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May 14, 2011

Pharmaceutical Liens Require Acquisition Disclosure

Summary:

A recent denial of a Petition for Writ of Review by a pharmaceutical lien provider demonstrates the burden of disclosure of acquisition costs as a prerequisite for recovery in pharmaceutical lien proceedings.

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On January 4, 2011 the California Second Appellate District summarily denied a Petition for Writ of Review by a lien claimant, California Pharmacy Management, which challenged a determination by the Workers’ Compensation Appeals Board that proof of acquisition costs of pharmaceuticals is a prerequisite to the recovery of their lien.

The appropriate reimbursable amount of pharmaceutical lien claims, like other forms of medical treatment apart from physician services, is highly dependent on the date of service. The formulas for calculating appropriate reimbursable amounts are set forth in Labor Code §5307.1, but require reference to external sources such as the AWP, Medicare reimbursement schedules, and the Official Medical Fee Schedule (OMFS), and Medi-Cal reimbursement schedules.

Beginning January 1, 2004 and continuing through the present time, the appropriate reimbursable amount for pharmaceuticals was set at 100% of the Medi-Cal payment system.

Pharmaceuticals prescribed prior to 2004 are reimbursable at OMFS rates which are published in the OMFS.

Repackaged Pharmaceuticals — an Exception to the Rule
Under California Pharmacy Management v. WCAB (Mendoza), when evaluating repacked drugs only, the same valuation applies for all repacked drugs dispensed from 1/1/1996 through 2/28/07. In these repackaged drug cases, the lien claimant provider is entitled to reimbursement based on the lesser of the provider’s cost for the drugs or the 2003 OMFS formulary.

The 2003 OMFS formulary is based on the following:

For brand-name drugs, a provider is entitled to recover the average wholesale price of the drug +10% and a $4.00 dispensing fee.

For generic drugs, the provider is entitled to the average wholesale price +40% and a $7.50 dispensing fee.

However, when a generic pharmaceutical costs more than a brand-name pharmaceutical, the appropriate reimbursable amount is the brand-name equivalent. An appropriate and highly relevant revision of the Official Medical Fee Schedule adds the requirement that “documentation may be required” (emphasis added).

Mendoza now stands for the proposition that the provider is entitled to reimbursement based upon the lesser of the actual cost of the drug paid by the provider or the 2003 OMFS formulary. This is based on the fact that the Board interpreted “usual charge” to equate to “the amount that he or she paid for the pharmaceuticals.”

Providers of repackaged pharmaceuticals are highly resistant to disclosing their acquisition costs and this is the crux of the issue. Just as purchasing household goods in large quantities from discount warehouse retailers substantially reduces the cost of the individual per item retail value, pharmaceutical providers are being required to disclose as part of their evidence the actual acquisition cost of the pharmaceuticals purchased in bulk prior to repackaging.

What this means for you
When dealing with liens for pharmaceutical reimbursement for repackaged drugs, always demand documentation from the provider as to the actual cost to the provider for purchase of the prescribed drugs. The appropriate formula for reimbursement may then be calculated.

For non-repackaged drugs that exist in the Medi-Cal database, pursuant to CCR 9789.40(a), the maximum reasonable fee “is 100% of the reimbursement prescribed in the relevant Medi-Cal payment system, including the Medi-Cal professional fee for dispensing.”

Disclosure of the acquisition costs appear to be exempt from trade secret privacy claims by the requirement in the official medical fee schedule that appropriate documentation is required.

Failure or refusal to disclose the acquisition costs should result in substantial reductions in the value of lien claims. In the recent case denied review by the Court of Appeal, the lien claimant was found to be entitled to reimbursement at their cost, with the issue of penalties and interest left unaddressed due to the failure of the provider to disclose their costs.

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About the Author

As a Certified Specialist in Workers’ Compensation Law, Rick Goldman has practiced exclusively in all aspects of defense of Workers’ Compensation claims with a vast experience in subrogation, retirement hearings and civil litigation involving the management side of employment and labor matters.

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