In a recent opinion on an important emerging issue, the Commonwealth Court of Pennsylvania has clarified what evidence can be considered in establishing the “Average Wholesale Price” standard for pharmaceuticals in Pennsylvania’s workers’ compensation claims.
In Indemnity Insurance Co. of North America v. Bureau of Workers’ Compensation Fee Review Hearing Office (Insight Pharmacy), No. 696 CD 2018 (Pa. Commonwealth), the defendant, represented by Chartwell Law attorneys Barak Kassutto and Jason Hanford, appealed an adverse fee review determination which had mandated payment for a compounded pain cream bill. The Pennsylvania workers’ compensation medical fee review section had determined that the pharmacy was owed over $6,000.00 for a single tube of pain cream. This cost was calculated based upon the “Average Wholesale Price” of the ingredients as determined by the bureau.
Chartwell’s client appealed the fee review determination to the Commonwealth Court of Pennsylvania, which has immediate jurisdiction for challenge of fee review determinations. In the appeal, Chartwell’s attorneys argued that the method which the bureau used to calculate “Average Wholesale Price” – via reference to an index published by Truven Analytics – resulted in inaccurate and inflated costs for the insurer.
It is noteworthy at the outset to recognize that the Pennsylvania Workers’ Compensation Act limits reimbursement for pharmaceuticals to 110% of their “Average Wholesale Price”. Importantly, the Act does not at any point define the term “Average Wholesale Price.”
By regulation issued pursuant to the Act, the Bureau of Workers’ Compensation states that it may use “any of the Nationally recognized schedules to determine the AWP of prescription drugs.” The bureau publishes its selection annually in the Pennsylvania Bulletin and has historically selected a pharmacy industry publication known as Truven’s “Redbook.”
The Redbook contains the following disclaimer regarding its Average Wholesale Price data: “The Average Wholesale Price (AWP) as published by Truven Health Analytics is in most cases the manufacturer’s suggested AWP and does not necessarily reflect the actual AWP charged by a wholesaler.”(emphasis added)
The “Average Wholesale Price” standard at issue in the appeal before the Pennsylvania Commonwealth Court has been the subject of extensive litigation, both nationally and in Pennsylvania, based upon allegations that pharmaceutical manufacturers were reporting grossly inflated Average Wholesale Prices in order to increase the spread of profits on sales of their drugs.
Chartwell believes that there is an obvious incongruity between the plain meaning of the term “Average Wholesale Price” and the term AWP as used in the Redbook. The gap between “real” Average Wholesale Price” and what amounts to a “fictitious” Average Wholesale Price charged to Pennsylvania employers and insurers can amount to thousands of dollars per prescription. Chartwell attorneys therefore pursued this appeal before the Commonwealth Court to argue that the bureau should not rely exclusively on the Redbook in resolving AWP disputes.
In a dissenting/concurring opinion in Indemnity Insurance Co. of North America v. Bureau of Workers’ Compensation Fee Review Hearing Office (Insight Pharmacy), two judges from the Commonwealth Court agreed almost entirely with Chartwell’s legal argument on Average Wholesale Price application issue. However, the Majority opinion found the defendant’s case was insufficient in terms of the evidentiary record presented – the court concluded that Chartwell’s client had not presented sufficient evidence at the administrative level to support some alternative calculation of the value of “Average Wholesale Price.”
Ironically, a useful factual record for this claim could never have been developed at the administrative hearing level. As anyone familiar with the fee review process in Pennsylvania knows, the fee review section has historically treated the “Average Wholesale Price” data from Truven’s Redbook as inviolable. Contrary to the admonitions from the court, in practice, the bureau has always calculated pricing formulaically “by the book.” Neither the bureau nor the bureau’s fee review hearing officers have ever entertained debate about accuracy of the Redbook itself.
In this case, while closing the door to the defendant’s appeal, the Majority opened a far more important door for this client and employers and insurers throughout the Commonwealth. Importantly, after two rounds of oral argument, the Pennsylvania Commonwealth Court expressly stated for the very first time that the fee review section is not inextricably bound to the “Average Wholesale Price” found in industry compendia such as Truven’s Redbook. The majority of the Commonwealth Court explained this as follows:
Insurer could have produced evidence to support a calculation of an AWP more accurate than the one authorized by the regulation and listed by the Bureau in the Pennsylvania Bulletin.
Likewise, the regulation does not prevent a provider or employer from proposing a Nationally recognized schedule other than the one listed by the Bureau in the Pennsylvania Bulletin when litigating a repricing dispute before the Medical Fee Review Section or the Hearing Officer. Insurer was free to offer evidence of another source of data to establish the AWP for each of the ingredients used in the compounded medical cream that would have allowed the fact finder to reprice Pharmacy’s invoice to a different result.
As a result of this case and the work of Chartwell’s attorneys,Pennsylvania’s employers and workers’ compensation insurers are now apparentlyfree to use alternative “nationally recognized schedules” in repricingpharmaceuticals. This case portends the beginning of achange in the tides of pharmacy pricing in Pennsylvania’s workers’ compensationsystem, with enormous potential for cost savings in both individual claimsand even more dramatically across the board.
Given this potential reduction in pharmaceutical reimbursements,we anticipate further challenges from pharmacies moving forward and expect thatthe issues associated with this case will be subject to further appellatelitigation.
It cannot be overemphasized following this decision that the doorhas been opened for Pennsylvania employers and insurers to stop paying inflatedcosts based on the Redbook “fictitious” AWP and instead reprice pharmaceuticalbills and present evidence in fee review of alternative and truer measures of AverageWholesale Price.
We suggest that you take a close look at drugs with billed chargesover $500 per prescription. There may be new opportunities for re-pricing beyondthe Redbook or the current approach used by the bureau. These cases can be complicated and fact-specific,and we suggest that you contact counsel of your choice before taking anyaction. We would be delighted to review specific issues with our clients.
For a sample re-pricing, please submit a recently paid pharmaceuticalbill/explanation of benefits with personal information redacted to AWP@ChartwellLaw.com.
 This is not our editorial commentary. The Commonwealth Court in TAP Pharmaceuticals concluded, in a case dealing with drugs from major pharmaceutical manufacturers, “the published AWPs were fictitious prices” Commonwealth v. TAP Pharm. Prods., 36 A.3d 1112, 1129 (Pa. Cmwlth. 2011)