DECISION AND ORDER

I. Summary

Highpoint Pharmacy (Petitioner), sought review of three decisions by the Medical Review Division (MRD) of the Texas Workers’ Compensation Commission (Commission) declining to order the University of Texas System (Carrier) to pay Petitioner all reimbursement it requested for dispensing Vanadom, a muscle relaxant, on behalf of___. (Claimant). The Petitioner contended that it should be reimbursed at the rate it billed for four prescriptions. The Carrier had denied each of the claims on the basis that, on the dates it was dispensed, the drug was not on the Commission’s authorized drug price list. Based on the evidence, the Administrative Law Judge (ALJ) holds that the Petitioner met his burden of proof to show that he should be reimbursed for all medication dispensed. The Carrier must reimburse Petitioner a total of $ 673.96 for the four dates of service at issue.

The ALJ convened a hearing on these issues on July 24, 2002, and the record closed August 2, 2002. Nicky Otts, president of High Point, appeared for that company. Laura B. Fountain appeared on behalf of the Carrier, and Yvonne Williams appeared for the Commission.

The decision in this case applies to all docket numbers listed in the heading above, which were consolidated for hearings purposes on May 16, 2002.^[1]

II. Factual Background

On the dates of services at issue, Claimant was being treated by Jacob Rosenstein, M.D., a neurologist, for a back injury that Claimant suffered on ___, while on his job. There was no dispute that muscle relaxants were medically necessary to treat Claimant’s back injury. Tex. Labor Code Ann. §§ 408.021 and 408.011(19). On March 22, April 5, and November 7 and 19, 2001, Dr. Rosenstein prescribed Vanadom, a muscle relaxant, for the treatment of Claimant’s injury.^[2] Petitioner filled four prescriptions written by Dr. Rosenstein, then requested reimbursement from the Carrier. The Carrier refused to reimburse Petitioner any amounts on the grounds that the drug was not listed in the drug price lists referenced in the Pharmaceutical Fee Guideline (PFG).^[3]

The MRD separately reviewed each of three claims arising from the four prescriptions, reaching conflicting results. In regard to the March 22 and April 5, 2001, prescriptions, the MRD held that Petitioner was not entitled to any reimbursement as the named drug indeed did not appear on a drug price list authorized for use by the Commission. (November 30, 2001). However, for the prescriptions written on November 7 and 19, 2001, the MRD held that Petitioner was entitled to reimbursement at the maximum allowable reimbursement (MAR) for carisoprodol, the generic equivalent of Vanadom’s muscle relaxing component. (April 16 and 17, 2002).

The parties’ focus on publication arose from their conflicting view on the meaning of language in the PFG that declared two privately-published drug price lists, the Medispan guides, to be the sole source of the average wholesale price (AWP) of medications.^[4] The Carrier argued the PFG must be read strictly to permit only Medispan guides to be used to price drugs. On the other hand, the Commission and Petitioner contended changes in the drug-listing business that occurred in 2001 require a broader interpretation of the rule in order to fulfill the purposes of the statute.

In 2001, the drug-listing landscape changed considerably because the publications referenced in the PFG to determine the price of a drug ceased to exist. The PFG’s reference to a particular AWP source is important since the AWP is the starting point of a formula used to calculate the MAR for that drug. Although other price lists existed,^[5] the PFG did not permit the use of the AWPs from any other published drug lists to compute a MAR for a drug. Thus, the cessation of Medispan left a substantial gap in the PFG’s pricing scheme. In 1999, First DataBank, another drug-list publisher, purchased Medispan, and shortly thereafter discontinued the all Medispan guides. First DataBank published the last edition of the Medispan price lists in the third quarter of 1999. First DataBank replaced the Medispan guides with its own publication, PriceAlert. (Pet. Exh. 3). The PriceAlert brochure was based on the more complete National Drug Data File (NDDF), an on-line data bank also published by First DataBank. PriceAlert contained entries on 8,000 generic and 5,000 brand-name items. (Pet. Exh. 3)

As the Medispan guides had ceased publication over six months before the first date of service here, there could obviously have been no listing of Vanadom there. The parties agreed that Vanadom did not appear in the issues of PriceAlert covering the dates of service, although the medication was listed in the NDDF. Odes Mitchell, president of GM Pharmaceuticals, the company which manufacturers Vanadom, emphasized that PriceAlert was not a comprehensive drug list, but rather was a list limited to drugs which fit only two categories. Those two categories were, one, those whose national sales met First DataBank’s predetermined criteria for sales volume, and, two, those produced by manufacturers who paid First DataBank a fee to have their drugs appear in PriceAlert. Mr. Mitchell stated Vanadom did not reach the sales volume cutoff, and that his company declined to pay for a listing. Although there was no extensive discussion of the entry criteria for the NDDF, or the size of its database, the parties were in agreement the NDDF is a much more comprehensive list than is PriceAlert. In their discussion, the parties also noted there are other drug lists, including the Redbook and the FDA’s National Drug Code, which are also relied upon by the pharmacy and medical community.

Petitioner requested reimbursement of $167.48 each for the prescriptions written on March 22 and April 5, 2001, of $218.12 for the November 7, 2001 prescription, and of $237.77 for the November 11, 2001 prescription. Nicky Otts, a pharmacist and Petitioner’s president, stated the differences over this short period of time were attributable to a volatile drug market. The MRD ordered Carrier to reimburse Petitioner $57.18 for each of the two prescriptions written in November 2001, applying the then-current prices for the generic drug carisoprodol. Notwithstanding the MRD decisions, the Commission’s position at the hearing was that Petitioner should be reimbursed the amounts they billed. The Commission also argued that a reasonable reading of the PFG would support a conclusion that publication in the NDDF, in PriceAlert, or even a comparable national publication like the Redbook, was the functional equivalent of Medispan for reimbursement computation purposes after the demise of Medispan. As of the dates of service in question, the Commission had made no policy pronouncement or adopted any rules advising providers and insurers how to price drugs in lieu of the defunct Medispan guides.^[6] As noted, the Carrier took the position that the specific language of the PFG, which referenced only drug pricing lists issued by Medispan, barred reimbursement for drugs appearing on any other drug list.

In the lternative, the Carrier argued that if the Vanadom is reimbursable, it should be reimbursed at the generic MAR, as the MRD had done for the November dates of service. The Carrier argued that the pricing for a brand-name drug should be applied to only the original, or precursor, form of a drug. The PFG in effect on the dates of service created two categories of drugs, branded and generic, for pricing purposes, but did not define those terms. The classification of the drug as branded or generic changes the MAR computation. In contrast to the two categories listed in the PFG, the evidence in this case suggested that the marketplace has developed a third classification, loosely termed a “branded generic.” According to Mr. Mitchell, drug manufacturers add constituents to a generic which make the drug less harsh on the stomach, dissolve more readily, or offer similar enhancement. This combination product is then marketed under a brand name, as was Vanadom. The parties agreed that Soma, the parent or precursor drug for the carisoprodol line of products, would unquestionably be considered a brand-name drug under the terms of the PFG, but disagreed into which category a Abranded generic would fall. The Carrier argued that only the precursor drug in a line of drugs should be treated as a brand-name drug, and that both true generics and “branded generics” should be priced at generic price levels. On the other hand, the Petitioner argued that the “branded generics” are brand-name products so should be reimbursed as such. The Commission also contended that a “branded generic” should be considered a brand-name drug.^[7]

III. Discussion

The ALJ concludes the PFG provides sufficient latitude to permit alternative pricing mechanisms, and that under the circumstances in 2001, applying those alternative mechanisms is consistent with the purposes of the Workers’ Compensation Act (Act).

All parties in this case based their positions on eligibility for reimbursement on the premise that appearance of a drug on a published drug price list was a prerequisite to reimbursement. This is a somewhat puzzling position, since the text of the PFG does not require that a drug be on the Medispan list, or any other list, in order to be reimbursable. The Carrier’s explanation of benefits in this case listed denial code “F,” which is described as “no listing in required publication.” The ALJ is unclear as to the source of this definition since the payment exception code portion of the EOB form that has been in effect since July 2000 (TWCC 62) provides a more nuanced definition, which does not require listing for reimbursement:

F [Fee guideline MAR reduction]

Used when the IC (insurance carrier) is reducing payment from the billed amount in accordance with the appropriate TWCC fee guidelines. MAR, including when the IC is paying for a generic pharmaceutical at the brand-name price because the brand name price is lower. NOT used for reductions based on lack of documentation or for charges for which TWCC has not established an MAR. (Emphasis in original)

The text of the PFG invokes the Medispan guides as sources for the average wholesale price on which to base the MAR for a drug. However, the PFG did not on its terms denote the Medispan lists to be an exclusive list of drugs available to health care practitioners to treat workers’ compensation patients, nor does the medical cost evaluation rule so specify. 28 Texas Admin Code (TAC) § 42.115.

Nor are the MARs that appear in the guidelines mandatory prices, rather “the fee guidelines promulgated in this subchapter are intended to establish presumptively fair and reasonable charges for health care services and supplies which may be covered under the Act.” 28 TAC § 42.101. (Emphasis added). Thus, despite the language limiting the AWP source to one publication, the overall scheme of the PFG held open the door to permit providers to overcome that presumption by sufficient evidence.

The Carrier’s primary position in this case is draconian. Following the argument to its logical extreme would have the result of creating an 18-month period between late 1999 and January 3, 2002, the effective date of the new pharmaceutical rule, during which virtually no drug would have been compensable since the named Medispan publications no longer exist. The ALJ concludes that this interpretation of the rule would thwart the overarching purpose of the workers’ compensation statute to provide to injured workers all appropriate treatment B including medications – to cure or relieve the effects of a compensable injury. Tex. Labor Code Ann. §§ 408.021 and 408.011(19). Indeed, the Commission chose in 1996 to restate this key principle in Section “D” of the PFG, underscoring its application to medications.

Further, the PFG already had in place an alternative pricing category, that of “the provider’s usual and customary charge.” 28 TAC § 42.115(a)(1). The procedures in that section can be used to set a drug price in absence of the Medispan guides.

As to the classification of the drug, the ALJ concludes that the Provider met his burden of proof to show that Vanadom should be treated as a brand-name drug. Neither the former PFG, nor the new rule adopted this year, distinguishes between a precursor drug and one of the “branded generics” that may follow it. All drug lists in evidence treat Vanadom as a product separate from the generic capisoprodol products. The testimony of both Mr. Mitchell and Mr. Otts established that the “branded generic” was an established market category. There was no evidence that the agency’s decision to create only two categories of drugs, generic and branded, exceeded the Commission’s authority or bore some other invalidating legal defect. Thus, the ALJ will apply the categories selected by the agency through rule to conclude Vanadom should be treated as a brand-name drug. The prescriptions should be paid under that category for all dates of service.

As noted above, the rule provisions authorizing payment for drugs at the provider’s “usual and customary charge,” and the section setting forth the purpose of the MAR being a presumptively fair and reasonable price, give a provider an opportunity to show that amounts he billed are appropriate. What changed in 2001 was erasing the agreed means of deriving an MAR for drugs that would be treated as presumptively fair and reasonable. Rather, a provider after the third quarter of 1999 had to shoulder the entire burden to show his charges were fair and reasonable, within the meaning of 28 TAC § 42.115(a)(1). To attempt to meet that burden in this case, the Petitioner provided pricing data from several drug price lists. In the Medispan Generic Buying and Reimbursement Guide for the third quarter of 1999, the AWP was $1.92 per 350-milligram (mg.) tablet. (Pet. Exh. 4). The manufacturer’s proposed Redbook listing for the drug in November 2001 was $ 2.50 per tablet. (TWCC Exh.6). The Commission produced evidence that, effective January 2001, the NDDF listed the AWP for 350-mg. tablets of Vanadom as $2.74 per tablet. (TWCC Exh. 2). Petitioner provided no evidence that any per-tablet charges above the AWP in one or more of the widely-known drug lists was warranted.

The standard computation formula of the PFG for brand-name drugs, should be applied to all four dates of service.^[8] Based on the pricing evidence in the record, an AWP of $2.74 per 350‑mg. tablet was current in the industry between March 22 and April 5, 2001. Applying the PFG’s formula yields a price of $183.19 for a 60-tablet prescription for those months. Petitioner’s billing price was lower being apparently based some other, unknown price listing. Being lower, the charge of $169.48 per prescription should be considered Petitioner’s “usual and customary” price, under the terms of the PFG. Based on the pricing information in evidence covering November 2001, at least one drug list published an AWP of $2.50 per 350-mg. tablet of Vanadom in that month. Applying the PFG’s formula to that AWP yields a price of $ 167.50 for a 60-tablet prescription. As Petitioner presented no contemporaneous pricing evidence to support the amounts of $218.12 and $237.77 which he billed in that month, he failed to prove that the billed amounts were fair and reasonable prices. Reimbursement to Petitioner for the two November 2001 prescriptions should be $ 167.50 for each.

In sum, the Carrier is obligated to reimburse Petitioner a total of $ 673.96 for all four dates of service at issue in this case.

IV. Findings of Fact

1. On_________. (Claimant) suffered a compensable back injury at his job with the University of Texas System (Carrier).
2. On______, the Carrier itself provided workers’ compensation insurance coverage for its employees.
3. Between March and November 2001, Jacob Rosenstein, M.D., a neurologist, treated Claimant for his compensable back injury.
4. In 2001, Dr. Rosenstein concluded that Claimant’s ongoing cervical and lumbar radiculopathy, with recurrent disc herniations at the L4-L5 and L5-S1 levels, resulted from his on-the-job injury of_______.
5. Along with other medications to treat Claimant’s ongoing back symptoms, Dr. Rosenstein prescribed 350-milligram (mg.) tablets of Vanadom, a muscle relaxant, on four dates in 2001. The prescriptions were dispensed by Petitioner on March 12, April 5, and on November 7 and 19, 2001 (dates of service). Each prescription was for 60 tablets.
6. Vanadom was medically necessary to treat Claimant’s compensable injury.
7. Vanadom is a brand-name drug, whose muscle-relaxant component is carisoprodol. Vanadom contains ingredients in addition to carisoprodol.
8. The Carrier denied payment for all four dates of service listed in Finding of Fact No. 5 on the basis Vanadom was not on one of the Medispan drug guides referenced in the then-current Pharmaceutical Fee Guideline (PFG).
9. Petitioner appealed the Carrier’s denial of benefits to the Medical Review Division (MRD) of the Texas Workers’ Compensation Commission (TWCC).
10. On November 30, 2001, the MRD declined to order the Carrier to reimburse Petitioner for Vanadom prescriptions it dispense on March 22 and April 5, 2001, on the basis the drug was not listed in a Medispan publication.
11. On April 16 and 17, 2001, respectively, the MRD ordered the Carrier to reimburse Petitioner for Vanadom prescriptions it dispensed on November 5 and 19, 2001, at the rate set in the PFG for carisoprodol, the generic form of this drug.
12. The Petitioner filed timely requests for hearing of all three MRD decisions referenced in Findings of Fact Nos. 10 and 11. The Commission issued three notices of hearing which included the date, time, and location of each hearing, and the applicable statutes under which each hearing would be conducted. The notices stated that additional facts on the nature of the matters asserted would be issued within 10 days of the hearing. The hearing notices were issued on February 20 and May 23, 2002. The Commission timely filed statements of matters asserted in each case.
13. The three cases were consolidated on May 16, 2001. On July 24, 2002, Administrative Law Judge (ALJ) Cassandra Church conducted a hearing on the merits of the consolidated cases. The record closed on August 2, 2002.
14. The PFG in effect on the dates of services provided formulas for calculating the maximum allowable recovery (MAR) for medications prescribed for workers’ compensation patients. The formulas for both generic and brand-name drugs have as a starting point the average wholesale price (AWP) of a unit of the drug.
15. The PFG required the drug MAR to be calculated using the AWP appearing in two drug lists that were published by the private company Medispan. The two lists were the Medispan Prescription Pricing Guide and the Medispan Generic Buying and Reimbursement Guide.
16. Another drug list publisher, First DataBank, acquired Medispan in mid-1999, and shortly thereafter discontinued both Medispan publications listed in Finding of Fact No. 15. The last editions of the two Medispan guides appeared in the third quarter of 1999.
17. On the dates of service, TWCC had not issued instructions or guidelines regarding computation of drug MARs in the absence of the Medispan guides referenced in the PFG.
18. After the third quarter of 1999,First DataBank substituted its publication, PriceAlert, for the Medispan pricing guides.
19. In 2001, PriceAlert was not a comprehensive drug list, but listed only drugs which had a high volume of sales and drugs whose manufacturers paid a fee to First DataBank for listing.
20. First DataBank also maintained a computerized database of drugs, the National Drug Data File (NDDF). The NDDF was more comprehensive and included more drugs than PriceAlert.
21. The Redbook is a drug list.
22. PriceAlert, the NDDF and the Redbook all list AWPs for drugs, and are all used in the pharmacy and medical community.
23. On the dates of service, Vanadom was not listed in PriceAlert; Vanadom was listed on the NDDF and/or in the Redbook. The AWP for Vanadom after January 2001 was $ 2.74 per 350‑mg. tablet. The Redbook AWP for Vanadom in November 2001 was $ 2.50 per 350-mg. tablet.
24. On March 22 and April 5, 2001, Petitioner billed $183.19 for each 60-tablet prescription. On November 7, 2001, Petitioner billed $218.12 for a 60-tablet prescription. On November 19, 2001, Petitioner billed $ 237.77 for a 60-tablet prescription.

V. Conclusions of Law

1. The Texas Workers’ Compensation Commission (Commission) has jurisdiction to decide the issues presented pursuant to Tex. Labor Code § 413.031.
2. The State Office of Administrative Hearings has jurisdiction over matters related to the hearing in this proceeding, including the authority to issue a Decision and Order, pursuant to Tex. Labor Code § 413.031 and Tex. Gov’t Code ch. 2003.
3. Petitioner timely filed notice of appeal, as specified in 28 Tex. Admin Code (TAC) § 148.3.
4. The Commission issued timely and proper notice, in accordance with Tex. Gov’t CodeANN. ch. 2001 and 28 TAC § 148.4(b).
5. Petitioner has the burden of proving the case by a preponderance of the evidence, pursuant to 28 TAC § 148.21(h) and (i).
6. Petitioner proved by a preponderance of the evidence that all Vanadom prescriptions it dispensed on Claimant’s benefit were compensable medical care, within the meaning of Tex. Labor Code §§ 408.021 and 401.011(19), for which it is entitled to reimbursement.
7. Petitioner proved by a preponderance of the evidence that its charges of $169.48 for 60-tablet prescriptions for 350-mg. Vanadom dispensed on March 22 and April 5, 2001, were fair and reasonable charges for a brand-name drug.
8. Petitioner failed to prove by a preponderance of the evidence that its charges of $ 218.12 and $ 237.77 for dispensing Vanadom on November 7 and 19, 2001, respectively, were fair and reasonable charges for 60-tablet prescriptions of 350-mg. Vanadom during that month.
9. Based on prices in widely-known drug lists, $ 167.50 was a fair and reasonable price for a 60-tablet prescription of 350-mg. Vanadom in November 2001.
10. The Carrier is required to reimburse Petitioner a total of $ 673.96 for the four prescriptions it dispensed, in accordance with Tex. Labor Code § 413.015.

ORDER

IT IS HEREBY ORDERED THAT the University of Texas System reimburse Highpoint Pharmacy a total of $ 673.96 for the dates of service of March 23, April 5, and November 7 and 19, 2001.

Signed September 30, 2002.

STATE OFFICE OF ADMINISTRATIVE HEARINGS

CASSANDRA J. CHURCH
Administrative Law Judge

1. The three MRD file numbers corresponding to the SOAH docket numbers above are M4-02-1658-01, M4-02-1769-01and M5-01-2378-01.↑
2. In notes submitted to the MRD, Dr. Rosenstein stated that Claimant was experiencing cervical and lumbar radiculopathy, with recurrent disc herniations at the L4-L5 and L5-S1 levels.↑
3. For each instance, the Carrier used the denial code “F,” which it stated stands for “no listing in required publication.”↑
4. The PFG actually referred to two different publications of the Medispan company, the Medispan Prescription Pricing Guide and the Medispan Generic Buying and Reimbursement Guide. For convenience here, they will be referred to collectively as “the Medispan guides.”↑
5. The Redbook, published by Thomson Healthcare, is another such publication. Mr. Mitchell also referred to the Federal Drug Administration’s National Drug Code.↑
6. The ALJ notes that the Commission has since adopted new rules, effective January 3, 2002, regarding prescriptions, which opens the drug “list” to all FDA-approved drugs, while broadening the definition of pricing sources to “nationally recognized” pharmaceutical reimbursement systems. However, the terms “generic” drugs and “brand-name” drugs are not further defined. The directly-applicable language is as follows:

134.500. Definitions

(a) The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

. . .

(4) Open formulary – Includes all available Food and Drug Administration (FDA) approved prescription and nonprescription drugs, but does not include drugs that lack FDA approval, or non-drug items.

. . .

134.503. Reimbursement Methodology

(a) The maximum allowable reimbursement (MAR) for prescription drugs shall be the lesser of:

(1) The provider’s usual and customary charge for the same or similar service;

(2) The fees established by the following formulas based on the average wholesale price (AWP) determined by utilizing a nationally recognized pharmaceutical reimbursement system (e.g., Redbook, First Data Bank Services) in effect on the day the prescription drug is dispensed.

(A)Generic drugs: ((AWP per unit) x (number of units) x 1.25) + $4.00 dispensing fee = MAR;

(B)Brand-name drugs: ((AWP per unit) x (number of units) x 1.09) + $4.00 dispensing fee = MAR;

(C)A compounding fee of $15 per compound shall be added for compound drugs; or

(3) A negotiated or contract amount.↑

7. Although at least two MRD dispute resolution officers priced Vanadom at the price for the generic drug carisoprodol, each officer’s decision to do so appears to have rested primarily on the fact that the generic carisoprodol was the only form of the drug that appeared in the PriceAlert during the months of the prescriptions they were reviewing were dispensed. Given the unusual circumstances in this case, the ALJ is unwilling to read those decisions as constituting agency rulings on how “branded generics” should be priced.↑
8. Average Wholesale Price (AWP)/unit x number of units x $1.09 + $4.00 = MAR.↑