Out of Network/Attorney Directed and Physician Directed Pharmacies
By Jeffrey C. Napolitano
Juge Napolitano Guilbeau Ruli Frieman & Whiteley
Metairie, LA
The total cost of providing prescription medication in Louisiana workers’ compensation cases have skyrocketed in the past 3 years. This can be attributed to both higher costs for the medication as well as higher utilization of medications. Despite the greater use of Pharmacy Benefit Managers (PBMs) on the part of employers, claimant attorneys and physicians have discovered alternative methods to provide prescription medication to claimants that avoid any intervention on the part of the PBMs. This presentation will identify these alternative methods and provide the employer with strategies to regain control over their prescription medication costs.
Why Do Claimant Attorneys and Physicians Want to Avoid PBMs?
Once upon a time, workers’ compensation claimants used to purchase their medication directly at the pharmacy using their own money, then submit the invoice for reimbursement. However, this option soon became too expensive for the claimant to afford. Now, once a workers’ compensation claim is opened, most employers/carriers issue prescription cards to the claimant that allow him to obtain prescription medication for his injury without being out-of-pocket for these costs.
The vast majority of pharmacies agree to be part of the approved network, and in exchange the pharmacy agrees to accept a price lower than the ceiling provided by the “fee schedule.” This proved to be a win/win situation for the employer and employee. Therefore, one might wonder why claimant attorneys and physicians would see a need to perform an end around this procedure to find alternative methods to dispense medication to claimants. The answer is two-fold: (1) control and (2) money.
The first objection that claimants have to this method is control. Before a claimant can fill his prescription using his card, the pharmacy needs to obtain approval from the insurance company/PBM. The medication will be automatically and immediately approved if it is one that is listed on the PBM formulary for that particular diagnosis. If the medication is not listed in the formulary, such as when a doctor wants to prescribe a medication for off-label use, the pharmacy will need to obtain specific approval from the adjuster. The approval process may take between 1 to 24 hours, and approval is not guaranteed. Therefore, control over whether the medication is dispensed remains with the employer/carrier.
A second reason to disregard the prescription card is based on money. Certain doctors and pharmacies have found a unique way to make the writing and dispensing of prescriptions a valuable profit center for their business. By avoiding PBMs, they are not bound by network pricing agreements below fee schedule, and in some cases are able to name their own fee schedule price. Many claimant attorneys also prefer this because it establishes a higher cost for future medicals when it comes time to discuss settlement.
The following are 3 ways in which participants have tried to dispense medication outside the control of PBMs, along with suggestions on how to combat these methods.
Out of State Mail Order Pharmacies
One method used by claimant attorneys to bypass PBMs is to use out of state mail order pharmacies. The claimant chooses not to use his prescription card, but rather sends his prescription slip directly to mail order company, who then fills the prescription for the claimant and bills the employer/carrier directly. At no time does the mail order company ask for prior approval from the employer/carrier. This avoids any input or control by the employer/carrier over whether the prescription is dispensed. Furthermore, the carrier is charged the maximum amount allowed by the fee schedule.
Proponents of this method like to say “They are only charging fee schedule.” To the uninformed, this might sound like a reasonable price. However, Louisiana has by far the highest fee schedule in the nation. In Louisiana, fee schedule calls for AWP (Average Wholesale Price) plus 40% of AWP, plus a dispensing charge. Most other states’ schedules allow only for a 5 to 10% markup. When processed through the PBM networks, the price is right around AWP plus a dispensing fee of $5 to $10.
Therefore, if AWP is $100.00, the maximum amount allowed under fee schedule comes to $145.77. This is a significant increase in cost over that available through a PBM.
How can the employer combat this? Section 1203(a) provides:
“The employer shall furnish all necessary drugs. . .and shall utilize such state, federal, public, or private facilities as will provide the injured employee with such necessary services. Medical care, services, and treatment may be provided by out of state providers. . .when such care, services, and treatment are not reasonably available within the state or when it can be provided for comparable costs.”
The employer should argue that the mail order company is an out of state provider. These providers should only be used “…when such care, services, and treatment are not reasonably available within the state or when it can be provided for comparable costs.” Since this service is available within the state and at a significantly lower cost, out of state providers should not be allowed to provide this service.
Section 1203(a) was cited in the case of Sigler v. Dresser Rand, 04-1138 (La.App. 3rd Cir. 12/29/04); 896 So.2d 189. The court ultimately held that the employer gets control over choice of pharmacy, so long as the proper medication is provided in a timely fashion. This case supports the position that control over the dispensing of medication should remain with the employer/carrier.
When presented with this defense, claimant attorneys have argued that Section 1142(b)(1) provides that each health care provider may not incur more than a total of $750.00 in non-emergency diagnostic testing or treatment without the mutual consent of the payor and the employee. Any amounts in excess of $750.00 shall not be an enforceable obligation against the employee or the employer or the employer’s workers’ compensation insurer.
The purpose of this statute was to allow treatment to the claimant immediately after the accident in cases where the claim had not yet been set up by the carrier. Medical providers would not be leery in providing initial treatment while the claim was still being set up.
Claimant attorneys have seized upon this language to argue that this entitles them to reimbursement of up to $750.00 even without the consent of the employer/carrier. Furthermore, they claim that the $750.00 limit applies to each individual prescription.
An employer should point out that a participant must be in good faith in order to use this $750.00 provision. Jurisprudence has established that an employer may not avail himself of the $750.00 limitation in cases where the employer has denied the compensability of the claim. Therefore, if a court finds that the claim is compensable, the employer’s liability to the various medical providers is not limited to $750.00 even though they did not receive the consent of the employer to treat.
Likewise, once the employer/carrier puts the out of state pharmacy on notice that they are not an approved provider, they should not be permitted to disregard this notice and run up a bill of $750.00 anyway. This is not an act of good faith, and it violates the spirit and intent of the statute. The employer is not denying the claim, nor is the employer denying the claimant the right to the medication. They have already issued the claimant a prescription card. They are simply exercising their legal right to choose the pharmacy under Sigler. The employer should also argue, in the alternative, that the $750.00 limitation applies per provider, not per prescription.
Third Party Billing Companies
A second method used by pharmacies to bypass the employer’s PBM is the use of third party billing companies. Most pharmacies have chosen to be part of the PBM network. Therefore, any direct billing by the pharmacy would be subject to the pricing agreements found within the network contracts.
To get around this, some pharmacies use third party billing companies to insert an intermediary in the billing process to avoid sending the bill directly to the carrier/PBM. The “middle man” purchases an assignment from the pharmacy, then turns around and bills the carrier directly. What is enticing to the pharmacy is that many of these billing companies provide immediate payment to the pharmacy via electronic funds transfer upon dispensing of the medication. The pharmacy does not need to seek approval, nor wait on payment by the insurance company.
Sometimes, this is so attractive that the pharmacy will offer a discount price to the billing company even below what the PBM is offering. The billing company then turns around and “reprices” the medication to reflect the maximum amount allowed under the fee schedule. The middle man receives a huge mark up profit, and the only service that they rendered was billing.
The argument against these companies is that Section 1205 of the Louisiana Worker’s Compensation Act prohibits assignments of worker’s compensation claims. Therefore, they have no legal right to assert this demand. Secondly, the third party billing company is not a medical provider as defined under Section 1021(6). Only an employee, a medical provider, or a health insurance company can assert a claim against the employer in the OWC. Since a third party billing company is not a recognized claimant, it cannot bring a suit against the employer. We have had success in getting these claims dismissed on an exception of no right of action.
Physician Dispensed Medication
A third method of bypassing the employer’s PBM is having the physician dispense the medication directly to the patient. Physicians are permitted by law to obtain licenses that allow them to dispense pharmaceuticals directly to the patient. This practice was drastically reduced effective January 1, 2009 when physicians were restricted from prescribing controlled substances.
Nonetheless, there are a number of prescriptions that do not fit under the definition of controlled substances, such as carisoprodol, dezocine, nalbuphine, meloxicam and tramadol. A handful of physicians have decided to dispense these medications directly to their workers’ compensation patients. They contract with licensed wholesale pharmacies to provide these medications in pre-packaged containers.
Not only does the employer lose control over approving these medications, but the prices for this medication are exorbitant. Once again, the claim by the physician and wholesale pharmacy that they are “only charging fee schedule” rings hollow. Fee schedule is determined by AWP. AWP as published has nothing to do with manufacturing cost or acquisition cost. A short explanation of how AWP is established is necessary.
Any prescription is uniquely identified by a National Drug Code (NDC). This code identifies the product (including the strength and formulation), the package size and the labeler. The labeler may be the manufacturer, the repackager or the distributer.
Since each NDC has its own unique AWP, any firm that repackages a drug can set both a new NDC as well as a new, possibly artificially inflated, AWP. In other words, a repackager may acquire a medication from the manufacturer, repackage it, give it a new NDC, and name its own price. The AWP that it arbitrarily assigns does not have to have any relationship to its cost or the drug’s market rate. The repackager advises the publisher of what the AWP is for each of its products. The publisher lists the price that it is given as the AWP. The fee schedule price for this product is based upon the artificially inflated AWP.
Three-fourths of repackaged drugs are dispensed by physicians. When it comes to pricing of pharmaceuticals, physicians and wholesale pharmacies are not bound by competition or by network pricing agreements. Manufacturers are in effect governed by free market competition. If the price is too high, purchasers will go elsewhere for their medication. On the other hand, physicians are not bound by price when they bypass the employer’s PBM. The AWP for the medication that they dispense can be as high as they want because it is simply passed on to the employer.
A recent NCCI study revealed that the AWP of physician-dispensed repackaged medication can be as much as 5 times higher than the same drug obtained through a retail pharmacy. Carisoprodol had an NDC with a unit AWP of $0.36 per pill when the retail pharmacy acquired the medication straight from the manufacturer, but an NDC with a unit AWP of $1.83 when the physician obtained the medication through a repackager.
This is even more outrageous in Louisiana due to the markup of 40% allowed under the fee schedule. A 60 day supply through a PBM would cost about $27.37. However, when the PBM is bypassed, and the higher AWP for the same medication is applied, the “fee schedule” price comes to about $159.49.
So why would a physician choose a supplier who supplies medication at a much higher price? So they can share in this exorbitant profit. The physicians enter into agreements with the repackagers in which the repackager supplies to the physician all of the medication, without any out of pocket expenses to the physician, and when the insurance carrier pays the bill, the repackager and the physician share the proceeds according to an agreed upon percentage.
Once again, the employer/carrier should place these physicians and wholesale pharmacies on notice that the law provides the employer with choice of pharmacy, and that these parties are not your choice. The employer should also avail itself of the other defenses stated above regarding illegal assignments under Section 1205, and/or no right of action to entities that are not medical providers under Section 1021(6). The repackagers are wholesale pharmacies, and not retail pharmacies. Therefore you should argue that since they are not permitted to dispense directly to the patient, they are not medical providers as defined by Section 1021(6).
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