication Supply Chain.

Legal Resources

Many great resources from which to seek help in this highly regulated field include:

When starting a nonprofit, there are many legal considerations. A 501(c)3 organization is a nonprofit organization in the federal law of the United States according to 26 U.S.C. § 501 and is one of 29 types of nonprofit organizations which are exempt from some federal income taxes (Wikipedia 3.15.18).

Obtaining 501(c)3 status within the tax code can be a lengthy and challenging process; however, it provides:

  • Exemptions from federal and state income and corporate taxes
  • The ability for donors to make tax deductible contributions
  • Greater fundraising opportunities – ability to apply for grants that may be limited to entities with 501(c)3status

All assets of a 501(c)3 entity, by law, are permanently dedicated to a charitable purpose. Public charities are held to a strict expectation that their funding is used to run programs directly benefiting the public within their stated mission. In a nonprofit corporation, there are no profits to be distributed, so financial accountability rests with the Board of Directors.

TIP: Once state nonprofit status is received, donations can be accepted and will ultimately be tax deductible if federal 501(c)3 status is approved, as tax exempt status is recognized back to the creation date by the state.

However, if exempt status is not approved, donations will not be deductible.

Two options that exist to starting a nonprofit are:

(1) Form new entity that will qualify as a nonprofit, charitable entity

  • Provides limited liability and tax-exempt status
  • Most common form is a nonprofit corporation

There are many web-based programs to help with the application process, usually for a fee. Legal and Operational Guide for Free Medical Clinics is a legal resource for starting a nonprofit medical establishment including points for 501(c)3 status and much more. Other resources may be found at Nonprofit Status.

(2) Be part of an entity that already has 501(c)3

  • Many operational synergies, but could lose some autonomy
  • Would not segregate liabilities from rest of organization
  • Requires a fiscal sponsorship agreement

A fiscal sponsorship is a contract between a 501(c) 3 and another nonprofit entity (state-level). The sponsor is responsible for the accounting and the sponsored inherits 501(c) 3 status. Donations, grants, etc. can be made to the sponsor, but specified for the sponsored. The sponsor may take an administrative fee (2018 estimate is 10 %). The contract may be for a specific amount of time (an event) or be left open indefinitely. See Appendices.

Nonprofit status begins at the state level and requires registration as a charitable or nonprofit entity. This process may be online and requires an annual fee with annual renewal. The state will issue a Charter document, used to register with the Internal Revenue Service (IRS), to receive an Employer Identification Number (EIN). Use the EIN to open a bank account for the nonprofit. The bank may provide a discount for a nonprofit organization. The EIN is also used to register with the State Department of Labor for payroll purposes.

Apply for a state sales tax exemption certificate from the State Department of Revenue.

In addition to state registration as a charitable or nonprofit entity, registration may be required for charitable solicitation. Some states require registration for all organizations that solicit money for charitable purposes. Registration is usually annually and requires a fee, submission of a financial report of the entity’s most recent fiscal year as well as information about the entity, its personnel, and its purposes. States with county governments may require registration as a nonprofit with the county.

Some business models may require applying for a state/county business license. This may be covered under the pharmacy license.

Registration Level Fee Annual Fee Annual Renewal
Register as charitable or nonprofit entity;

Receive Charter Document

State Yes Yes Yes
Register with IRS using state Charter Document;

Receive EIN

Federal No if done by self No No
Use EIN to open bank account Local Discount for nonprofit status? Varies by bank Varies by bank
Register with state Dept. of Labor using EIN State Varies by state Varies by state Varies by state
Apply for state sales tax exemption State Varies by state Varies by state Varies by state
Register for charitable solicitation if required; required documents may vary by state State Yes Yes Yes
Register as nonprofit in county if required County Yes Yes Yes
Register for business/pharmacy license State/ County/ City Yes Yes Yes

Step 1

Step 1: Contract

  • Charitable pharmacies
  • Hospital outpatient pharmacies
  • Free clinics
  • FQHCs

Step 2

Step 2: Board of Pharmacy Inspection

  • State decision with Pharmacist-in-Charge
  • Approval
  • Denial
  • Issuance of state license

Step 3

Step 3: Pharmacy Licensure

  • DEA (requires state license)
  • NPI (independent of state license)
  • NCPDP (requires state license)

Step 4

Step 4: Set up Drug Wholesaler

  • Drug wholesaler account
  • Ex: McKesson, Cardinal, etc.

Step 5

Step 5: Pharmacy Operating System

  • Get capital approval
  • May need installation prior to POB inspection (varies by state)
  • Select vendor

The use of prescription drug samples is governed by the federal Prescription Drug Manufacturing Act (PDMA), 21 C.F.R. 203.39. PDMA sets forth various requirements governing the distribution of drug samples by manufacturers to licensed practitioners. This law permits the donation of samples to charitable institutions, as long as a strong system of controls is in place to minimize diversion.

These requirements are:

  • Donations only to “charitable institutions,” thus importance of 501(c)3
  • Original, unopened packaging with labelling intact
  • Received by authorized employee of charitable institution
  • Licensed practitioner or pharmacist to examine product
  • Unsuitable donations destroyed or returned to manufacturer
  • Accurate records of donation, distribution, inventory, return & destructionkept for 3 years
  • Annual inventoryof drug sample stocks
  • Samples must be stored properly to maintain integrity
  • Significant loss or known theft must be reported to FDA in 5 days

For more information on use of medication samples in a charitable pharmacy, see Donations from Prescribers and Practices.

At a global level, the World Health Organization has developed international drug donation guidelines for humanitarian relief as a basis for national and institutional guidelines. At the federal level, the US Food and Drug Administration and other federal regulators such as the Drug Enforcement Agency have not developed regulations specific to drug donation programs. As a result, state drug donation or reclamation programs are largely governed at the state level and vary greatly from state to state. In general, enabling legislation must be passed by a state legislature, and participating entities such as a community pharmacy or wholesale drug distributor are regulated by their respective State Board of Pharmacy. Specific administrative rules for a drug donation program are often developed by the state’s Department of Public Health, Department of Health, or Board of Pharmacy.

Most state programs have substantial restrictions on who can donate and what types of prescription products or supplies may be donated. For example, some states only allow certain classifications of medication, such as anti-cancer medications to be donated. In addition, very strict patient safety rules apply to ensure the integrity of medications distributed, as well as income and insurance (or lack of) guidelines to ensure donated medications are provided to the state’s most indigent or vulnerable populations.

Most state programs have a number of common provisions including:

  • No “controlled substance” medications may be accepted or transferred.
  • All prescription drugs or over-the-counter medications must be inspected by a pharmacist prior to being distributed or dispensed.
  • No adulterated, misbranded or mislabeled medication may be accepted or transferred.
  • No expired medications may be accepted or transferred. (Many states require a minimum of 6 months beyond use dating)
  • All medications must be unopened and in original, sealed, tamper-evident packaging.
  • Liability protection for both donors and recipients usually is assured. Patients may be required to sign a statement when completing eligibility.

Some differences in provisions across states include:

  • Classes of medication accepted for redistribution. (Such as prescription-only, over the counter, or disease-specific such as anti-cancer)
  • Eligible donors (Such as pharmacies, health providers, individuals)
  • Eligible recipients (Such as a clinic, pharmacy, or direct to patient)
  • Patient eligibility(Income standards, uninsured, or underinsured status)
  • Protocol for transfers and repackaging
  • Dispensing fee for donated medications (Allowed or not allowed, monetary cap)
  • Centralized/decentralized (One statewide entity versus local programs)
  • Program funding (State assistance provided or strictly charitable)

Drug donation programs are quickly being established by states. They function as practical channels to connect patients in need of assistance with unused prescription medications, and ensure that obsolete medications are appropriately disposed of. As more states move to make drug donation programs operational, it is imperative that program leaders and stakeholders work with state and federal regulatory agencies to ensure drug donation and reclamation programs flourish.

See the Appendix for state drug donation rules adopted by specific states.

Direct Donations from Manufacturers

See Manufacturer Bulk Replacement.

Collaborative practice agreements (CPAs) create a formal practice relationship between a pharmacist and a prescriber. The agreement specifies what functions, in addition to the pharmacist’s typical scope of practice, are delegated to the pharmacist by the collaborating prescriber. The collaborating prescriber is most often a physician, but a growing number of states are allowing for CPAs between pharmacists and nurse practitioners or other non-physicians. The functions provided under the agreement vary from state to state based on the pharmacist’s scope of practice and the state’s collaborative practice laws. Most often, CPAs are used in the context of authorizing pharmacists to initiate, modify, or discontinue medication therapy. These changes may be as part of a disease management CPA. Functions performed under a CPA may also include ordering and interpreting laboratory tests if those services are not already authorized in the pharmacist’s scope of practice. Certain states allow pharmacists to prescribe under protocol for specific conditions such as Lyme Disease. Other states allow pharmacists to enter into a collaborative practice agreement with a provider to managed specific conditions. Check with state board of pharmacy for details. See Appendices\Collaborative Practice for guidelines, sample agreement, and competency.

Sample Types of Collaborative Services

Delays in providing medication
Benefit for community
Limited availability of medications (formulary system) requiring contacting provider for change Therapeutic Interchange Prescription fill on initial visit
Patient returning to pharmacy more than monthly for prescriptions Synchronized refills and 90-day refills Increased compliance when patient gets all maintenance refills at one time
Lag time between pharmacy request for refill and response from provider; patient without maintenance medication Short supply dispensed when no refill Allows time for pharmacist/patient to contact provider and maintain compliance
No appointment availability or conflict with patient schedule Point of care testing: Checking A1Cs, blood pressure, cholesterol, and evaluating depression No appointment requirements and on time lab check-ins
Need for additional medical supplies to fully utilize a prescription Dispensing a glucometer and supplies with an insulin prescription; Dispensing a chamber with an inhaler for pediatrics Convenience for patient and no lag time in receiving proper care
Lack of disease prevention programs Environmental approaches to diabetes prevention program managed with lifestyle modifications Reduces risk of developing diabetes and heart disease
Lack of access to quality community resources for chronic disease management and polypharmacy Medication therapy review, personal medication record, medication-related action, intervention/referral, documentation, and follow up Addition or removal of necessary medications

Audits, whether state, insurance, or manufacturer, go best when documentation is in order. The best way to go about this are some of the following:

  • Reinforce with staff proper day’s supply calculation, dosage form, quantity, and correct DAW code.
  • Keep signature logs up to date: refrigerator, freezer, pharmacist.
  • Directions for “as directed” are clarified and documented on prescription and/or computer.
  • Diagnosis codes are included when
  • Policy and procedure manuals are up to date and being followed.

For more tips see Clinical Resource, Tips to Help Prevent and Survive a Pharmacy Insurance Audit. Pharmacist’s Letter/Prescriber’s Letter. January 2018.

States vary in the requirements and roles of pharmacy technicians. In Entry-level practice requirements of pharmacy technicians across the United States: A review, Ashlee N. Mattingly, Pharm. D. provides a review of statutes and regulations to determine entry-level requirements as of March, 2017, in the United States and the District of Columbia.

Check with the state board of pharmacy regarding:

  • Differentiations between certified and non-certified techniciansand their roles
  • Differentiations between technician and “clerk” or other pharmacy assistant role
  • Pharmacist to technician/certified technician ratio
  • How the pharmacist/technician ratio is affected by students, volunteers, and pharmacy residents

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