IRS gives mom-and-pop pharmacies more time to prepare for FSA cards

ALEXANDRIA, Va. The Internal Revenue Service is giving low-technology mom-and-pop drug stores another six months to either adopt expensive point-of-sale technology or prepare to do without a chunk of their pharmacy and health care business.

The IRS announced last week it had extended the deadline for the use of Flexible Spending Account and Health Reimbursement Arrangement debit cards in pharmacies that aren’t equipped with an Inventory Information Approval System.

The original deadline of Jan. 1, 2009 has been extended to July 1, 2009. Beginning next summer, the IRS has declared that FSA/HRA debit cards may not be used at drug stores and pharmacies unless the merchant has an Inventory Information Approval System [IIAS] at the point of sale to identify eligible purchases that qualify for use of the debit cards. The IRS exempted stores if 90 percent or more of their gross receipts during the prior taxable year “consisted of items which qualify as expenses for medical care under Section 213 d of the IRS Code,” including prescriptions and certain non-prescription drugs.

The IRS rules don’t require a pharmacy to adopt POS technology. But those that don’t stand to lose whatever business they derive from customers using FSA and HRA debit cards beginning in mid-2009.

In a memo sent Friday to independent pharmacy owners, the National Community Pharmacists Association hailed the deadline extension but cautioned the organization’s members. “We are gratified that the IRS pushed back the deadline, as we had requested in our letter to them Sept. 15,” NCPA executive vice president and chief executive officer Bruce Roberts told the group’s members. “But despite this reprieve, employers, the credit card companies behind the debit cards, third party administrators, and others are continuing to steer/push beneficiaries to pharmacies that use IIAS point-of-sale technology to instantly identify prescription and non-prescription items that qualify as medical care expenses and give the customer a record of them.”

NCPA is urging independents to consider installing a POS system now, despite the costs. “I realize that for those of you without a POS, an $8,000 to $30,000 outlay is a daunting expense in these perilous economic times,” Roberts acknowledged in his memo. However, he told pharmacy owners, the tax benefits available this year to those who install the technology “may be enough to tip the balance to investing in a POS.”