PAAS National Articles

A Matter of Principal

H. Edward Heckman, R.Ph.

There is a new third party battle brewing. This one could be the final undoing of community pharmacy practice as we all know and cherish it.

The first verse goes something like this. In October of 1996, Principal Health Care, Inc. moved its prescription drug claims processing from Diversified Pharmaceutical Services (DPS) to Advance Paradigm, Inc. (API). During the transition, someone forgot to transfer the Principal MAC price limits from DPS to API. While Principal was MAC-less pharmacies received higher than normal reimbursements on generic prescriptions.

Principal detected and corrected the error. Even though community pharmacies didn't cause the problem, in April letters were sent to provider pharmacies demanding a refund of these excessive payments. Principal has a very large client base in Iowa where their MAC problem is primarily focused. But pharmacies in many states with Principal patients received these same recoupment letters. Fortunately the Iowa Pharmacists Association is picking up the ball to unite pharmacies and assist in their defense of this unfair battle.

Principal justified their demand to collect the overpayments by citing open-ended language in Section IV of the provider agreement, which relates to the recapture of excess payments.

The second verse sounds very similar to the first. During the summer of 1997, the same turn of events surfaced in Kansas when Blue Cross and Blue Shield of Kansas switched claims processors to PAID Prescriptions. Once again MAC price limits were misplaced. Instead of asking for a refund from pharmacies PAID is making deductions from Kansas pharmacy remittance advise statements for these "overpayments." Similar to Iowa, the Kansas Pharmacists Association is the voice and defender for community pharmacy.

This new third party "take-back" has serious implications upon community pharmacies and the methods we employ to conduct business. This new tactic means if a third party concludes, for whatever reason, they have overpaid your pharmacy they can claim the money back. The implications are far reaching and threaten the integrity of community pharmacy practice and on-line adjudication. Community pharmacies across the country have a latent liability and a time bomb ticking?

On-line adjudication is the standard of practice in our industry. Third parties implicitly trust community pharmacies to collect and transmit correct information to them. In turn, the third party reviews the pharmacy's data and reacts by sending an adjudication message back to the pharmacy. A pharmacy then reacts and makes a decision to accept, reject or amend the claim based upon that adjudication message. A pharmacy implicitly trusts the information from the third party to be complete and correct. To allow any third party to come back at a later date and say, " . . . just kidding when we told you we would pay you $9.00 for that prescription, we really only meant $8.00," destroys the integrity and basis for on-line adjudication.

Indeed, on-line adjudication has become such an accepted and trusted standard of practice, some may view each transmitted prescription as a quasi-contractual relationship, encased inside the provider agreement. All the necessary elements to create a contract are found in each transmitted prescription. Each electronic claim contains the basic contractual components including an offer, counteroffer, acceptance, consideration, intent and the other essentials found in any legal contract.

The nature of reimbursement and the third party animal is complex in nature. PBMs administer many plans, each with its own reimbursement formula, MACs, maintenance quantities, days supply limits and formulary requirements. When a pharmacist requests reimbursement from a third party he or she may not recognize the specific plan and its limitations. The adjudicated respone is like Christmas morning. You open the "box" to find out what is inside. Now, think about your reaction if the gift giver comes back at a later date and explains that they really didn't intend to give quite as nice of a present as they did and they need to exchange yours for one of lesser value. Isn't this exactly what these third parties are attempting to accomplish?

The third parties make a weak ethical argument in hiding behind the open-ended "overpayment language" in their contracts. In any contract, the intent of the contracting parties is very important. A reasonable interpretation of the intent of any "overpayment" language is that it applies to pharmacy billing errors that result in inflated reimbursements. It is a real stretch to apply this language to a silent and insidious act of omission on the part of a third party.

The battles being waged in Iowa and Kansas are important to all community pharmacies in the United States. The results of these actions could set a precedent for future activities of a similar nature. Get behind the Iowa and Kansas community pharmacies in support of their position. Keep your eyes and ears open. Stay tuned.