Can You Afford To Lose Business By Being Non-IIAS Compliant?
This is a very serious question in today’s pharmacy industry. An IRS mandate promotes an electronic process for using flexible spending cards which will save you and your pharmacy customers a lot of time and paperwork. However, if your POS system is not IIAS-compliant by December 31, 2008, your pharmacy will be unable to accept and process flexible spending cards as a service to your patients. As the use of the flexible cards increases, patients will go to pharmacies that can process them. Pharmacies that delay responding to this deadline now could end up losing a portion of their pharmacy business.
For more information, see the topics below.
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IIAS compliancy has been completed for Heartland Payment Systems and Slim CD. We expect to complete the Shift4 certification in the second quarter of 2010.
Freedom Data Systems has completed our PA-DSS compliancy certification. You will find our listing at https://www.pcisecuritystandards.org/security_standards/vpa/
Once at the site click on Get the List of Validated Payment Applications and search for Freedom Data Systems.
IIAS regulations, SIGIS, Flexible Spending Account Cards
and What They Mean to Your Business
Recent History
The IRS mandated that to continue to accept flexible spending cards, an Inventory Information Approval System had to be in place beginning January 1, 2008 for all retail stores that did not fall under the Merchant Category Codes (MCC) that define typical drug stores and pharmacies. This meant that the larger retailers including supermarket and warehouse chains had to have an IIAS system in place by the first of January 2008 or risk losing business to independent drug stores.
The IRS mandated that typical drug stores and pharmacies that fell under MCC 5912 (and a few other similar codes) have to have an IIAS system in place by January 1, 2009 if they want to continue to accept flexible spending cards (continuing to compete with the supermarket and warehouse chains). [The one exception to the ruling is discussed later in this document.] This one-year grace period gave the POS software providers and the pharmacy community a chance to get a system in place that would meet the IRS requirements.
Freedom Data Systems and other POS vendors in the pharmacy industry have been working on solutions for this IRS mandate for up to a year and the associated credit card gateways and processing companies have been working on their end to get everything in place. This is a huge undertaking as all kinds of certification processes need to be completed by various vendors.
Currently in the Industry
Today, pharmacy and drug stores that fall under MCC 5912 (and others) are able to process flexible spending cards just like they process a credit card. POS vendors, credit card gateways and processors are continuing their efforts on the necessary certifications. New recommendations and industry standards continue to be released. Very few, if any, independent or small chain pharmacies have a working IIAS system in place today. However, those stores who do own a POS system have most likely been in contact with their POS provider and discussed this issue so that they will meet the requirements on or before January 1, 2009. This prior planning will enable these stores to continue to compete against the supermarkets and wholesale clubs who already have an IIAS system in place! Pharmacies that do not have an IIAS system in place and have not been classified as a 90% merchant with their credit card processor on January 1, 2009 will have flexible spending cards declined when swiped through their systems. Currently, there is no way to have an IIAS system in place without a POS system. The third party card swipes that reside beside electronic cash registers will not be IIAS compliant.
Statistics
| | | 73% of large employers offer flexible spending accounts |
| | | 20% of small employers offer flexible spending accounts |
| | | About 15% of employees participate in FSA plans |
| | | Participation increases to about 40% when FSA cards are offered |
| | | MasterCard estimates that $200 Billion is spent on out of pocket medical expenses each year. |
Another study estimates that 75% of the $200 billion will be paid through FSA, HRA, and HAS cards accounts by 2010.
Source: ComputerTalk magazine
IIAS Exemption
There is one exemption to the IIAS ruling. The IRS has indicated that if 90% or more of your total sales for year 2008 were qualified products then you do not have to have an IIAS system and you will still be able to accept flexible spending cards. Many pharmacies and drug stores fall under this ruling. Unfortunately, we see some problems associated with the 90% rule.
- The IRS has not determined how you would go about proving that 90 % of last year’s sales were qualified products.
- The IRS has not indicated to whom you would have to provide this information if you do qualify under the 90% rule.
- If you do get your store(s) set under the 90% rule and your credit card processor sets up your account so that you can still accept flexible spending cards, be aware that these transactions will NOT be automatically substantiated.
What this means is that under the 90% rule you will be able to process flexible spending cards but your customers will still need to retain the receipts and possibly have to send them into their plan administrator for substantiation.
Can you afford to lose business?
Currently, the large chains and wholesale clubs are aggressively marketing to customers who use flexible spending cards. They are convincing customers who do not know the regulations they have to use their flexible spending card at locations that have an IIAS system in place today. Educate your customers and let them know that you can continue to accept their HRA or HAS card until January 1, 2009. But if you are not yet IIAS-compliant, what will you do after January 1, 2009?
Typical “Customer A” has set up a tax-deferred account for her family’s medical expenses and has been issued a FSA or HRA card for use at the doctor’s office, the dentist, the local pharmacy, and so on. Two scenarios involving Customer A follow.
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| Customer A goes into a store that has an IIAS system and purchases her prescriptions and maybe other qualified OTC products. The POS system identifies the flexible spending card and takes all the necessary measures to make sure that only qualified products are submitted on the flexible spending card through the IIAS-compliant POS system. The transaction is completed and customer A goes on about her business. |
| | | Customer A enters a pharmacy that does not have an IIAS-compliant POS system or a POS system at all. Although the pharmacy may be able to accept the flex card for the purchases, the patient may be questioned about the purchases by the insurance plan administrator and have to provide the receipt. Not only will patients have to keep track of purchases and go through the hassle of completing paperwork as they did prior to being issued a FSA card, they can be denied reimbursement if they are asked for substantiation and do not have a receipt. |
In the second scenario, do you think that Customer A will still continue to do business at this pharmacy or will they take their business to a pharmacy that has an IIAS-compliant POS system so they do not have to worry about that paperwork? This question is definitely important to consider.
Now is the time to act
Studies in human behavior indicate that most people will take the path of least resistance. These days, families are juggling two careers and running kids to baseball practice, soccer games, or dance class. Once the marketing tool in use by stores who have IIAS-compliant POS systems reaches the general public—which is already happening—existing and potential customers will use their flexible spending cards at locations where they do not have to deal with paperwork. We believe this to be the plain, simple truth. Pharmacies that cannot accept flexible spending cards will very likely see their business decline as the use of these cards increases.
The bottom line is can you afford not to accept these cards at your pharmacy?
