May 2015

Click to download PDF file of full issue.
Click to download PDF file of full issue.

Articles from the CCBA’s publicationCommuniqué (May 2015):

© 2015 The following articles were originally published in COMMUNIQUÉ, the official publication of the Clark County Bar Association. (May 2015, Vol. 36, No. 5). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, 717 S. 8th Street, Las Vegas, NV 89101. Phone: (702) 387-6011.


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Alia A. Najjar, M.D., Esq.

Is It Good to Go Green? Pitfalls of Physician Investment and Ownership of Medical Marijuana Dispensaries

By Alia A. Najjar, M.D., Esq.

Medical marijuana dispensaries are relatively new to Nevada. As a result, there is little guidance regarding potential legal consequences for physicians who own or invest in a medical marijuana dispensary. Though Nevada law does not preclude physician ownership and investment in dispensaries, there are many potential legal issues. This article examines potential criminal prosecution and Drug Enforcement Agency (DEA) action, disciplinary actions against a physician’s license to practice medicine, Medicare and other federal health care program exclusion, health insurance provider contract termination, State and federal anti-kickback statutory violations, and other collateral issues as potential consequences of physician ownership interest in dispensaries.

Criminal Prosecution and DEA Action.

Under federal law, it remains illegal to use, possess, transport, or cultivate marijuana for any purpose. 21 U.S.C. §§ 841(a), 844. Further, the U.S. Supreme Court held that federal law does not exempt dispensing of marijuana in cases of medical necessity from prosecution. United States v. Oakland Cannabis Buyers’ Coop., 532 U.S. 483, 121 S.Ct. 1711, 149 L.Ed.2d 722 (2001). However, under the federal government’s current policy, the federal government is not prosecuting everyone who dispenses medical marijuana. On August 29, 2013, the U.S. Department of Justice, Office of the Attorney General, issued a memorandum entitled “Guidance Regarding Marijuana Enforcement,” which recognized that states with laws legalizing marijuana have implemented effective regulatory and enforcement systems to control cultivation, distribution, sale, and possession of marijuana. The Department recommends, when exercising prosecutorial discretion, prosecutors should not consider the size or commercial nature of a marijuana operation alone in order to assess whether marijuana trafficking implicates the Department’s enforcement priorities, but should review the operation’s compliance with the state’s regulatory system on a case-by-case basis, weighing all information and evidence.

Thus, though there remains a threat of criminal prosecution, it is not as likely under the federal government’s current policy. Even if the federal government does not prosecute, however, the DEA may revoke a physician’s DEA registration. Without this, a physician is unable to prescribe medications, which would severely limit his or her practice.

Medical Licensure.

While there is no specific legal prohibition against physician ownership or investment in a medical marijuana dispensary, there are no legal specific legal protections. Though the Board of Medical Examiners (MBE) and State Board of Osteopathic Medicine (BOM) cannot take disciplinary action against physicians who advise and provide documentation for issuance of a registration identification card (NRS 453A.500) or who hold valid registration cards or are designated as primary caregivers (NRS 453A.510), there are no special provisions for physicians regarding dispensary ownership or investment.

It is unlikely, however, that the Nevada MBE and BOM will discipline physicians’ licenses solely based upon ownership or investment in a dispensary. Physicians licensed in states where marijuana remains illegal for any purpose, however, may still be subject to disciplinary action in those states. Further, if ownership and/or investment are determined to be violations of other laws, such as anti-kickback laws, even Nevada boards could impose discipline.

Exclusion from Medicare and Other Federal Health Care Programs.

Potential criminal prosecution and licensure discipline may also have another untoward result: exclusion from participation as a Medicare provider. Felony convictions pursuant to federal or State law that relate to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance result in mandatory exclusion. 42 U.S.C. § 1320a-7(a)(4). Misdemeanor convictions for these offenses may result in exclusion. Id. at (b)(3). In addition, license revocation or suspension and exclusion or suspension under federal or state health care programs may also result in exclusion. Id. at (b)(4) – (5). Physicians who are currently enrolled as Medicare providers may have their enrollment and billing privileges in the Medicare program revoked. 42 C.F.R. 424.535. Further, these and other issues due to ownership or investment in a dispensary may also result in exclusion from other federal health care programs.

Termination of Health Insurance Provider Contracts.

In addition to termination as a provider for Medicare and other federal health care programs, private health insurance companies may also terminate provider contracts. Unlike Medicare and other federal health care programs, however, private health insurer provider contracts are governed by principals of general contract law in Nevada. Some provider contracts specify the grounds for termination, while other contracts may have provisions allowing either party to terminate without cause. Additionally, there are no due process requirements with regard to termination of provider contracts, with the exception of the worker’s compensation context. As such, a health insurance provider could decide to terminate a physician who owns or invests in a dispensary without any recourse, which may result in a substantial blow to a physician’s medical practice.

Stark and Anti-Kickback Laws.

Though marijuana dispensaries are not currently recognized by the federal government as health care entities, physician ownership and investment in dispensaries could trigger federal Stark law or federal Anti-Kickback law. Federal Stark law is a civil statute that generally prohibits physicians from making referrals for Medicare and Medicaid covered designated health services (DHS) to an entity in which the physician or the physician’s immediate family member has a financial relationship. 42 U.S.C. § 1395nn(a)(1)(A); C.F.R. 411.353(a). Federal anti-kickback law makes it a felony for anyone to “knowingly and willfully” solicit, receive, offer or pay anything of value as an inducement for referrals and applies to all items and services reimbursable by any federal health care program. 42 U.S.C. § 1320a-7b(b).

Even if federal law does not apply, Nevada law also has prohibitions on physician self-referral that are broader in scope and apply to all patients, regardless of reimbursement source. NRS 439B.425; NAC 439B.5205-5408. Violation of Nevada self-referral law is a misdemeanor. Id. Further, physicians licensed by the MBE who violate this law or who indirectly receive any form of compensation intended or tending to influence a physician’s objective evaluation or treatment of a patient may be subject to discipline of the physician’s license to practice medicine. NRS 630.305(1)(a) & (c). Physicians licensed by the BOM who directly or indirectly give to or receive any form of compensation for sending, referring or otherwise inducing a person to communicate with an osteopathic physician in his professional capacity may be subject to licensure discipline. NRS 633.131(c).

It is not clear whether this applies to dispensaries. The BOM issued a “Statement of Policy Regarding Medical Marijuana and Osteopathic Physicians Approved September 9, 2014” on September 15, 2014, in which the BOM declined to opine as to whether an ownership interest was a violation of Stark Law or similar provisions of state or federal law.

Other Collateral Consequences.

Finally, there are other potential consequences, including potential revocation of board certification, denial of membership and/or renewal in professional organizations, issues regarding hospital privileges.

With additional states passing laws allowing the sale, possession, and use of medical (and sometimes recreational) marijuana, it is possible that the federal government will enact new laws legalizing marijuana and clarifying the legal landscape for physicians regarding medical marijuana. The current legal and regulatory system makes the potential impact of obtaining a license to own and operate a medical marijuana dispensary potentially detrimental for physicians.

Alia A. Najjar, M.D., Esq. is an associate attorney at Brooks Hubley, LLP. She practices in commercial litigation. She has advised physicians on a number of regulatory issues and represented physicians in California regarding various licensing and related issues. She is licensed to practice law in California and Nevada and to practice medicine in Texas.


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John Henry Wright, Esq.

Medical Marijuana: Is Your Health Information Privacy Going to Pot?

By John Henry Wright, Esq.

Imagine teams of law enforcement agents, including officers from local police departments and the Federal Drug Enforcement Agency (DEA) showing up at your door and requesting to enter your home to conduct a search simply because you have been issued a medical marijuana card (MMJ card) by the Nevada Department of Health and Human Services (NDHHS). One of the many problems with this scenario is that under applicable state law, except for the limited purpose of verifying a claim of authorization, law enforcement is not supposed to know who is a registered MMJ card holder.

Nevada’s Medical Marijuana Registry.

Article 4, Section 38 of the Nevada Constitution requires the legislature to promulgate laws for “a registry of patients, and their attendants, who are authorized to use the plant for medical purpose, to which law enforcement officers may resort to verify a claim of authorization, and which is otherwise confidential.”

Chapter 453A of the Nevada Revised Statutes governs medical use of marijuana. Medical marijuana patients must submit an application to NDHHS to obtain a MMJ card. NRS 453A.210. Upon approval of an application, NDHHS issues a serially numbered MMJ card to the applicant and, if the applicant designates a primary caregiver, to the designated primary caregiver. NRS 453A.220 & 453A.250. NDHHS is required to maintain the confidentiality of the name and other identifying information of any person who has applied for or has obtained a registry identification card. NRS 453A.700. Further, the information is not subject to a subpoena or discovery in a legal proceeding. Id. Exceptions to the confidentiality requirement allow NDHHS to provide authorized employees of NDHHS, or its designee, information necessary to perform official duties and authorized employees of state and local law enforcement agencies, but only as necessary to verify that a person is a lawful holder of a MMJ card. Id.

NDHHS’s Duty To Protect Patient’s Health Information.

The right to make decisions regarding one’s own bodily integrity and medical treatment is embraced in both federal and state constitutional privacy rights. The right of privacy has two main aspects: (1) the general law of privacy, which affords a tort action for damages for unlawful invasions of privacy; and (2) the constitutional right of privacy, which protects personal privacy against unlawful governmental invasion. There are two classes of privacy interests: (1) interest in precluding dissemination or misuse of sensitive and confidential information; and (2) the interest in making intimate personal decisions or conducting personal activities without observation, intrusion or interference.

Article 4, Section 38 of the Nevada Constitution, not only explicitly states that the information is confidential, and therefore subject to rights of privacy, it also makes it clear that law enforcement officers are only allowed access to the information to verify that the cardholder is authorized to have marijuana in his or her possession. Further, the verification is only allowed when the cardholder makes a “claim of authorization,” meaning that if a person is stopped while in possession of marijuana and actually makes a claim of authorization, the officer can then verify the validity of the cardholder’s authorization to possess medical marijuana. NRS 453.700 further limits type of law enforcement that can access the database to “state and local law enforcement agencies.”

Beyond this, the Health Insurance Portability and Accountability Act (HIPAA) also requires protection of protected health information (PHI). Under HIPAA, covered entities are required to protect PHI by implementing specific security standards which include both physical and technical safeguards. Technical safeguards include access control, audit controls, information integrity protection, entity authentication, and transmission security.

While covered entities are generally defined as health plans, health care providers, and health care clearinghouses, there are some instances where state, county, or municipal entities are classified as “hybrid entities” when the governmental entity handles PHI. Here, NDHHS certainly deals with PHI, and its function dealing with a person’s medical condition makes it a covered hybrid entity under HIPAA. See “HIPAA’s Privacy and Security Rules and Their Effect on Local Governments.” Municipal Lawyer, March/April 2005.

There are exceptions whereby law enforcement will be able to access information, See 45 C.F.R 164.512, et seq. However, none of those exceptions would encompass a “compliance check” inquiry or a proactive investigation of the type conducted by teams of law enforcement officials identified by the acronym “SCORE,” which is a joint task force funded by the White House under the High Intensity Drug Trafficking Areas (HIDTA) program. There are currently 28 HIDTAs in the U.S. that assess drug trafficking threats in their defined areas, develop strategies to address threats, design initiatives to implement strategies, propose funding needed to carry out the initiatives, and prepare annual reports describing their performances. A central feature of the HIDTA program is the discretion granted to the Executive Boards to design and implement initiatives that confront drug trafficking threats in each HIDTA.

NDHHS’s Failure to Protect MMJ Cardholders from Improper Government Action.

Arguably, there is a failure on the part of NDHHS to implement adequate technical safeguards to protect the PHI of MMJ card holders, which promotes a proactive versus reactive search of the registry and violates present law by allowing law enforcement access to the information without the cardholder’s knowledge or authorization.

The patient database is searchable in two ways: First, by the number on the MMJ card, which would require the officer to interact with the patient and the patient to make a “claim of authorization” by providing the card and/or number to allow the officer to verify the claim. Because the database only shows a patient number and effective dates, the patient is protected from unlawful disclosure of confidential medical information, a goal both of HIPAA and state law. Unfortunately, there appears to be a back door approach for law enforcement to access the database via a person’s driver license number. Since police already have ready access to driver license databases, the officer does not have to interact with a patient to determine if he is a cardholder. This loophole could leave the unwitting MMJ cardholder open to searches and criminal prosecution.

In a recent Nevada Eighth Judicial District Court case, the Clark County District Attorney’s Office filed a criminal complaint against a cardholder for possessing a firearm while being a cardholder. The special task force went to the cardholder’s home to conduct a compliance check, peered through the window, and saw firearms on the floor. An officer then checked with the NDHHS website and learned that the homeowner had an MMJ card. Using this information, the officer convinced a judge to sign a search warrant for the card holder’s home. The basis of the warrant was, “As an admitted chronic user of the controlled substance marijuana, which is admitted by being a medical marijuana patient, [homeowner] is prohibited from possessing firearms.”

The U.S. and Nevada Constitutions guarantee the right of privacy to all citizens. Likewise, HIPAA is intended to protect PHI and mandates specific procedures covered entities must implement to afford those protections. Yet, inadequately implemented security controls maintained by NDHHS are subject to exploitation in violation of cardholders’ constitutional rights to privacy.

As Nevada, like many other states, is embarking on relatively uncharted legal ground, battles regarding unlawful searches and seizures and improper access and use of health information will inevitably have to be resolved by the courts.

John Henry Wright, Esq. is an attorney practicing in Las Vegas in the areas of commercial litigation, criminal defense, and cannabis law.