Depending on who you ask, a workers’ compensation firm having an ownership stake in a pharmacy is either an ethical quagmire or a practical way for law firms to provide quick and inexpensive coverage to injured workers who might otherwise be left to suffer while their cases are litigated.

Law firms having ownership stakes in a business ancillary to their practices are nothing new, but a recent article by The Philadelphia Inquirer focusing on the practice of workers’ compensation firms owning pharmacies has sparked a lot of interest in the Philadelphia legal community.

Several attorneys said the practice doesn’t “pass the smell test,” as it could create conflicts for clients, lead to inflated valuation of cases, or become a means for pressuring doctors to use their services, among other things.

“Essentially, they’re saying, if you want business, you use our pharmacy. If you don’t use our pharmacy, we’ll send it to the 50 other workers’ compensation doctors,” ethics attorney Samuel Stretton said. “That is wrong, and potentially illegal.”

But others said a pharmacy was a valid ancillary business under the Rules of Professional Conduct, and provided an option for clients with work injuries.

Although several attorneys said the practice of firms owning stakes in pharmacies has recently become widespread in the workers’ compensation plaintiffs’ bar—especially for smaller and midsized firms—the controversy has centered on Pond Lehocky Stern Giordano, the firm that was the focus of the Inquirer article.

According to state documents, attorneys Sam Pond, Jerry Lehocky and David Stern each own 20 percent stakes in Workers First Pharmacy. The pharmacy’s certificate of organization also listed Bryan Reilly, Pond Lehocky’s chief financial officer, as the company’s organizer.

Fox Rothschild attorney Abraham Reich, who is representing Pond Lehocky, was critical of the Inquirer article, saying any indication of a conflict of interest, or any assertion that the firm may be overcharging clients, was untrue.

According to Reich, the pharmacy prices the drugs according to the state Workers’ Compensation Act, and, while some pharmacies may charge patients to pay the difference between what was billed and what their workers’ compensation carrier was able to cover, patients at Workers First are not charged beyond what their carrier pays.

“They will eat the cost of those things,” he said. “The percentage of what they recover is less than the amount of what they charge.”

Reich cited Rule 5.7 of the Pennsylvania Rules of Professional Conduct, which deals with attorneys having ownership interests in non-legal businesses, and said the situation with Pond Lehocky is no different than other firms owning ancillary businesses, such as providing title insurance, financial planning, accounting, or tax preparation.

“To make it appear that Pond Lehocky was somehow unethical was simply wrong,” he said. “They have made the appropriate disclosures in their retainer agreements with their clients. It is absolutely ethical and legal.”

He said the attorneys do not make pricing decisions, or weigh in on any client’s medical care.

In an email chain obtained by The Legal between Paul Paoletti, who is listed in the email as Pond Lehocky’s medical relations manager, and a Pennsylvania doctor’s office, Paoletti said it was the firm’s goal to have all its clients, as well as the doctor’s other workers’ compensation clients, using Workers First.

After the office indicated it would use another pharmacy, Paoletti replied that Pond wanted the firm’s clients to use Workers First.

When asked about the email, Reich denied that the firm pressures doctors to use the pharmacy. He added that the firm discloses the ownership stake to doctors as well as patients, and said only about 20 percent of Pond Lehocky’s clients use Workers First.

“We’d like them to use it because it’s better for the client,” Reich said. “In terms of pressure? Never ever.”

Several workers’ compensation attorneys contacted by The Legal declined to comment for this story.

Although attorneys outside the workers’ compensation field said they were surprised by the Inquirer’s article, workers’ compensation lawyers who spoke with The Legal said they have been increasingly aware of firms with ownership stakes in pharmacies.

“The news did not come as a surprise,” Swartz Campbell’s workers’ compensation department chair Jane Lombard said in an email. “Most workers’ comp attorneys have known about this for a while, but I don’t think the knowledge is widespread beyond workers’ comp circles.”

One Philadelphia-area workers’ compensation defense attorney, who asked not to be named, said having law firms with ownership interests in pharmacies “wreaks havoc on our practice.”

“There’s a lot of fluff,” the attorney said. “It makes it difficult to reasonably valuate a case.”

Although the issue might become a litigation-headache for firms with ownership stakes in pharmacies, attorneys stress it is an even bigger ethical headache.

Stretton said attorneys should not only disclose the ownership relationship to their patients, they should also advise their clients to get outside counsel to review the relationship for conflicts.

Ethics attorney Stuart Haimowitz said even that might not cover a firm’s bases ethically, because the ownership stake could also affect settlement negotiations, or provide another benefit to firms if they write off the losses from not charging patients the amounts that were technically billed.

“The cleanest way [a firm can conduct itself] is to not put itself in that position of owning a pharmacy,” Haimowitz said. “The next cleanest way would be to not involve their own clients.”

Although Stretton said the practice created myriad ethical problems, he said attorneys at Pond Lehocky are very ethical lawyers, with Lehocky even serving as a committee member of the Disciplinary Board of the Supreme Court of Pennsylvania.

“They are excellent lawyers, and they’ve helped many, many people, and they will continue to help many, many people,” Stretton said.

Stretton called on state ethics organizations to look into the broader implications of the situation.

“It might be time for a rule change to be a little more specific about the duties and obligations, and conflicts. It’s time for the Supreme Court to take a stand,” Stretton said. “What are we going to be? Are we going to be lawyers, or businessmen?”