Ridiculously High Drug Bills in PA Comp – Are PBMs the Solution or the Problem?

?????????? Carol had a work injury and was prescribed Celexob, the generic form of Celebrex. a common anti-inflammatory.? Her doctor sent her prescription to an out of state online pharmacy.? The comp carrier was billed $833.30 for a single month’s supply.? The carrier’s? TPA (third party administrator) intervened, and through its repricing and Pharmacy Benefits Management (PBM) program, got the price down to $533.? The carrier was happy to save $300 a month on the bill.

The problem is that drug only costs $22, and online pharmacies sell it for as little as $17.?

This scenario plays out the same way for many generic medications dispensed to Pennsylvania workers’ compensation claimants.? Millions of dollars per year are wasted because carriers and employers think that drug prices are “set” by a “schedule” that requires them to pay high prices and believe that the best way to control costs is via a PBM, TPA, medical management consultants, or repricers.? The reality is that payments for prescription drugs can be reduced by up to 98%, often through self-help and without the cost or involvement of any vendors or consultants.?

Let’s walk through the problem, and the solutions, step-by-step.

?There is no fee schedule or formulary for drugs in PA comp.? Pre-approval for cannot be required.? The Act limits payment to 110% of actual AWP but never defines that term and makes no reference to any source for data on AWP.?? One such source, Red Book, is mentioned in an archaic regulation, but never referred to by the Act.?? Even though Red Book is not required by the Act, it has become the tradition in PA for drugs to be priced based on 110% of Red Book AWP. ??PBMs have developed a tradition of comparing Red Book AWPs to amounts they negotiate for their clients.? But Red Book AWP numbers are merely numbers made up by manufacturers and reported to Red Book, and in some cases, these numbers are up to 150 times higher than actual wholesale prices paid by pharmacies.? The? new decision in Federated Insurance v. Summit Pharmacy clarifies that Red Book AWP is to no longer be used.? Red Book AWP does not report on actual average wholesale prices and therefore does not comply with the Act.

?Red Book AWP is a misnomer, and everyone knows it.? State and federal courts have long held that Red Book AWP numbers are inflated, artificial and unrelated to the real prices paid in actual transactions.?? Yet the tradition lives on that Pa. comp carriers and employers pay at 110% of Red Book AWP.? PBMs argue that they can negotiate deals that can result in payments lower than 110% of Red Book, and they almost always can, because the Red Book numbers are so bizarrely inflated.? PBM’s make a lot of money off the “spread” – the difference between Red Book AWP and price actually paid – and therefore, will be slow to dump Red Book as the basis for their programs, even after Federated.

?The example of Celexob is not an outlier.? It is of one of hundreds of drugs for which carriers and employers overpay every single day in PA comp.? Because about 13% of every dollar paid in comp goes to prescription drugs, we can estimate that about $150 million a year is wasted by routine overpayments for drugs.? Nearly every carrier and employer overpays for nearly every generic drug due to use of Red Book AWP and due to PBMs relying on these numbers to obtain “discounted” prices.?? They routinely miss the fact that PBMs are comparing their negotiated prices to the fictious numbers in Red Book, not to real average amounts paid to wholesalers.

?In the example above, the PBM claimed a ?“discount” for the client when the payment amount was compared to the Red Book AWP,? ($533 v. $833) but the true result was payment at a huge mark-up over what other payers would pay ($533 v. $24).? Most PBMs work in secrecy and never reveal to the client what the drug actually costs to obtain or how much the PBM, the pharmacy and other intermediaries profited from the transaction. ?Furthermore, many drug manufacturers pay “rebates’ to PBMs based on the volume of drugs they process.? These rebates can be large, and may not be passed through to the client, or only partially passed along.?

?Companies need to stop comparing PBM pricing to Red Book AWP and start to compare the negotiate price to NADAC.? NADAC is calculated and reported by the federal government based on actual prices paid by pharmacies to wholesalers and can be 99% lower than Red Book AWP.? ?The test to see if your PBM is providing value is simple.? Take the NDC number off a drug bill or HICF form; look it up in ndclist.com ; find the right dosage and number of pills dispensed; and compare that amount to the amount passed through to you by the PBM.? If you paid more than NADAC (plus 10%), you need to take a closer look.? You may find that you paid up to 50 times more than necessary even after the intervention of your PBM.?

?Companies need to speak to their PBMs now.? If the PBM is continuing to base charges on Red Book AWP, they are violating the holding of Federated and overpaying for drugs.? If the PBM resists switching to NADAC, your company should consider consulting with a lawyer and consider options to renegotiate or get out of the PBM contract.? Many such contracts include a provision allowing for early termination of a contract if there is a significant change in the underlying law.? Federated is a monumental change in the law for payments of drugs in PA.?

?One problem is a dearth of PBM’s willing to base payments on NADAC.? A few “cost plus” programs are popping up, but not in the workers’ comp space.? What PA needs is a PBM that bases payments and negotiations on NADAC, but most would avoid such a model due to reduced profit margins.?

?This is complicated issue with considerable ramifications.? Companies should no longer blindly rely on existing PBMs to determine amounts payable in PA comp.? Although an appeal is expected in Federated, and the Bureau has not yet chosen a replacement for Red Book (as it was ordered to do by the Court), your PBM needs a short-term solution to process and reduce bills that does not involve Red Book AWP.?? Talk to a lawyer of your choice to determine the best alternatives while waiting for further action by the Bureau or the courts but think twice before continuing the status quo.? No one knows when the Bureau or the courts will act, or what standards they will provide, but in the meantime, bills must be paid, and Red Book AWP cannot be used.

?Bottom line:? Red Book AWP is no longer the proper basis for pricing and paying drugs in PA comp.? If your PBM bases its current discounts and pricing by comparison to Red Book AWP, you are not getting a true picture of the amount you are required to pay or a fair view of the extent of any discounts negotiated by the PBM.? Use of PBMs, repricers, or TPAs to control drug spending in PA comp will not work unless they are on board with looking at drug prices from the side of actual wholesale prices paid rather than from a starting point of Red Book AWP.?

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?Cliff Goldstein, Esq., formerly the CEO and a Senior Litigator at Chartwell Law, has redirected his career towards a specialized area of law. With 35 years of experience in litigating complex workers' compensation cases, he now concentrates solely on addressing excessive pricing, fraudulent practices, abuse, and waste regarding drugs used in workers' compensation cases.? He aregued the Federated case before the Commonwealth Court.? He can be reached at 215 588 4901 and [email protected]

This article does not provide legal advice.? All cases are unique and if appropriate, should be discussed with an attorney of the client’s choosing.? This article is intended only to stimulate discussion and its contents are not a substitute for independent research and legal consultation before taking or refraining from any action.? This article is merely an expression of opinions of the author.? This article does not create or imply an attorney client relationship.? Do not take or refrain from taking any action based on this article and be sure to consult with an attorney of your choice about the risks of taking or refraining from any actions.? The prices and other numbers in this article are examples taken from websites at the time the article was written. Actual prices and other data will be different and change frequently, and the figures presented are only examples.? This article does not represent the opinions of any company or law firm and is the copyrighted property of the author.? It may not be reproduced in whole or in part without the permission of the author.? Cliff Goldstein is licensed to practice law in Pennsylvania.? For more information, please contact Cliff Goldstein at [email protected] .?