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At a Glance:
Title:
453-03-0381-m5
Date:
January 8, 2003
Status:
Retrospective Medical Necessity

453-03-0381-m5

January 8, 2003

DECISION AND ORDER

This case involves the handling of bills for prescription medications submitted by a pharmacy benefits management company rather than by the pharmacy itself. Petitioner Hassle Free Pharmacy Services, a pharmacy benefits management company, contends that it is entitled to payment at the maximum allowable reimbursement level (MAR) established by the formula approved by Texas Workers Compensation Commission (TWCC), regardless of any less expensive billing arrangement between the carrier and the pharmacy that filled the prescriptions. Using this MAR amount, Petitioner claims entitlement to $733.20 additional reimbursement. Casualty Reciprocal Exchange (Carrier) contends that the appropriate MAR for this case is the lower contract price negotiated between it and the pharmacy that filled the prescriptions. Further, Carrier contends that it has already paid the actual pharmacy for some of the bills submitted by Petitioner and that it should not be required to pay for these same prescriptions twice.

Because the Carrier failed to assert any of the stated defenses to Petitioner’s claim when this claim was pending before the TWCC Medical Review Division (MRD), the Administrative Law Judge (ALJ) finds that Carrier may not now raise those defenses in this proceeding. Therefore, this decision and order finds that Petitioner is entitled to additional reimbursement of $733.20.

I. Procedural History

ALJ Thomas H. Walston held a hearing in this case on November 21, 2002, and the parties submitted post-hearing briefs on December 12, 2002, at which time the record closed. There were no contested issues of jurisdiction or notice.

Attorney Peter Rogers represented Hassle Free Pharmacy Services, and Beverly Vaughn represented Casualty Reciprocal Exchange. TWCC did not attend the hearing.

II. Discussion

During the period December 29, 2000, through January 24, 2001, a Walgreens pharmacy filled twelve prescriptions for Claimant ____ for treatment of his compensable injury. Carrier only partially reimbursed Petitioner for these prescriptions, and the TWCC Medical Review Division (MRD) denied Hassle Free any additional reimbursement. At MRD, Carrier failed to file any explanations of benefits (EOBs) or statement of position, so MRD based its decision solely on lack of medical necessity. But the parties do not dispute medical necessity in this proceeding. Instead, they only dispute proper billing procedures.

Hassle Free is a pharmacy benefits management company. It issues pharmacy cards that some doctors provide to their patients. The patients use the cards to get prescriptions filled at the pharmacy of their choice. The pharmacy obtains payment from an intermediary pharmacy benefits company at a reduced contract price. That intermediary pharmacy benefits company obtains payment from Hassle Free, which then bills the responsible carrier at the MAR formula rate established by TWCC. Hassle Free makes a profit on the transactions by paying the pharmacy benefits company a price less than the amount it bills the carriers. In exchange, Hassle Free provides a service by dealing with the carriers and assuming the risk of non payment.

In this case, Casualty Reciprocal Exchange also used a pharmacy management service company, named Pharmacy Services Group (PSG). Under this arrangement, PSG contracted with pharmacies to pay discounted prices for drugs, and it obtained reimbursement from Carrier based on its discounted price, plus a markup.

The problem in this case is that PSG (on behalf of Carrier) received duplicate bills on some prescriptions from both Walgreens and Hassle Free, so it paid for some prescriptions twice. Also, PSG paid Hassle Free a discounted price on all the prescriptions instead of the amount requested by Hassle Free. The payments were as follows:

DatePrescription #ChargePaid Hassle FreePaid Walgreens

12/29/000900473 $ 105.13 $ 83.90

0900483 $ 46.80 $ 37.98

0900486 $ 86.11 $ 33.00

0900487 $ 77.35 $ 61.47

01/10/010903041 $ 121.98 $ 97.50 $ 110.74

0903042 $ 67.58 $ 11.60 $ 11.85

0903043 $ 386.62 $ 71.85 $ 353.52

0903044 $ 37.62 $ 4.30 $ 36.09

0903045 $ 104.72 $ 5.10 $ 94.91

01/18/010900483 $ 69.01 $ 56.51

01/19/010903046 $ 69.01 $ -0- $ 62.14

01/24/010905858$ 121.98$ 97.50$ 110.74

Totals $1,293.91 $560.71 $ 779.99

III. Petitioner’s Evidence and Arguments

Billing Procedures: Hassle Free states that it submitted the bills in question at its usual and customary rate (equal to the TWCC MAR formula rate) and describes its billing procedures as follows:

  • Claimant____ received a Hassle Free prescription card from his doctor;
  • ____ used the Hassle Free prescription card to obtain prescription medications from the pharmacy of his choice;
  • the pharmacy billed and received payment from United Provider Services (UPS), a pharmacy benefit company under contract with Hassle Free;
  • UPS billed and received payment from Hassle Free;
  • Hassle Free, in turn, billed Carrier at Hassle Free’s usual and customary rate, equal to the TWCC MAR formula rate.

Hassle Free contends that the markup on the price it pays UPS is justified because Hassle Free assumed the risk that the carrier would deny reimbursement. To compensate for that risk, Hassle Free negotiates the lowest possible prices for the drugs that are dispensed to injured workers using its pharmacy service card. The pharmacies that accept the card are protected because they are assured of payment by the pharmacy benefit company that contracts with Hassle Free, and the pharmacy benefit company is protected because it is assured of payment by Hassle Free. Hassle Free’s profit, which is the difference between the amount it pays the pharmacy benefit company and the amount it receives from the carrier, is earned by dealing with the carrier and by assuming the risk of nonpayment. Hassle Free states that there is nothing illegal about this arrangement, and it points out that Carrier contracts with its own pharmacy benefits company that performs a similar service for a profit.

Waiver: Hassle Free contends that Carrier failed to provide EOBs for its denial of payment for these prescriptions. Therefore, it states that Carrier has waived its right to dispute the bills based on any issue other than medical necessity. And because medical necessity is no longer contested, Hassle Free argues that Carrier is obligated to pay the balance due on the prescriptions.

Double Payment: Hassle Free questions Carrier’s contention that it paid the pharmacy directly for some of the prescriptions because UPS paid the pharmacy on behalf of Hassle Free and because Carrier did not provide evidence of any invoices from the pharmacy. Hassle Free also cites Tex. Lab. Code §408.028(b), which provides that an insurance carrier cannot require an employee to use pharmaceutical services designated by the carrier. In Hassle Free’s view, Carrier’s interjection of its own pharmacy benefit company to handle payments to pharmacies violates this statute.

Reimbursement Amount: Hassle Free contends that it is entitled to additional reimbursement of $733.20, which is the difference between the amount of Hassle Free’s bills and the amount it received from Carrier.[1] It notes that carriers may not reduce the amount of reimbursement for pharmaceutical services so long as the provider’s usual and customary charge does not exceed the TWCC MAR. Because Hassle Free’s ususal and customary bill equaled the MAR, it argues that it is entitled to full reimbursement under TWCC Rule 134.501.

IV. Carrier’s Evidence and Arguments

Hassle Free’s Standing: Carrier first argues that Hassle Free lacks standing to receive reimbursement. In Carrier’s view, a party must be a health care provider and must have rendered medical services in order to be entitled to reimbursement. Carrier cites TWCC Rule 133.305, which provides that a medical fee dispute includes “a health care provider dispute of a carrier reduction or denial of a medical bill.” It then refers to definitions of “health care” and “health care provider” contained in Tex. Lab. Code § 401.11 to argue that Hassle Free did not render any health care as defined in the Act, and, consequently, that Hassle Free lacks standing as a health care provider. In Carrier’s opinion, Walgreens is the health care provider for the prescriptions at issue because Walgreens filled the prescriptions; thus, Hassle Free lacks standing to pursue this case.

Carrier also notes that TWCC Rule 134.502 states that “pharmacists shall submit bills for pharmacy services in accordance with Section 134.800(d) . . . .” The rule now states that a pharmacy may contract with a separate entity to process bills and payments for medical services, but this provision did not exist when Walgreens provided the services at issue. But, Carrier states, even if that provision did apply, there is no evidence that Walgreens contracted with Hassle Free to process its bills. Instead, Hassle Free contracted with the claimant to use particular pharmacies who will honor the Hassle Free card and use its third-party pharmacy benefit manager. Therefore, in Carrier’s view, the contract “flows in the opposite direction”and does not provide Hassle Free standing to assert a claim for reimbursement.

Finally, Carrier rejects Hassle Free’s argument that § 408.028(c) of the Act somehow gives Hassle Free standing. That section states that “an insurance carrier may not require an employee to use pharmaceutical services designated by the carrier.” Carrier notes that this section became effective June 17, 2001, after the services involved in this case were provided. Further, Carrier did not require the Claimant to use Walgreens or otherwise limit Claimant to a particular pharmacy. In fact, Carrier suggests that the Hassle Free card limited Claimant’s options because it is not accepted by all pharmacies.

Reimbursement Carrier also argues that even if Hassle Free has standing, it nevertheless is not entitled to additional reimbursement. Carrier offered testimony from Mr. Steven Gallers of Pharmacy Services Group (PSG). He testified that PSG handled pharmaceutical bills for Dodson Group (on behalf of Casualty Reciprocal Exchange). When the bills were processed, PSG billed Dodson Group for the prescriptions, passing along a negotiated discount between PSG and Walgreens. Dodson Group then paid PSG, and PSG paid Walgreens and/or Hassle Free.

For the prescriptions at issue, Hassle Free billed Carrier $1,293.91 and was paid $560.71. Walgreens also submitted bills for some of the same prescriptions for dates of service January 10, 19, and 24, 2001, and was paid $779.99. According to Carrier, these Walgreens bills were paid in April 2001, but Hassle Free did not submit its bills until September 2001. Therefore, because Walgreens was paid for these prescriptions before Hassle Free even billed for them, Carrier argues that Hassle Free is not entitled to any additional reimbursement. Further, Carrier states that Hassle Free has not offered evidence to establish that it actually paid Walgreens for these prescriptions. And even if Hassle Free has paid Walgreens, Carrier argues that Hassle Free’s remedy is to seek reimbursement from Walgreens, not from Carrier.

Concerning the prescriptions where only Hassle Free was paid (i.e., Carrier did not pay Walgreens), Carrier notes that Hassle Free billed $384.40 and was paid $272.86, leaving a difference of $111.54. According to Mr. Gallers, PSG reduced the amount it paid to Hassle Free to reflect the contract rates between PSG and Walgreens. Carrier contends that its contract rate with Walgreens is a fair and reasonable reimbursement rate. It also argues that Hassle Free has not shown that its service achieves effective medical cost control, as required by § 413.011 of the Act. In particular, Carrier complains that Hassle Free’s procedures result in the price being marked up three times before it is billed to the carrier at the MAR amount. Further, it has resulted in duplicate billings and payments. In Carrier’s view, it should be entitled to achieve cost control by paying only the rate it has contracted with Walgreens.

In conclusion, Carrier argues that Hassle Free is not entitled to any additional reimbursement, or, alternatively, that Hassle Free is only entitled to additional reimbursement of $111.54.

III. ALJ’s Analysis

Carrier has raised three defenses in this appeal: (1) Hassle Free’s standing, (2) the appropriate reimbursement level, and (3) duplicate payments. However, the evidence established that Carrier did not send Hassle Free any EOBs concerning its reduction of payment prior to the case being submitted to MRD, and it did not raise any of these defenses when the case was pending at MRD. Indeed, the certified MRD record does not contain any EOBs or any statement of position by Carrier. Under this state of the record, then, the ALJ concludes that Carrier may not now assert these defenses on appeal. And because Carrier no longer disputes medical necessity, upon which MRD based its findings, this decision grants Hassle Free’s appeal and orders Carrier to pay additional reimbursement of $733.80. The ALJ emphasizes, however, that this decision should not be interpreted as agreeing with or approving the arguments made by Hassle Free. Instead, this decision is based on Carrier’s failure to properly provide EOBs and its failure to assert any defenses when the case was pending at MRD.

Tex. Lab. Code Ann. §408.027(d) and the Commission’s rules at 28 Tex. Admin. Code (TAC) §133.304(c)set out the procedure a carrier must follow to reduce or deny a claim. As Labor Code Section 408.027(d) puts it, the carrier must send a report “that sufficiently explains the reasons for the reduction or denial of payment for health care services provided to the employee.” That requirement allows the provider to correct mistakes it may have made in the original submission, e.g. inaccurate or inadequate documentation. Several decisions at SOAH have held that the Carrier is limited to the explanations contained in its EOBs or asserted at MRD and cannot raise new reasons for denial before SOAH.[2] If it were allowed to do so, the system would become unworkable because the use of EOBs would become meaningless.

In summary, the ALJ finds that Carrier cannot raise new defenses to Hassle Free’s claims while the appeal is pending at SOAH. And because medical necessity is no longer disputed, the ALJ grants Hassle Free’s appeal and orders Carrier to pay additional reimbursement of $733.80.

IV. Findings of Fact

  1. Claimant ____ (Claimant) sustained a compensable injury on____, in the course of his employment with_____.
  2. During the period December 29, 2000, through January 24, 2001, a Walgreens pharmacy filled twelve prescriptions for_____ in connection with the treatment of his compensable injury.
  3. Walgreens billed and received payment from United Provider Services (UPS) for the twelve prescriptions in question. UPS is a pharmacy benefits management company.
  4. UPS billed and received payment from Petitioner Hassle Free Pharmacy Services (Hassle Free) for____’s twelve prescriptions. Hassle Free is a pharmacy benefits management company.
  5. Respondent Casualty Reciprocal Exchange (Respondent) was the workers’ compensation insurance carrier and provides coverage for Claimant’s injury.
  6. Hassle Free billed Respondent $1,293.91 for_____’s twelve prescriptions. These charges were based on the Maximum Allowable Reimbursement (MAR) formula, as provided in the rules of the Texas Workers Compensation Commission (TWCC).
  7. Respondent reimbursed Hassle Free $560.71 for the prescriptions at issue and denied any additional reimbursement.
  8. Hassle Free timely appealed Carrier’s denial of additional reimbursement to the TWCC Medical Review Division (MRD).
  9. Prior to submission of Hassle Free’s claim to MRD, Carrier failed to provide Hassle Free any Explanations of Benefits (EOB) concerning its denial of additional reimbursement.
  10. While Hassle Free’s claim was pending at MRD, Carrier failed to submit any EOBs or position statement to MRD.
  11. MRD denied Hassle Free any additional reimbursement for the prescriptions based on lack of documentation of medical necessity.
  12. Carrier does not dispute medical necessity in this proceeding.
  13. Petitioner timely appealed the MRD decision to the State Office of Administrative Hearings (SOAH).
  14. Notice of the hearing was sent October 8, 2002. The notice contained a statement of the time, place, and nature of the hearing; a statement of the legal authority and jurisdiction under which the hearing was to be held; a reference to the particular sections of the statutes and rules involved; and a short, plain statement of the matters asserted.
  15. The hearing was held November 21, 2002, with Administrative Law Judge (ALJ) Thomas H. Walston presiding, and representatives of Petitioner and Zurich participating. The hearing adjourned the same day, but the ALJ kept the record open until December 12, 2002, to allow the parties to file written closing statements.
  16. The parties filed written closing statements on December 12, 2002, at which time the record closed.
  17. At the hearing and in its closing statement, Carrier asserted three defenses to Hassle Free’s claims: (1) Hassle Free’s standing, (2) the appropriate reimbursement level, and (3) duplicate payments. However, Carrier did not assert any of these defenses either in EOBs or before the MRD.

V. Conclusions of Law

  1. The Commission has jurisdiction over this matter pursuant to Section 413.031 of the Texas Workers’ Compensation Act (the Act), Tex. Lab. Code Ann. ch. 401 et seq.
  2. SOAH has jurisdiction over this proceeding, including the authority to issue a decision and order, pursuant to Tex. Lab. Code Ann. §413.031(d) and Tex. Gov’t Code Ann. ch. 2003.
  3. Adequate and timely notice of the hearing was provided in accordance with Tex. Gov’t Code Ann. §2001.052.
  4. Petitioner Hassle Free Pharmacy Services (Hassle Free), has the burden of proof in this matter. 28 Tex. Admin. Code (TAC) §148.21(h).
  5. Respondent Casualty Reciprocal Exchange (Carrier) is not authorized to assert in this proceeding the defenses described in Finding of Fact No. 17, because Carrier did not assert these defenses either in EOBs or before the MRD.
  6. Based on Findings of Fact Nos. 1 through 12, and 17, Hassle Free established that it is entitled to additional reimbursement from Carrier in the amount of $733.20 for twelve prescriptions provided to Claimant____. during the period December 29, 2000, through January 24, 2001.
  7. Hassle Free’s appeal is granted.

ORDER

IT IS, THEREFORE, ORDERED that Hassle Free Pharmacy Services’ request for additional reimbursement of $733.20 from Casualty Reciprocal Exchange for twelve prescriptions provided during the period December 29, 2000, through January 24, 2001, is GRANTED, and Hassle Free Pharmacy Services shall have and recover $733.20 of and from Casualty Reciprocal Exchange for the claims brought in this proceeding, plus interest at the rate and for the time allowed by law.

Signed January 8, 2003.

STATE OFFICE OF ADMINISTRATIVE HEARINGS

THOMAS H. WALSTON
Administrative Law Judge

  1. $1,293.91 billed, less $560.71 paid to Hassle Free = $733.20.
  2. See, e.g., Docket No. 453-01-2110.M4 (ALJ Card); Docket No. 453-01-0309.M5 (ALJ Doherty); Docket No. 453-00-1570.M5 (ALJ Smith); Docket No. 453-00-2093.M5 (ALJ O’Malley); Docket No. 453-99-2021.M5 (ALJ Rusch); Docket No. 453-99-3399.M5 (ALJ Pacey); Docket No. 453-96-1446.M4 (ALJ Corbitt); Docket No. 453-97-0973.M4 (ALJ Card); Docket No. 453-96-0175.M2 (ALJ Lynch).
End of Document
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