IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indemnity Insurance Company of North :

America, :

Petitioner :

:

v. : No. 696 C.D. 2018

: Argued: June 10, 2020

Bureau of Workers’ Compensation Fee :

Review Hearing Office (Insight :

Pharmacy), :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE PATRICIA A. McCULLOUGH, Judge

HONORABLE ANNE E. COVEY, Judge

HONORABLE MICHAEL H. WOJCIK, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge

HONORABLE ELLEN CEISLER, Judge

HONORABLE J. ANDREW CROMPTON, Judge

OPINION 

BY PRESIDENT JUDGE LEAVITT1 FILED: January 5, 2021

Indemnity Insurance Company of North America (Insurer) petitions for 

review of an adjudication of the Bureau of Workers’ Compensation Fee Review 

Hearing Office (Hearing Office) that Insurer owed Insight Pharmacy (Pharmacy) 

$6,336.02, plus interest, for a compounded medical cream Pharmacy dispensed to 

Jessica Breidenbach (Claimant). In doing so, the Hearing Office affirmed the 

determination of the Medical Fee Review Section of the Bureau of Workers’ 

Compensation (Bureau). On appeal, Insurer argues that the Hearing Office erred 

because it used a nationally recognized schedule of average wholesale 

1 This case was assigned to the opinion writer before January 4, 2021, when President Judge 

Leavitt served as President Judge.
2

pharmaceutical prices, which Insurer describes as a “fictitious” number, to calculate 

the amount of the reimbursement owed by Insurer to Pharmacy. Insurer also 

challenges the regulation that authorizes the use of a nationally recognized schedule 

of average wholesale prices to reprice provider invoices for pharmaceutical

prescriptions. For the reasons that follow, we affirm. 

Background

In 2013, Claimant sustained a work-related back injury and began

treatment with David Lichten, M.D., who prescribed a compounded medical cream

to treat her pain. Pharmacy dispensed the cream to Claimant and billed Insurer 

$7,255.75. The invoice itemized the costs as follows: (1) gabapentin - $2,595.53; 

(2) flurbiprofen - $1,580.25; (3) ketamine - $1,447.88; (4) cyclobenzaprine -

$654.22; (5) lipoderm base - $634.61; and (6) bupivacaine - $343.26. The invoice 

also included the following information:

• Dates of service

• Date of injury

• Prescribing physician

• Names of the drugs/medications

• [National Drug Code (NDC)] numbers for all components of the 

medication

• Prescription number

Reproduced Record at 42a (R.R. ___).

On December 9, 2016, Insurer’s third-party administrator, Gallagher 

Bassett Services, Inc., reduced the invoice by 95.5% with the following explanation:

Unless otherwise noted, charges were reduced as they exceed the 

guidelines set forth in the Pennsylvania Workers’ Compensation 

Law.

R.R. 44a. Insurer paid $305.92 on Pharmacy’s invoice.
3

Pharmacy filed an application for a fee review of the amount and 

timeliness of Insurer’s payment. The Medical Fee Review Section ordered Insurer 

to pay Pharmacy an additional $6,336.02, with interest, explaining as follows: 

Per Section 127.131[, 34 Pa. Code §127.131,] Reimbursement 

for all unlisted or unclassified drugs under Act 44[2]shall be 

110% of the average wholesale price (AWP).

R.R. 54a.

Insurer requested a hearing to contest the fee review determination. In 

support, Insurer offered an affidavit from Julia Leonard, a medical invoice processor 

for Genex Services, Inc.3 The affidavit stated, in pertinent part, as follows:

3. [Insurer] received a bill from [Pharmacy] on December 2, 

2016[.] The bill was for date of service November 21, 2016 and 

sought payment of $342.26 for 7.20 units of “Bupivacaine Hcl 

Powder.” []

4. Genex Services re-priced this bill at a rate of 110% of [AWP]. 

The Average Wholesale [Price] for 7.20 units of Bupivacain[e]

Hcl Powder was calculated to be $305.92, as determined via 

review of the NDC 51927235800 at the [Red Book] value of 

$39.73. Genex Services thereafter recommended to [Insurer] an 

allowance of $305.92 for the bill. 

Leonard Affidavit at 1; R.R. 37a. Insurer also submitted the following excerpt from 

the Truven Health Analytics policy:

The Average Wholesale Price (AWP) as published by Truven 

Health Analytics is in most cases the manufacturer’s[] suggested 

AWP and does not reflect the actual AWP charged by a 

2 Act of July 2, 1993, P.L. 190, No. 44, commonly referred to as Act 44.

3 Genex has contracted with Gallagher Bassett, which in turn provides claim adjudication services 

to Insurer.
4

wholesaler. Truven Health bases the AWP data it publishes on 

the following:

• AWP is reported by the manufacturer, or

• AWP is calculated based on a markup specified by the 

manufacturer. This markup is typically based on the 

Wholesale Acquisition Cost (WAC) or Direct Price 

(DIRP), as provided by the manufacturer, but may be 

based on other pricing data provided by the manufacturer, 

or

• Suggested Wholesale Price (SWP) is reported by the 

manufacturer

When the manufacturer does not provide an AWP, a markup 

formulated from which AWP can be calculated, or an SWP, 

Truven Health will calculate the AWP by applying a standard 

20% markup over the manufacturer supplied WAC. If a WAC 

is not provided, the standard markup will be applied to the DIRP. 

***

R.R. 39a (emphasis in original).

The Hearing Office affirmed the determination of the Medical Fee 

Review Section that Insurer owed Pharmacy $6,336.02, plus interest. The Hearing 

Office did not credit Leonard’s affidavit for several reasons. It found, specifically, 

that Leonard’s affidavit incorrectly stated the amount of Pharmacy’s invoice; 

addressed only one of five ingredients used to produce the compounded medical

cream, i.e., the bupivacaine powder; and contained arithmetic errors. In accordance 

with these findings, the Hearing Office held that Insurer did not prove by a 

preponderance of the evidence that it had properly reimbursed Pharmacy for the 

compounded medical cream. 
5

Insurer petitioned for this Court’s review. On December 19, 2019, this

Court directed the parties to file supplemental briefs to address the following 

question:

The Act of October 27, 2014, P.L. 2894, re-wrote Section 

306(f.1)(3)(vi)(A) of the Workers’ Compensation Act to limit 

reimbursement for pharmaceutical goods and services to 110% 

“of the average wholesale price (AWP) of the product, calculated 

on a per unit basis, as of the date of dispensing.” 77 P.S. §531 

(added language emphasized). The language was added to the 

statute after extensive nationwide litigation questioning the

accuracy of the AWP value. How, if at all, should this

amendment impact statutory construction of the undefined term 

“average wholesale price (AWP) of the product”? 

Order, 12/19/2019 (emphasis in original). In their supplemental briefs, both parties 

took the position that the 2014 amendment to Section 306(f.1)(3)(vi)(A) did not alter 

the meaning of the term “Average Wholesale Price.”4

Appeal

On appeal,5Insurer raises three issues. First, Insurer argues that the 

Hearing Office erred by using a “fictitious” AWP set forth in a trade publication and 

not the “actual” AWP to determine the repriced amount of Pharmacy’s invoice. 

Second, Insurer argues that the Bureau’s medical cost containment regulation 

4

In its supplemental brief, Insurer contends that “the legislature did not intend to alter the meaning 

of the term ‘Average Wholesale Price’” in enacting the changes to Section 306(f.1)(3)(vi)(A). 

Insurer Supplemental Brief at 4. It argues that the legislature meant for the term “Average 

Wholesale Price” to “be understood according to its plain meaning.” Id. Similarly, Pharmacy 

contends that Section 306(f.1)(3)(vi)(A), both before and after the 2014 amendment, requires the 

reimbursement rate for drugs and services to be 110% of the AWP. Pharmacy Brief at 7.

5 This Court’s review of the Hearing Office’s adjudication considers whether necessary findings 

of fact are supported by substantial evidence, whether constitutional rights were violated, and 

whether the Hearing Office erred as a matter of law. Walsh v. Bureau of Workers’ Compensation 

Fee Review Hearing Office (Traveler’s Insurance Company), 67 A.3d 117, 120 n.5 (Pa. Cmwlth. 

2013). 
6

contravenes the relevant provisions of the Workers’ Compensation Act (Act).

6

 

Third, Insurer argues that the General Assembly has unconstitutionally delegated its 

legislative authority on the repricing of pharmaceutical prescriptions to Truven

Health Analytics, a private company. We address these issues seriately.

Analysis

Act 44 and Its Implementing Regulation

In 1993, the General Assembly enacted Act 44 to establish measures to 

contain the spiraling cost of medical treatment of work injuries. Act 44 added 

Section 306(f.1)(3)(vi)(A) to the Act, which presently states as follows:

The reimbursement for drugs and professional pharmaceutical 

services shall be limited to one hundred ten per centum of the 

average wholesale price (AWP) of the product, calculated on a 

per unit basis, as of the date of dispensing.

77 P.S. §531(3)(vi)(A). Although Act 44 does not define AWP, the Bureau has 

promulgated a regulation to address this point, and it states as follows:

(a) Payments for prescription drugs and professional 

pharmaceutical services shall be limited to 110% of the average 

wholesale price (AWP) of the product.

(b) Pharmacists and insurers may reach agreements on which 

Nationally recognized schedule shall be used to define the AWP 

of prescription drugs. The Bureau in resolving payment disputes, 

may use any of the Nationally recognized schedules to determine 

the AWP of prescription drugs. The Bureau will provide 

information by an annual notice in the Pennsylvania Bulletin as 

to which of the Nationally recognized schedules it is using to 

determine the AWP of prescription drugs.

(c) Pharmacists may not bill, or otherwise hold the employe 

liable, for the difference between the actual charge for the 

6 Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§1-1041.4, 2501-2710.
7

prescription drugs and pharmaceutical services and 110% of the 

AWP of the product.

34 Pa. Code §127.131 (emphasis added). The Bureau’s most recent notice on which

“Nationally recognized” schedule it uses states as follows:

Under 34 Pa. Code §127.131(b) (relating to payments for 

prescription drugs and pharmaceuticals – generally), the 

Department of Labor and Industry, Bureau of Workers’ 

Compensation, gives notice that it utilizes the Red Book, 

published by Truven Health Analytics, to determine the average 

wholesale price of prescription drugs.

47 Pa. B. 5740 (September 9, 2017).

I.

In its first issue, Insurer contends that the Hearing Office erred in using 

a “fictitious” AWP to reprice Pharmacy’s invoice. Insurer argues that Truven Health 

Analytics, and the two other Nationally recognized schedules,7 do not report the 

actual AWP. Rather, Insurer contends that these Nationally recognized schedules 

“use secret, amorphous, and confusing criteria and formulae to derive an entirely 

[fictitious] AWP.” Insurer Brief at 20.

In a payment dispute, it is the burden of the insurer to establish by a

preponderance of evidence that it has properly reimbursed the provider. Liberty 

Mutual Insurance Company v. Bureau of Workers’ Compensation, Fee Review 

Hearing Office (Kepko), 37 A.3d 1264, 1269 n.11 (Pa. Cmwlth. 2012). To support 

its position that it had properly reimbursed Pharmacy, Insurer offered Leonard’s 

affidavit, which stated that Insurer owed Pharmacy $305.92 for 7.20 units of 

bupivacaine powder on Pharmacy’s invoice of $7,255.75. Before the Hearing 

7 Those sources are First DataBank and Medispan. Insurer Brief at 19 n.5. Insurer asserts that 

First DataBank, however, no longer reports on AWP. Id.
8

Office, Insurer asserted that $305.92 exceeded “the [actual] AWP and [was] more 

than the average retail price of the ingredients” in the compounded medical cream. 

Adjudication at 5, Finding of Fact (F.F.) No. 15; R.R. 103a.

The Hearing Office rejected the Leonard affidavit as having no

credibility or evidentiary weight. First, the calculations used therein lacked a 

foundation. The affidavit proposed a unit price of $39.73 for the bupivacaine 

powder, but it offered no evidence to support that price or that it was the correct unit 

price as of “the date of dispensing.” See 306(f.1)(3)(vi)(A) of the Act, 77 P.S. 

§531(3)(vi)(A). Second, even assuming that the Leonard affidavit used the correct 

unit price for the bupivacaine powder as of the date of dispensing, $39.73 multiplied 

by 7.2 units multiplied by 110% yields a payment amount of $314.66, not $305.92. 

This omission and concomitant math error rendered the Leonard affidavit incredible 

and entitled to no weight, in the view of the Hearing Office.

The Hearing Office next observed that although Insurer advocated for 

the use of the “actual” AWP, rather than a “fictitious” AWP, Insurer offered no

evidence on this point. The Leonard affidavit made the conclusory and unfounded 

claim that Insurer’s payment of $305.92 exceeded the actual AWP of the ingredients 

in the compounded medical cream. However, the affidavit did not identify its source 

for this claim, and it did not explain why using the “actual” AWP limited the inquiry 

to only one and not all of the ingredients used in the compounded medical cream

dispensed by Pharmacy.

In its brief to this Court, Insurer repeats these claims. It also states that

another one of the ingredients in the compounded medical cream, gabapentin, has 
9

an average retail price of $35 for 90 pills.8 Insurer Brief at 36-37. Insurer then states

that the AWP for gabapentin is $140 per bottle, i.e., higher than the retail price. 

Stated otherwise, Insurer contends that the use of a “fictitious” AWP allowed

Pharmacy to charge $2,595.53 for 36 units of gabapentin. However, the amount of 

gabapentin used in the compounded medical cream has a total retail price of $39.00

by Insurer’s calculation. It follows, according to Insurer, that its payment to

Pharmacy of $305.92, exceeded the average retail price for the ingredients. 

Insurer’s argument lacks any support in the record certified to this 

Court. The Leonard affidavit did not address gabapentin or state the average retail 

price for a bottle of this medication in pill form. Nor did it state that pills could be 

used to produce a compound cream. Likewise, this affidavit did not support 

Insurer’s contention to this Court that Nationally recognized schedules use “secret 

amorphous, and confusing criteria” to establish the AWP. Insurer Brief at 20.

It is axiomatic that factual statements in a brief that have no basis in the 

certified record cannot be considered by an appellate court. Bingnear v. Workers’ 

Compensation Appeal Board (City of Chester), 960 A.2d 890, 896 (Pa. Cmwlth. 

2008). Under Pennsylvania Rule of Appellate Procedure 1951,

9

the record of

8 At oral argument Pharmacy responded, inter alia, that “pills” cannot be used to manufacture a 

compounded medical cream.

9

It states:

(a) Composition of the record.--Where under the applicable law the questions raised 

by a petition for review may be determined by the court in whole or in part upon 

the record before the government unit, such record shall consist of:

(1) The order or other determination of the government unit sought 

to be reviewed.

(2) The findings or report on which such order or other 

determination is based.

(3) The pleadings, evidence and proceedings before the government 

unit.
10

determination of a government unit consists of the order sought to be reviewed, the 

findings or report on which the appeal is based, and the pleadings, evidence and 

proceedings before the government unit. This Court is confined to that record, and 

it will not consider extra-record facts or evidence. Pryor v. Workers’ Compensation 

Appeal Board (Colin Service Systems), 923 A.2d 1197, 1201 (Pa. Cmwlth. 2006). 

Accordingly, we will disregard Insurer’s statements and claims about the average 

retail price for gabapentin and challenges to the value of Nationally recognized 

schedules of average wholesale prices. 

Insurer’s claim that the AWP is “fictitious” does not advance its 

position. Insurer seems to believe that the AWP must be the number used by a 

pharmaceutical company to set its wholesale price. However, any “average price”

will be a number calculated from marketplace data, and that price may, or may not,

actually be “used” by a vendor of merchandise. Truven Health Analytics 

acknowledges that its published Average Wholesale Price “does not reflect the 

actual AWP charged by a wholesaler.” R.R. 39a (emphasis added).

In sum, Insurer did not meet its burden of proving that it properly 

reimbursed Pharmacy for the compounded medical cream it dispensed to treat 

Claimant’s work injury. Accordingly, we affirm the Hearing Office’s adjudication

on this point.

II.

Insurer next argues that the Bureau’s regulation is incompatible with 

the plain meaning of Section 306(f.1)(3)(vi)(A) of the Act, which directs the use of

the AWP to calculate reimbursement for a particular pharmaceutical product. 

PA. R.A.P. 1951(a).
11

Insurer asserts that the Bureau’s regulation exceeded this statutory directive because

it authorizes the AWP to be based on data gathered and published by private 

organizations. Most recently, the Bureau identified “the Red Book, published by 

Truven Health Analytics,” as its source for the AWP of pharmaceuticals. 47 Pa. B.

5740 (September 9, 2017). Insurer contends that this schedule does not reflect the 

“actual AWP” charged by pharmaceutical companies and, thus, it violates Section 

306(f.1)(3)(vi)(A) of the Act to use this schedule. Insurer Brief at 10-11.

To begin, this argument of Insurer also lacks support in the record. As 

noted, the Leonard affidavit addressed only bupivacaine powder, and it did not offer 

any evidence on the “actual AWP” for any other ingredient in the compounded 

medical cream dispensed to Claimant. Accordingly, the Hearing Office found, as 

fact, that Insurer did “not rely upon the actual AWP in ascertaining the amount due”

on Pharmacy’s invoice. Adjudication at 5, F.F. No. 16, n.4; R.R. 103a (emphasis in 

original). 

We turn, then, to Insurer’s contention that the cost containment 

regulation does not conform to Section 306(f.1)(3)(vi) of the Act, which limits the 

reimbursement for prescription drugs to 110% of the AWP for the product. When 

enacted, Section 306(f.1)(3)(vi) stated as follows:

The reimbursement for prescription drugs and professional 

pharmaceutical services shall be limited to one hundred ten per 

centum of the average wholesale price of the product.

Former 77 P.S. §531(3)(vi) (emphasis added). The General Assembly did not define 

the term “average wholesale price.” 

In Commonwealth v. TAP Pharmaceutical Products, Inc., 36 A.3d 1112

(Pa. Cmwlth. 2011), vacated on other grounds, 94 A.3d 364 (Pa. 2014), this Court 

explained as follows:
12

Since the late 1960s, almost every branded prescription drug sold 

in the United States has an [AWP], which is published in 

commercial compendia like Red Book, First DataBank, and 

Medispan. During the period covered by this lawsuit, AWP is 

provided in a current, digital format for each available branded 

pharmaceutical, in each dosage and packaging size. The digital 

format and the constantly updated value are essential for use in 

computer-dominated reimbursement systems, such as those used 

by [the Department of Human Services and Department of 

Aging]....

Id. at 1130. While critical of the AWP-based system for drug reimbursement, this 

Court explained that the AWP provided an efficient estimate of acquisition costs for

pharmaceuticals. Further, this Court observed:

The reference to published prices was not intended to modify the 

accuracy of the average price phrase; rather, the reference to 

published prices was intended to establish a widely-available 

third-party source of average prices. Establishing such a source 

relieves the [Department of Human Services and Department of 

Aging] of legal mandates to ascertain, by alternative methods, 

estimated acquisition costs.... In short, the reference to 

published prices does not change the plain meaning of the cost to 

be ascertained.

Id. at 1161 (citing Commonwealth v. TAP Pharmaceutical Products, Inc. (Pa. 

Cmwlth., No. 212 M.D. 2004, filed October 14, 2010) (single-judge op.) (Simpson, 

J.), slip op. at 8) (citation omitted). In short, the AWP provides an objective estimate 

of acquisition costs for pharmaceuticals available through national pricing 

schedules.

In 2014, after the extensive TAP litigation, the General Assembly 

amended Section 306(f.1)(3)(vi) of the Act. See Act of October 27, 2014, P.L. 2894, 

No. 184. The amendment did not define the term “average wholesale price.” It did, 

however, add a phrase so that Section 306(f.1)(3)(vi)(A) now reads as follows:
13

The reimbursement for drugs and professional pharmaceutical 

services shall be limited to one hundred ten per centum of the 

average wholesale price (AWP) of the product, calculated on a 

per unit basis, as of the date of dispensing. 

77 P.S. §531(3)(vi)(A) (emphasis added to identify new language). The parties 

addressed the 2014 amendment in their supplemental briefs.

Insurer explains that the 2014 amendment did not change the meaning 

of “average wholesale price (AWP) of the product” in Section 306(f.1)(3)(vi)(A) of 

the Act. The language specifying that the AWP must be “calculated on a per unit 

basis, as of the date of dispensing” simply clarified the application of the AWP 

methodology. Specifically, the amendment requires that the AWP be calculated on 

the date dispensed and that the employer is only responsible for the cost of the units 

dispensed, as opposed to the whole package. Insurer Supplemental Brief at 15-16. 

Pharmacy agrees.

Insurer then argues that pharmaceutical industry compendia, such as 

Truven Health Analytics’ Red Book, do not report the actual wholesale price of 

pharmaceuticals. Asserting that “there is no readily available resource from which 

to get the [actual] AWPs,” Insurer urges that the “best proxy that can be used is the 

average retail price.” Insurer Brief at 38. We reject this contention.

The legislature could have amended Section 306(f.1)(3)(vi)(A) to 

define “average wholesale price” to mean “average retail price,” as suggested by 

Insurer. It did not do so.

The concurring and dissenting opinion of Judge Ceisler agrees with 

Insurer’s “persuasive statutory construction argument that the AWP” denotes the 

“actual average wholesale price, not a fictitious AWP.” Indemnity Insurance 

Company of North America v. Bureau of Workers’ Compensation Fee Review 
14

Hearing Office (Insight Pharmacy), __ A.3d __, __ (Pa. Cmwlth., No. 696 C.D. 

2018, filed January 5, 2021) (Ceisler J., concurring & dissenting), slip op. at 1

(emphasis in original). In support, Judge Ceisler relies upon federal court decisions

as well as an October 18, 2013, sponsoring memorandum of Representative 

Marguerite Quinn. The majority agrees with Judge Ceisler that our task is to 

construe “AWP” according to its plain meaning. The majority opinion does just that.

First, the legislature dictated the use of the industry AWP, not the AWP

charged by a single manufacturer. The AWP is a number derived by averaging the 

wholesale prices of all manufacturers or wholesalers. The TAP litigation developed 

the “fictitious” moniker for “AWP.” Other than conveying a derogatory

connotation, this adjective has little meaning. A number calculated from data 

collected from the market place is neither “fictitious” nor “actual.” The number is 

either accurate or inaccurate, but it has no “actual” existence.

In any case, Insurer asserts that it is the average retail price that should 

be the measure used in any pharmaceutical reimbursement system. To read “average 

wholesale price” to mean “actual retail price” does violence to the words used by the 

legislature. Insurer needs to make its case to the General Assembly and seek an 

amendment to Section 306(f.1)(3)(vi)(A) before the industry average retail price can 

become the appropriate standard for use in a system of pharmaceutical 

reimbursement.

Second, the sponsoring memorandum of Representative Quinn does not 

advance Insurer’s assertion that AWP means a number derived from retail prices. 

The memorandum advises that Representative Quinn intends, at some time, to 

introduce legislation to “decrease costs in the workers’ compensation system,” but 

that legislation is not identified either by bill number or printer’s number. Insurer 
15

Supplemental Brief, Appendix. Stated otherwise, there is no way to connect this 

memorandum to the 2014 amendment.

Even assuming the amendment initiated by Representative Quinn does 

relate to Section 306(f.1)(3)(vi)(A) of the Act, the statement of a single legislator is 

not entitled any weight. The General Assembly has circumscribed the use of 

comments and reports in statutory construction. Section 1939 of the Statutory 

Construction Act of 1972 states as follows:

The comments or report of the commission, committee, 

association or other entity which drafted a statute may be 

consulted in the construction or application of the original 

provision of the statute if such comments or report were 

published or otherwise generally available prior to the 

consideration of the statute by the General Assembly, but 

the text of the statute shall control in the event of conflict 

between its text and such comments or report.

1 Pa. C.S. §1939. The “remarks and understanding of individual legislators are not 

relevant in ascertaining the meaning of a statute,” McCormick v. Columbus 

Conveyor Company, 564 A.2d 9077, 910 n.1 (Pa. 1989), and the “records of 

individual legislators in debate are not relevant for the obvious reason that they

represent only one person’s view and not that of the opposing or enacting body.” 

Zemprell v. Thornburgh, 407 A.2d 102, 109 (Pa. Cmwlth. 1979).

In short, in its plain meaning, Section 306(f.1)(3)(vi)(A) requires the 

use of “average wholesale price” and not “average retail price.” Insurer could have 

produced evidence to support a calculation of an AWP more accurate than the one 

authorized by the regulation and listed by the Bureau in the Pennsylvania Bulletin. 

Instead, Insurer offered a conclusory affidavit laden with simple math errors as the 

sum total of its evidence.
16

The regulation authorizes the Bureau to use an AWP produced by a 

Nationally recognized pricing schedule for “resolving payment disputes.” 34 Pa. 

Code §127.131. It does not mandate the use of a particular Nationally recognized 

pricing schedule. To the contrary, an insurer and a provider may agree on which 

“Nationally recognized” schedule to use, and it need not be the one published by the 

Bureau each year in the Pennsylvania Bulletin. 34 Pa. Code §127.131. 

Likewise, the regulation does not prevent a provider or employer from 

proposing a Nationally recognized schedule other than the one listed by the Bureau

in the Pennsylvania Bulletin when litigating a repricing dispute before the Medical 

Fee Review Section or the Hearing Office. Insurer was free to offer evidence of 

another source of data to establish the AWP for each of the ingredients used in the 

compounded medical cream that would have allowed the fact finder to reprice 

Pharmacy’s invoice to a different result. However, Insurer did not present any 

evidence relevant to the “actual” AWP of the ingredients that Pharmacy used to 

produce the compounded medical cream dispensed to Claimant.

Insurer’s challenge to the regulation lacks merit. 

III.

In its third issue, Insurer asserts that the Bureau’s regulation improperly

connects the amount of medical compensation owed to an AWP set by private 

companies. Insurer argues that the regulation has delegated legislative authority to 

private persons, in violation of Article II, Section 1 of the Pennsylvania 

Constitution.

10

 In support of its argument, Insurer directs the Court to Protz v. 

10 Article II, Section 1 of the Pennsylvania Constitution states that “[t]he legislative power of this 

Commonwealth shall be vested in a General Assembly, which shall consist of a Senate and a House 

of Representatives.” PA. CONST. art. II, §1.
17

Workers’ Compensation Appeal Board (Derry Area School District), 161 A.3d 827

(Pa. 2017).

The regulation does not specify Truven Health Analytics. Rather, the 

regulation allows the Bureau to use, in a limited way, information from a Nationally 

recognized schedule of prices compiled from the marketplace. The regulation does 

not preclude an employer from offering another Nationally recognized schedule or 

some other source of price data, such as an internationally recognized schedule, to 

establish the AWP for pharmaceuticals dispensed to workers’ compensation 

claimants. Insurer made no attempt to establish the so-called “actual” AWP with 

evidence. It was not prevented by the regulation to make a case for the use of an

“actual” AWP to reprice Pharmacy’s invoice. Simply, Insurer lacks any basis for its

constitutional claim.

Conclusion

Insurer had the burden of proving that its reimbursement of $305.92 to 

Pharmacy for the compounded medical cream dispensed to Claimant satisfied 

Section 306(f.1)(3)(vi)(A) of the Act. It did not come close. For the reasons set 

forth above, we discern no error in the Hearing Office’s adjudication that Insurer 

owed Pharmacy $6,336.02, plus interest, for the prescription. Accordingly, we 

affirm the Hearing Office’s adjudication.

 _____________________________________

 MARY HANNAH LEAVITT, President Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indemnity Insurance Company of North :

America, :

Petitioner :

:

v. : No. 696 C.D. 2018

:

Bureau of Workers’ Compensation Fee :

Review Hearing Office (Insight :

Pharmacy), :

Respondent :

O R D E R

AND NOW, this 5

th day of January, 2021, the adjudication of the 

Bureau of Workers’ Compensation Fee Review Hearing Office dated April 24, 2018, 

in the above-captioned matter is AFFIRMED.

 _____________________________________

 MARY HANNAH LEAVITT, President Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indemnity Insurance Company of :

North America, :

Petitioner :

:

v. : No. 696 C.D. 2018

: ARGUED: June 10, 2020

Bureau of Workers’ Compensation :

Fee Review Hearing Office (Insight :

Pharmacy), :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE PATRICIA A. McCULLOUGH, Judge

HONORABLE ANNE E. COVEY, Judge

HONORABLE MICHAEL H. WOJCIK, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge

HONORABLE ELLEN CEISLER, Judge

HONORABLE J. ANDREW CROMPTON, Judge

CONCURRING AND DISSENTING 

OPINION BY JUDGE CEISLER FILED: January 5, 2021

I agree with the majority’s conclusion that Petitioner, Indemnity Insurance 

Company of North America (Insurer) failed to meet its burden of proving that it 

reimbursed Insight Pharmacy (Pharmacy) correctly for the prescribed pain cream, 

and therefore, that the Hearing Officer’s decision should be affirmed. I write 

separately, however, to stress a critical distinction between the actual and fictitious

average wholesale price (AWP), which I believe must be acknowledged. Insurer 

presents a persuasive statutory construction argument that the AWP, for purposes of 

pharmaceutical reimbursements under the Workers’ Compensation (WC) Act,1is the 

actual average wholesale price, not a fictitious AWP. 

1 Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§1-1041.1, 2501-2710.
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1. Insurer’s Initial Argument

In 1993, in response to spiraling medical expenses leading to a proposed 52% 

hike in insurance premiums, the General Assembly enacted the Act of July 2, 1993, 

P.L. 190, No. 44, commonly known as Act 44 (1993 WC Amendment), which 

amended the WC Act by adding cost containment provisions, such as Section 

306(f.1)(3)(vi)(A) of the WC Act, 77 P.S. §531(3)(vi)(A), governing reimbursement 

for prescription drugs based on 110% of the AWP. However, the 1993 WC 

Amendment did not define AWP.

Section 127.131 of the Workers’ Compensation Medical Cost Containment 

Regulations, 34 Pa. Code §127.131 (relating to payment for prescription drugs and 

pharmaceuticals), promulgated under the cost containment provisions in the 1993 

WC Amendment, provided the Workers’ Compensation Bureau (Bureau) with the 

option of choosing any of three nationally recognized schedules to determine AWP. 

Insurer contends the General Assembly dictated that AWP be used as a benchmark 

for drug pricing. However, the Bureau, not the General Assembly, determined that 

AWP was obtainable from any one of the three nationally recognized schedules and 

elected to use data from the Truven Red Book.

Insurer argues that the three national schedules do not report the actual AWPs. 

Rather, they have developed entirely fictitious AWPs. For example, Insurer asserts 

that Gabapentin, one of the compounds in the compounded cream at issue here, has 

an average retail price of $35 for a bottle of 90 pills. See Pet’r’s Br. at 36-37. 

However, Insurer claims the same quantity of the drug has a fictitious AWP of $140 

per bottle. Therefore, the workers’ compensation reimbursement, 110% of the

fictitious AWP for Gabapentin, would be $154 for a bottle of 90 pills; yet the retail 
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price for the same amount of Gabapentin is only $35 per bottle.2 Accord In re 

Pharm. Indus. Average Wholesale Price Litig., 491 F. Supp.2d 20, 40-41 (D. Mass. 

2007), aff’d, 582 F.3d 156 (1st Cir. 2009), cert. dismissed sub nom. AstraZeneca 

Pharms. LP v. Blue Cross Blue Shield of Mass., 561 U.S. 1056 (2010) (MDL 2007)

(explaining how the gap between the true price for acquisition and the reported 

AWPs ballooned; some actual AWPs were 60% to 90% below the reported AWPs). 

Insurer argues that switching from the fictitious AWP to the originally intended 

actual AWP could save Pennsylvania employers and insurance carriers hundreds of 

millions of dollars in unnecessary spending on pharmaceuticals.

2. Statutory Construction

The WC Act has never defined the term “average wholesale price.” However, 

the Act of October 27, 2014, P.L. 2894, No. 184 (2014 WC Amendment), now 

provides for reimbursement for pharmaceutical goods and services at 110% of the 

AWP, “calculated on a per unit basis, as of the date of dispensing.” 77 P.S. § 531. 

Insurer contends that in light of this Court’s decision in Commonwealth v. TAP 

Pharmaceutical Products, Inc., 36 A.3d 1112 (Pa. Cmwlth. 2011), vacated on other 

grounds, 94 A.3d 364 (Pa. 2014), and the addition of the above language to 77 P.S. 

§531, the legislature intended “average wholesale price” to mean the actual AWP. 

Insurer’s supplemental brief addresses this issue in comprehensive and 

persuasive detail. Insurer asserts that by offering no changes to the meaning of the 

2

Insurer asserts there is no readily available resource to determine the actual AWP for the 

ingredients in the compounded cream at issue, and therefore, the best proxy that can be used is the 

average retail price. Insurer suggests that although the retail price would obviously be higher than 

the actual AWP, it would still be more reasonable than the grossly inflated fictitious AWP. There 

is persuasive logical appeal in Insurer’s reasoning that where the actual retail price is substantially 

less than the purported AWP, the AWP must be incorrect, and thus, fictitious. However, I agree 

with the majority that Insurer cites no authority from the record or otherwise in support of its 

argument concerning the amounts of the specific retail and wholesale prices it posits.
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AWP, the 2014 WC Amendment demonstrates legislative approval for the courts’ 

prior plain language reading of the term.

a. Legislative History

The 1993 WC Amendment added medical cost-containment provisions to the 

WC Act. These provisions were modeled after the Medicare system. In enacting 

the 1993 WC Amendment, the legislature provided no definition for the term 

“average wholesale price.” 

About six months earlier, Pennsylvania had enacted the Act of December 18, 

1992, P.L. 792, No. 128 (1992 Preservation Act Amendment), amending the Lottery 

Fund Preservation Act3to include provisions providing pharmaceutical assistance 

for the elderly and requiring the Department of Aging to reimburse medical 

providers for prescription drugs based on “average wholesale cost.” Former 72 P.S.

§ 3762-303(H)(12)(i). Like the 1993 WC Amendment, the 1992 Preservation Act

Amendment provided no definition of “average wholesale cost.”

Four years later, in 1996, Pennsylvania enacted Act 134 of 1996 (1996 

Lottery Law Amendment),4repealing the Lottery Fund Preservation Act and adding 

Section 502 to Pennsylvania’s State Lottery Law (Lottery Law),

5 defining AWP as 

“average wholesale cost,” which is “[t]he cost of a dispensed drug based upon the 

price published in a national drug pricing system in current use by the Department 

of Aging as the [AWP] of a prescription drug in the most common package size.” 

72 P.S. § 3761-502. The 1996 Lottery Law Amendment remained in place for many 

3 Act of August 14, 1991, P.L. 342, No. 36, former 72 P.S. §§ 3761-101 – 3762-904.

4 Act of November 21, 1996, P.L. 741, No. 134.

5 Act of August 26, 1971, P.L. 351, as amended, 72 P.S. §§ 3761-101 – 3761-2103.
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years without any substantive changes.6 By contrast, the legislature never amended 

the WC Act to provide a definition of the AWP. 

b. Federal Multidistrict AWP Litigation

Artificial inflation of fictitious AWPs regarding Medicare reimbursements 

gave rise to federal multidistrict litigation alleging fraudulent inflation of the costs 

of pharmaceutical drugs. In In re Pharmaceutical Industry Average Wholesale 

Price Litigation, 460 F. Supp.2d 277, 287 (D. Mass. 2006) (MDL 2006), a federal 

judge in the multidistrict litigation concluded that the AWP was not an industry 

term of art, but rather must be accorded its plain meaning. 

c. Pennsylvania AWP Litigation – TAP

In 2004, in TAP, the Commonwealth of Pennsylvania similarly filed a

complaint against numerous pharmaceutical companies, alleging fraudulent 

manipulation of AWPs7 with regard to prescription cost reimbursements by the 

Department of Aging. The 1996 Lottery Law Amendment required the Department 

of Aging to reimburse for pharmaceuticals using the AWP “based upon the price 

published in a national drug pricing system in current use by the Department of 

Aging.” 72 P.S. § 3761-502. The defendants in TAP argued that this reference to 

national price compendia showed a different legislative intent from that of the 

Medicare statutes in the federal litigation. This Court rejected that argument: 

Defendants’ [argument] “appears to boil down to the remarkable 

proposition that the Legislature delegated responsibility for . . . drug 

reimbursement to the pharmaceutical industry, and that drug 

6 However, the Act of July 10, 2006, P.L. 1061, amended the Lottery Law to reduce the 

payment rate from 90% to 88% of the “average wholesale cost.” See 72 P.S. §§ 3761-509 – 3761-

510.

7 The Commonwealth filed an Amended Complaint in 2005. See Commonwealth ex rel. 

Pappert v. TAP Pharm. Prods., Inc., 885 A.2d 1127, 1131 (Pa. Cmwlth. 2005). 
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manufacturers were thereafter free to report whatever prices and obtain 

whatever level of reimbursement they desired.” [(Citation omitted).] 

Clearly, this would lead to an absurd result, and would favor a private, 

rather than public interest, which we must presume the Legislature did 

not intend. 1 Pa. C.S. §1922(1), (5). It is also noteworthy that there is 

no known judicial acceptance of this position. 

TAP, 36 A.3d at 1194, App. B. Thus, like the federal court in MDL 2006, this Court 

held that the AWP must be interpreted according to its plain meaning, concluding 

that “those writing Pennsylvania’s reimbursement laws sought a formula to give an 

easily-ascertained, objective, accurate estimate of acquisition costs for 

pharmaceuticals, not a fictitious value allowing reimbursement unrelated to prices 

actually paid by providers.” Id. at 1194-95 (emphasis added). Therefore, the 

legislature “intended the phrase ‘average wholesale price’ to mean what it plainly 

says, that is, an average of wholesale prices paid by providers.” Id. (emphasis 

added).

In short, both the federal court in MDL 2006 and this Court in TAP found the 

term “average wholesale price,” in relation to reimbursement of prescription 

costs, must be interpreted according to its plain meaning.

d. 2014 WC Amendment

i. Added Language

Relevant here, the 2014 WC Amendment added 12 words to the end of the 

sentence in the WC Act which mandates the AWP standard: “The reimbursement 

for [prescription] drugs and professional pharmaceutical services shall be limited to 

one hundred ten per centum of the average wholesale price (AWP) of the product, 

calculated on a per unit basis, as of the date of dispensing.” 77 P.S. §531(3)(vi)(A)

(emphasis added). These 12 words clarified how the AWP standard was applied, 

not how AWP is defined. 
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ii. Legislative Intent

The 2014 WC Amendment revised Section 306(f.1)(3)(vi) of the WC Act in 

order to reduce pharmaceutical costs and limit physician self-dispensing. See, e.g., 

Section 306(f.1)(3)(vi)(H) of the WC Act, 77 P.S. § 531(3)(vi)(H) (“The Workers’ 

Compensation Advisory Council shall annually conduct a study of the impact of this 

sub-clause, including calculation of the savings achieved in the dispensing of 

pharmaceuticals”); H.B. 1846 § 1.1, Reg. Sess. (Pa. 2013) (requiring the 

Pennsylvania Compensation Rating Bureau to calculate the savings achieved 

through the implementation of the amendment of Section 306(f.1)(3)(vi); “the 

amount of the savings shall be used to provide an immediate reduction in rates, 

equal to the savings, applicable to employers’ workers’ compensation policies”) 

(emphasis added). 

One cost problem identified by the drafters of the 2014 WC Amendment

involved healthcare providers that were relying on National Drug Code (NDC)

numbers from repackaged drugs that were purchased in bulk and then sold to 

physicians in smaller lots at much higher prices. This led to an “artificial and inflated 

AWP of repacked drugs” (10/18/13 Pennsylvania House of Representatives Memo,

attached in Appendix to Insurer’s supplemental brief). 

To achieve the goal of lower pharmaceutical costs, the 2014 WC Amendment

sought to (1) end the practice of pharmaceutical billing based on inflated NDCs 

provided by drug re-packagers (as opposed to the original manufacturer’s NDCs) 

and (2) strictly limit the practice of physicians self-dispensing pharmaceuticals. A 

Pennsylvania House of Representatives Memorandum circulated by the 2014 WC 

Amendment’s sponsor, Representative Marguerite Quinn, spelled out the 

amendment’s objectives: 
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• Require physicians to include the original drug manufacturer’s 

NDC submissions for reimbursement;

• Establish a maximum reimbursement rate of 110% for physiciandispensed drugs;

• Prohibit the use of repackaged NDC numbers;

• Limit physician dispensing to drugs needed in the first five days 

following initial treatment;

• Ultimately decrease costs in the workers’ compensation system 

without sacrificing the quality of healthcare services received 

by patients. 

Id.

This was not the only clarification the legislature provided for applying the 

AWP standard. Under the prior law, healthcare providers seeking to maximize 

profit could argue for AWP based on a per package calculation as opposed to a per 

unit calculation. The healthcare provider would then bill for a whole bottle of pills 

as opposed to the one or two pills actually dispensed.8 The 2014 WC Amendment’s 

clarification that AWP must be recorded on a “per unit basis” addressed this issue 

and also financially enforced the restrictions on physician dispensing.9

Thus, the 2014 WC Amendment provided no change to the statutory meaning 

of the AWP, but merely clarified when and in what increments the standard of the 

8

In fact, the State Lottery Law requires the Pennsylvania Department of Aging to 

reimburse prescription drugs based upon the “average wholesale price of a prescription drug in the 

most common package size.” 72 P.S. § 3761-502 (emphasis added). 

9 The 2014 WC Amendment’s limits on physician dispensing allow physicians to seek 

reimbursement only for a seven-day supply of certain controlled substances such as those 

containing hydrocodone. Determining the AWP based upon a per unit basis, as opposed to a per 

package basis, precludes an end run around this prohibition. 
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AWP should be applied. In clarifying when AWP is measured and whether it is 

recorded for individual units or an entire package, the legislature did nothing to 

change the underlying meaning of the “average wholesale price.” The amendment’s 

added language reflected these concerns by requiring the AWP to be “calculated on 

a per unit basis, as of the date of dispensing.” 77 P.S. §531(3)(vi)(A) (emphasis 

added). The legislature did not intend in any way to deviate from the plain meaning 

of “average wholesale price.” 

iii. Presumption of Legislative Concurrence

“The failure of the General Assembly to change the law which has been 

interpreted by the courts creates a presumption that the interpretation was in 

accordance with the legislative intent; otherwise the General Assembly would have 

changed the law in a subsequent amendment.” Fonner v. Shandon, Inc., 724 A.2d 

903, 906 (Pa. 1999); see Fletcher v. Pa. Prop. & Cas. Ins. Guar. Ass’n, 985 A.2d 

678 (Pa. 2009). Thus, the legislature’s decision not to amend the plain meaning of 

AWP via the 2014 WC Amendment must be understood in the context of its timing. 

In October 2013, Representative Marguerite Quinn circulated a memorandum 

to the Pennsylvania House of Representatives, announcing legislation addressing 

physician self-dispensing. Before her bill was even introduced, the federal ruling in

the multidistrict litigation held that the term “average wholesale price” in the

Medicare statute on which the legislature relied in drafting the 1993 WC 

Amendment10 must be understood according to its plain meaning. MDL 2006, 460 

F. Supp.2d at 284. Likewise, three years before the 2014 WC Amendment was

introduced, this Court held in TAP that the legislature intended “average wholesale 

price” to be given its plain meaning. TAP, 36 A.3d at 1194-95. 

10 Notably, like the Medicare statutes, the WC Act contains no reference to national price 

compendia.
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If the legislature disagreed with the plain meaning of the term as endorsed by 

the Courts, it was free to amend the Act accordingly. It did not do so. Therefore, 

there is a presumption that the Courts’ interpretation of the plain meaning of AWP 

was in accord with legislative intent. Fletcher; Fonner.

3. Conclusion

I agree with Insurer’s persuasive statutory construction argument. The AWP, 

for purposes of pharmaceutical reimbursements under the WC Act, is the actual

average wholesale price, “calculated on a per unit basis, as of the date of dispensing,” 

77 P.S. § 531, not a fictitious AWP.

Nonetheless, I agree with the majority that in this particular case, Insurer must 

reimburse Pharmacy as determined by the Hearing Office, because Insurer did not 

sustain its burden of proving it properly reimbursed Pharmacy. Insurer failed to 

present evidence of the actual AWP11 of any of the ingredients in the compounded 

cream, miscalculated the amount due on the one ingredient it paid for, offered no 

evidence of any AWP for five of the six ingredients, and offered no evidence of any

payment for five of the six ingredients.

Accordingly, I concur in the outcome but respectfully dissent from the 

majority’s statutory analysis.

__________________________________

ELLEN CEISLER, Judge

Judge McCullough joins in this Concurring and Dissenting Opinion.

11 As a practical matter, one effect of this decision may be that pharmacies will have to 

provide documentation of their actual AWP, in light of the added calculation limitations in order 

to establish an amount that is 110% of the AWP and obtain reimbursement. The Bureau may, and 

should, clarify that requirement by regulation. Arguably, therefore, the added language concerning 

calculation of the AWP should solve Insurer’s alleged difficulty in obtaining actual AWPs in the 

future.