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Court voids price guide for workers’ comp drugs

A state court has shelved the Red Book, a compendium of wholesale drug prices that state officials routinely use to settle disputes over drug costs in Pennsylvania’s worker’s comp program. 

  • In a ruling this week, Commonwealth Court disqualified use of the book after an insurer challenged it, claiming the book’s listed prices were not accurate. 
  • State officials must find a new guide, according to the ruling.
  • Depending on the choice, employers and their insurers could wind up spending less for drugs prescribed to injured workers.

 

How did this start: With a dispute over how much a workers’ comp insurer should reimburse a pharmacy for generic drugs prescribed to an injured worker.

  • The pharmacy sent bills to the insurer totaling $74,011.81 between April 2021 and September 2022, according to court records.
  • After reviewing the bill, the insurer adjusted its reimbursement to $1,511.93, based on a gauge called the National Average Drug Acquisition Cost Index, or NADAC index.
  • The pharmacy filed an administrative appeal with the state bureau of workers’ compensation fee review, which falls under the Department of Labor & Industry.
  • Using the Red Book as its guide, the bureau ordered the insurer to cough up the roughly $72,500 gap between what it was billed and what it believed it should pay.
  • The insurer then sought a hearing where it unsuccessfully disputed use of the Red Book, bringing the fight to Commonwealth Court.

 

Who won: The insurer.

  • In a unanimous decision, a seven-judge panel agreed that the Red Book is not an accurate guide to drug prices.

 

Why not: The book’s prices do not reflect “actual wholesale prices” paid for drugs, as required by state law.

  • Prices in the Red Book are more like a manufacturer’s suggested retail price, not the price that people actually pay, according to the ruling.
  • However, the court declined to replace the Red Book with the insurer’s preferred alternative, the NADAC index.
  • Thus, it is up to state officials to pick a new guide and issue a new decision in the underlying dispute.
  • “The department is carefully reviewing the ruling as we evaluate next steps,” a spokesperson for L&I said.
  • Under state law, insurers must reimburse 110% of the “actual wholesale price.”

 

Why is this happening now: Possibly due to the growing cost of prescription drugs, said Jason Hanford, an attorney with Chartwell Law in King of Prussia. He represented the insurer in the Red Book case.

  • “In the last five years, there have been a lot of prescriptions in Pennsylvania workers’ comp claims that are extremely costly,” he said, noting that insurers and employers may be taking a closer look now.
  • He expected any replacement for the Red Book to lead to a reduction in cost for many drugs.
  • Efforts to reach an attorney for the pharmacy company were not successful.

 

What are the costs: The average prescription in workers’ comp cost $273 in 2022, up from $263 in 2021, according to medical data collections from the Pennsylvania Compensation Rating Bureau, an agency that helps set workers’ comp insurance premiums.

  • Claims can involve more than one prescription. In 2022, the average prescription cost per claim was $1,060.76, up from $1,032.56 in 2021, according to the rating bureau.
  • According to a report from the bureau for 2018-2020, 29% of workers’ comp claims involved prescriptions.

A state court has shelved the Red Book, a compendium of wholesale drug prices that state officials routinely use to settle disputes over drug costs in Pennsylvania’s worker’s comp program. 

  • In a ruling this week, Commonwealth Court disqualified use of the book after an insurer challenged it, claiming the book’s listed prices were not accurate. 
  • State officials must find a new guide, according to the ruling.
  • Depending on the choice, employers and their insurers could wind up spending less for drugs prescribed to injured workers.

 

How did this start: With a dispute over how much a workers’ comp insurer should reimburse a pharmacy for generic drugs prescribed to an injured worker.

  • The pharmacy sent bills to the insurer totaling $74,011.81 between April 2021 and September 2022, according to court records.
  • After reviewing the bill, the insurer adjusted its reimbursement to $1,511.93, based on a gauge called the National Average Drug Acquisition Cost Index, or NADAC index.
  • The pharmacy filed an administrative appeal with the state bureau of workers’ compensation fee review, which falls under the Department of Labor & Industry.
  • Using the Red Book as its guide, the bureau ordered the insurer to cough up the roughly $72,500 gap between what it was billed and what it believed it should pay.
  • The insurer then sought a hearing where it unsuccessfully disputed use of the Red Book, bringing the fight to Commonwealth Court.

 

Who won: The insurer.

  • In a unanimous decision, a seven-judge panel agreed that the Red Book is not an accurate guide to drug prices.

 

Why not: The book’s prices do not reflect “actual wholesale prices” paid for drugs, as required by state law.

  • Prices in the Red Book are more like a manufacturer’s suggested retail price, not the price that people actually pay, according to the ruling.
  • However, the court declined to replace the Red Book with the insurer’s preferred alternative, the NADAC index.
  • Thus, it is up to state officials to pick a new guide and issue a new decision in the underlying dispute.
  • “The department is carefully reviewing the ruling as we evaluate next steps,” a spokesperson for L&I said.
  • Under state law, insurers must reimburse 110% of the “actual wholesale price.”

 

Why is this happening now: Possibly due to the growing cost of prescription drugs, said Jason Hanford, an attorney with Chartwell Law in King of Prussia. He represented the insurer in the Red Book case.

  • “In the last five years, there have been a lot of prescriptions in Pennsylvania workers’ comp claims that are extremely costly,” he said, noting that insurers and employers may be taking a closer look now.
  • He expected any replacement for the Red Book to lead to a reduction in cost for many drugs.
  • Efforts to reach an attorney for the pharmacy company were not successful.

 

What are the costs: The average prescription in workers’ comp cost $273 in 2022, up from $263 in 2021, according to medical data collections from the Pennsylvania Compensation Rating Bureau, an agency that helps set workers’ comp insurance premiums.

  • Claims can involve more than one prescription. In 2022, the average prescription cost per claim was $1,060.76, up from $1,032.56 in 2021, according to the rating bureau.
  • According to a report from the bureau for 2018-2020, 29% of workers’ comp claims involved prescriptions.

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