Court Challenges Pennsylvania’s Drug Cost Calculation in Workers’ Compensation Cases

In a landmark decision, the Pennsylvania Commonwealth Court has taken a stand against the state’s practice of calculating pharmaceutical costs in workers’ compensation cases, challenging the long-standing use of Red Book values. This case, Federated Insurance Co. v. Summit Pharmacy, scrutinized the method employed by the Pennsylvania Bureau of Workers’ Compensation in determining the average wholesale price (AWP) of drugs, akin to disputing the basis on which drug reimbursement rates are established for work-related injuries.

Federated Insurance Co. sought judicial review after being ordered to pay approximately $72,500 to Summit Pharmacy for generic drugs provided to an injured worker, based on Red Book valuations. The insurer contested this method, arguing it contradicted the Pennsylvania Workers’ Compensation Act’s stipulation that pharmaceutical reimbursements should not exceed 110% of the AWP. Moreover, Federated Insurance claimed that relying on the Red Book amounted to an improper delegation of legislative power to a private publisher, given that the Red Book’s AWP figures are set by manufacturers and can reflect subjective markups.

On the flip side, Summit Pharmacy defended the Red Book’s use, positing AWP as a pharmaceutical industry standard for estimating drug acquisition costs nationally. However, the court agreed with the insurer, stating that the Red Book’s values did not accurately represent the AWP as intended by the Workers’ Compensation Act. The ruling emphasized the necessity for a different, nationally recognized schedule that reflects an industry-wide average price, rather than one dictated by individual manufacturers.