Niche Pharmacies and Prescription Drug Fee Reimbursement in the Texas Workers’ Compensation System

One of the current trend issues in medical fee dispute resolution circles is pharmacy reimbursement. Niche pharmacies have entered the Texas workers’ compensation market. These pharmacies only market and provide services to injured workers. They do not fill prescriptions for non-workers’ compensation patients. Some are national retailers to injured workers, and others are more local, servicing their surrounding communities. Regardless of their size and the scope of their market(s), they are all dealing with one common fee dispute in Texas – a proxy for the pharmacy’s usual and customary fee.

The maximum allowable reimbursement (MAR) for prescription drugs is set by Division Rule 134.503(a). Under the Rule, the MAR is the lesser of:

1. The provider’s usual and customary charge;

2. A formula based on average wholesale price, a modifier and a dispensing fee;


3. a negotiated or contract price.

If there was a negotiated or contract price, then there would be little need for litigation over a single prescription bill. The recent cases being set before the Division are disagreements over a pharmacy’s usual and customary charges. The pharmacies are billing an amount greater than the formula-based MAR so that the formula-based MAR is paid in every case.

There are many factors in establishing the price of a product – some unique to the workers’ compensation system. In Medical Dispute Resolution case number M4-02-5033-01, the pharmacy argued that it had to factor into its price the unique aspects of: verification that claims relate to compensable workplace injuries, identification of insurers providing coverage and their adjustors, the preparation and submissions of manual claims forms, verification of eligibility for compensation, and the extension of credit pending payment by insurers that is not required until sixty days after the submission of “clean claims.” Considering that the formula-based MAR uses modifiers ranging from 1.09 to 1.25 with only a $4.00 dispensing fee, it can be easy to see how usual and customary prices can be established that exceed the formula-based MAR.

If these cases involved large pharmacies with high volume non-workers’ compensation services, then the operating costs of providing workers’ compensation-related services would be offset by the efficiency and volume of the non-workers’ compensation-related services. Prices would probably tend to be lower in that scenario. But that is not the case with these niche pharmacies marketing only to injured workers. The only way they can get reimbursement is to navigate complex reimbursement systems that require more sophisticated knowledge, greater manpower and longer delays of payment than non-workers’ compensation systems.

Regardless of the justification (or lack thereof) of the prices established by these niche pharmacies, it is not why the pharmacy charges a particular amount, but whether it can establish that it does usually charge a particular amount that is important. Rule 134.503(a) specifically provides that one of the comparison measures for the selection of the MAR value for prescription drugs is the provider’s usual and customary price. The question is not whether the usual and customary price charged is justified. The question is whether the price charged is in fact usual and customary; is it the regular price charged by that provider?

This is the crux of the dispute in these cases. In non-workers’ compensation situations, many of the larger national pharmacies have negotiated contract prices well below the Texas formula-based MAR. These niche pharmacies that only provide services to injured workers have not. So insurance companies are seeing workers’ compensation providers obtaining a higher reimbursement for a particular prescription than it usually pays in non-workers’ compensation situations. This led to attempts to curb these niche pharmacy’s fee reimbursements.

There is only one Medical Contested Case Hearing so far on this issue, reported as Medical Contested Case Hearing Number 10169, and it went through the system as Tracking Number M4-07-4069-01. In this case, the carrier made a partial reimbursement and urged two main reasons why additional reimbursement should not be paid.

First, the carrier had to make some type of reimbursement as there was no dispute over medical necessity. The carrier had negotiated a contract price with another pharmacy or pharmacy clearing house and paid the amount it would have had to pay under that contract. The carrier then argued that the clearing house’s price is a good proxy for the niche pharmacy’s usual and customary price simply because the clearing house has contracted with other pharmacies to pay less than the niche pharmacy’s price. So the carrier argued that the usual and customary price it pays should be the measure for MAR, not the provider’s usual and customary charge.

Secondly, the carrier attempted to use Texas Labor Code Section 415.005 as a bar to additional reimbursement. That section provides that a health care provider commits a violation if the person charges an insurance carrier an amount greater than that normally charged for similar treatment to a payor outside the workers’ compensation system, except for mandated or negotiated charges. The carrier argued that if the pharmacy cannot show what it charges outside of the workers’ compensation system, then it has not proven its usual and customary charge and would not be owed any additional reimbursement. Being a niche pharmacy, only providing services to injured workers, the pharmacy could not show charges outside of the workers’ compensation system. Of course this begs the question: why did the carrier pay anything at all in the first place? If the argument is that (1) a failure to prove usual charges outside of the workers’ compensation system means there is no usual and customary charge established, (2) which means there can be no determination of whether usual and customary or the formula-based MAR is the lesser charge, so (3) no reimbursement is owed, then no reimbursement would have been owed in the first place.

Judge Cole wrote an opinion that tracked the plain language of the law. He found that there is no provision requiring the pharmacy to establish the usual and customary charge for the prescriptions filled for customers outside of the workers’ compensation system if the pharmacy does not fill prescriptions outside of the workers’ compensation system. Likewise, under the Act and Rules, there is no provision allowing a carrier to substitute a proxy’s charge as the usual and customary charge. There are only three methods to establish the proper reimbursement under the Rule. Allowing a carrier to make up a fourth method is not one of the three methods. The only requirement under Rule 134.503(a) is that the pharmacy establish its own usual and customary charge. Some other pharmacy’s usual and customary charge is not relevant.

Texas Labor Code Section 415.005 is being interpreted to be a comparison of one provider’s own charges inside and outside of the workers’ compensation system. It is not a measure of one provider’s charges inside the system to other provider’s charges outside of the workers’ compensation system. This is a significant distinction in this opinion.

Additionally, Texas Labor Code Section 415.005 addresses the multi-jurisdictional issues that arise with national workers’ compensation pharmacies. These pharmacies may charge a different rate in some states than others because of varying fee schedules. For instance, in New Jersey there is a law forbidding a health care provider from demanding or requesting any payment in excess of those permitted in the fee schedule (N.J.A.C. 11:3-29). That system is not like the Texas system that allows a usual and customary billing that is reduced to the proper fee schedule amount by the insurance carrier. Section 415.005 protects providers in Texas who also provide services in other states for a mandated fee – the lower fees billed in other states due to fee guidelines do not affect the calculation of the Texas provider’s usual and customary charges.

The end result is that we now know that the Rule means what it says: if a pharmacy can show that it has billed its usual and customary charge for a prescription drug, then it will be paid that amount, or the formula-based MAR, whichever is less.