Articles & Updates

Breaking Boundaries: Exploring the Implications of Employers’ & Carriers’ Exemption from Red Book Prescription Reimbursements

Jan 9, 2024 | Articles & Updates

Article by Joseph C. Romano, Esq.

Employers and workers’ compensation insurance carriers in Pennsylvania recently obtained a significant victory in the Commonwealth Court.  In Federated Insurance Company v. Summit Pharmacy (Bureau of Workers’ Compensation Peer Review Office), the Commonwealth Court determined that employers and carriers are not bound by the prescription reimbursements as defined by the Red Book and, instead, are only required to pay 110% of the average wholesale price. 

For many years, the skyrocketing cost of prescription reimbursements under Pennsylvania Workers’ Compensation has been problematic for employers and carriers.  Prescription costs under the Workers’ Compensation Act in Pennsylvania have outpaced most other states across the country.  A significant reason for that has been the payment mechanisms available under the Workers’ Compensation Act.  The Federated Decision represents a glimmer of hope for employers and carriers in attempting to combat these growing outrageous costs. 

The controversy in Federated focuses on the definition of average wholesale price under the Pennsylvania Workers’ Compensation Act.  Carriers and employers are required to reimburse prescriptions at 110% of the average wholesale price.  However, the Act did not define what average wholesale price means.  For many years, case law has supported utilizing the Red Book as the publication to determine the average wholesale price for determining the payment.  However, many familiar with this issue have argued that the average wholesale price as indicated in the Red Book does not represent the average wholesale price with which the pharmacy receives the medication from the manufacturer/wholesaler.  Instead, the Red Book is more akin to the manufacturer’s suggested retail price in various industries.  This pricing vastly inflates the cost of prescription medications.  In fact, in the Commonwealth Court Opinion, the Court utilized Prozac as an example of the inflated costs.  Prozac has a true average wholesale price of $9.00 per bottle.  However, the price as indicated in the Red Book is approximately $2,000.00.  Utilizing the Red Book for reimbursement of Prozac, for example, creates a massive windfall for pharmacies. 

As a part of its argument, Federated Insurance suggested that the proper payment mechanism is 110% of the National Average Drug Acquisition Cost (NADAC).  However, the Commonwealth Court could not utilize the NADAC as the underlying determination by the Fee Review Officer did not find the amount indicated by the NADAC amount to be credible.  As such, the Commonwealth Court remanded to the Fee Review Hearing Officer for a determination of an appropriate average wholesale price of the prescription and to stay the litigation while the Bureau of Workers’ Compensation establishes a new schedule to determine payment.  The Commonwealth Court also directed the Bureau of Workers’ Compensation to establish a new schedule for determining the average wholesale price. 

In reviewing the Commonwealth Court’s analysis, the Commonwealth Court seems to indicate that it would have accepted a payment mechanism of 110% of the NADAC amount had, the Fee Review Officer not rejected that amount as not credible.  On page 23 of the Decision, the Court indicates, “we are left with a record that includes the Red Book, which cannot be used due to its legal inconsistency with the Act, and an alternative index, the NADAC, which cannot be used due to the Hearing Officer’s credibility determination.”  This language can be interpreted to indicate that the Commonwealth Court would have adopted the NADAC amount but for the adverse credibility determination by the Fee Review Officer in this limited circumstance alone.

Moving forward, prescriptions must be reimbursed at 110% of the average wholesale price.  However, what that average wholesale price is remains up for debate.  Payment of 110% of the NADAC would be defensible based on the Commonwealth Court’s opinion.  Carriers could attempt to utilize other nationally recognized payment schedules and pay 110% of that amount.  Finally, carriers could negotiate payments with the pharmacy while they await additional instruction.  It would behoove employers and carriers to wait as long as possible under the 30-day requirement to issue payment while we await action from the Bureau. 

Please feel free to contact Joseph C. Romano or the Workers’ Compensation Department at Burns White if you would like to discuss this matter further or seek any additional clarification.  Thank you.