Court: Insurer Cannot Refuse Payment for Pain Cream Without Utilization Review

An insurer cannot ignore a $4,869.99 bill for a tube of compounded pain cream on the grounds that the medication is unnecessary without first filing a utilization review petition, a Pennsylvania appellate court ruled.

The decision Thursday by the Commonwealth Court to overturn a decision by the state Bureau of Workers’ Compensation resolves one dispute in a long battle between insurers and pharmacies that cater to injured workers. Other volleys have included a failed lawsuit by a major insurer that alleged fraud and failed attempts by Republican lawmakers to adopt a drug formulary for the state workers’ compensation system.

Workers’ First Pharmacy petitioned the bureau’s Medical Fee Review Section after Gallagher Basset Services refused to pay for a tube of pain cream prescribed by Dr. Samuel Grodofsky. Arch Insurance was the carrier on risk for employer, Bayada Home Health Care.

A hearing officer found that Gallagher Bassett had refused to pay for the pain cream because it did not believe the medication was related to the work injury, which was a shoulder strain.

The hearing officer noted that claimant Adriana Lozano had accepted a $15,000 settlement when she signed a compromise and release agreement. Lozano had stated that she understood the agreement to mean that her employer was not required to pay for any medications that were not related to her injury. Since nothing in the compromise and release agreement said that the pain cream was related to the shoulder injury, the judge found that Gallagher Bassett and grounds to refuse payment.

The Commonwealth Court, however, said the Medical Fee Review Office missed a very important step: Utilization review.

The court said that Pennsylvania’s workers’ compensation scheme lays out a clear process when insurers believe they are not obligated to pay a medical provider’s bill: They can refer the case to a utilization review organization to determine the reasonableness and necessity of a treatment request. Otherwise, they must pay the bill in 30 days.

“Had employer sought utilization review, its 30-day deadline to pay pharmacy’s invoice would have been stayed,” the appellate panel’s opinion says. “Claimant may be under treatment for an array of medical problems, only some of which relate to the work injury. It is for the utilization review organization to sort this out.”

The court noted that in 2018, it had ruled in Amour Pharmacy I v. Bureau of Workers’ Compensation that it would violate medical providers’ due process rights to allow employers to use compromise and release agreements with claimants to abrogate liability for the cost of services. That case also involved a bill for compounded pain cream.

Pain creams in general and Workers First Pharmacy in particular have been contentious issue in Pennsylvania ever since the Philadelphia Inquirer reported on the issue in 2017. The newspaper found that partners for the politically influential Pond Lehocky law firm were major owners of Workers First and had been asking doctors to refer the workers’ compensation claimants the represented to the pharmacy. Pond Lehocky first said they were doing a service to injured workers by supplying needed drugs, but later they sold their interest in Workers First, according to the Inquirer.

The controversy incited Republican lawmakers to seek reforms. The legislature passed a bill to mandate adoption of a workers’ compensation drug formulary that would have barred compounded drugs. Gov. Tom Wolf, however, voted the legislation in April 2019.

In the meantime, insurers have turned to the civil courts to stem costs. They have not been winning.

In September, a Philadelphia County Court of Common Pleas dismissed a lawsuit filed by Liberty Mutual that claimed 18 doctors who had a financial interest in pharmacies defrauded the carrier out of $4.7 million by prescribing compound pain creams that cost nearly $8,000 per tube.

The court ruled that the doctors had complied with the law by disclosing their financial interest in the pharmacies to their patients. The court also found that there was no evidence the doctors were paid kickbacks — in the form of dividends from their stock in the pharmacies — in exchange for prescribing the creams, as Liberty Mutual had alleged.

Research by the Workers’ Compensation Institute shows that compounded drugs make up a larger share of costs in Pennsylvania than all but one of 27 states studied. Compound drugs made up 7% of prescription payments in Pennsylvania in early 2018. Only Arkansas, at 8%, paid a larger share of prescription payments for compounds.

On the other hand, the report shows Pennsylvania has drastically reduced spending on compounds after passing legislation in 2014 that capped maximum prices to 110% of Average Wholesale Price. The share of spending on compounds dropped to 7% total prescription costs in 2018 from 34% in 2015, according to WCRI.