Court Opinion

ID: 9914507
Source: CourtListenerOpinion
Date Created: 2024-01-02 15:06:50.026188+00
Date Added: 2024-06-11T13:13:21.111795
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Federated Insurance Company,             :
                       Petitioner        :
                                         :
                     v.                  :   No. 115 C.D. 2023
                                         :   Argued: November 8, 2023
Summit Pharmacy (Bureau of               :
Workers’ Compensation Fee                :
Review Hearing Office),                  :
                        Respondent       :

BEFORE:       HONORABLE RENÉE COHN JUBELIRER, President Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge
              HONORABLE ANNE E. COVEY, Judge
              HONORABLE MICHAEL H. WOJCIK, Judge
              HONORABLE CHRISTINE FIZZANO CANNON, Judge
              HONORABLE LORI A. DUMAS, Judge
              HONORABLE STACY WALLACE, Judge

OPINION BY
PRESIDENT JUDGE COHN JUBELIRER                      FILED: January 2, 2024

       Federated Insurance Company (Petitioner) petitions for review of the Order
of the Bureau of Workers’ Compensation (Bureau) Fee Review Hearing Office in
which a Bureau Hearing Officer ordered Petitioner to pay Summit Pharmacy
(Respondent) approximately $72,500 to reimburse Respondent for generic drugs
provided to Karen Link (Claimant) for her work-related injuries. In ordering
reimbursement in this amount, the Hearing Officer used the “Red Book” values for
the prescriptions at issue, which the Bureau adopted as the average wholesale price
(AWP) to be used in resolving payment disputes over pharmaceuticals. It is the
Bureau’s adoption and use of the Red Book values to resolve payment disputes that
is at issue in this appeal.
      The Red Book is a privately published, electronic compendium of
pharmaceutical and over-the-counter drug “AWPs” available online. (Reproduced
Record (R.R.) at 792a); Commonwealth v. TAP Pharm. Prods., Inc., 36 A.3d 1112,
1130 (Pa. Cmwlth. 2011) (TAP), vacated on other grounds, 94 A.3d 364 (Pa. 2014).
It is updated regularly to reflect changes in prices. (R.R. at 818a.) At the time
relevant to this matter, the publisher of the Red Book was IBM Health Watson,
although the publisher can, and does, change. (Id. at 843a-44a); see Indem. Ins. Co.
of N. Am. v. Bureau of Workers’ Comp. Fee Rev. Hearing Off. (Insight Pharm.), 245
A.3d 1158, 1162 (Pa. Cmwlth. 2021) (Indemnity Insurance) (reflecting that the
publisher of the Red Book then was Truven Health Analytics). In its statement of
policy, IBM Health Watson indicates that the AWP it publishes “is, in most cases,
the manufacturer’s suggested AWP and does not reflect the actual AWP charged by
a wholesaler,” that the values used in the Red Book are reported to it by the
manufacturer, and that IBM Health Watson does not independently analyze the data
to ascertain the amounts paid by providers, such as pharmacies, to wholesalers.
(R.R. at 843a.) Red Book values have been described as being similar to the
manufacturer’s suggested retail price or “sticker price” of a car. (Id. at 836a.)
      Petitioner argues the Bureau’s adoption and use of Red Book values in
payment disputes is inconsistent with Section 306(f.1)(3)(vi)(A) of the Workers’
Compensation Act (Act),1 which limits the reimbursement of pharmaceuticals to
“one hundred ten per centum of the . . . []AWP[] of the product.” 77 P.S.
§ 531(3)(vi)(A). Petitioner maintains Red Book values do not, and cannot, reflect
the AWP, as defined by its plain meaning, because of how those values are derived,
and, therefore, the Bureau exceeded its statutory authority by adopting the Red

      1
          Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 531(3)(vi)(A).

                                                2
Book. Petitioner further asserts that, if using the Red Book is not inconsistent with
the Act, its ongoing adoption by the Bureau represents an improper delegation of
legislative authority to a private entity under Protz v. Workers’ Compensation
Appeal Board (Derry Area School District), 161 A.3d 827 (Pa. 2017). Respondent,
in turn, maintains that AWP is a term of art used within the pharmaceutical industry
and, as its expert witness credibly testified, the Red Book is an accepted source of
AWP within that industry. It also argues there is no unlawful delegation to a private
entity in violation of Protz, an argument that has previously been rejected by this
Court. Upon review of the statutory language, case law, and record, we agree with
Petitioner that the Red Book values do not reflect AWP as required by the Act.
Accordingly, we reverse the Hearing Officer’s Order, and remand the matter for
further proceedings consistent with the following opinion.2 Additionally, we direct
the Bureau to promptly identify and publish in the Pennsylvania Bulletin a different
nationally recognized schedule to be used to determine the AWP for purposes of
resolving payment disputes for pharmaceuticals.

I.     BACKGROUND
       This Court has previously set forth the relevant factual and procedural
background in a memorandum opinion, granting Petitioner’s request for supersedeas
from the Hearing Officer’s Order, as follows:

       Petitioner is the [workers’ compensation (]WC[)] insurer for the
       employer of . . . []Claimant[], who sustained a work injury in 2010 and
       is entitled to WC benefits under the . . . Act . . . .[] (Hearing Officer
       Decision, Finding[s] of Fact (FOF) ¶¶ 3-4.) Respondent is an Arizona-

       2
          Because we agree with Petitioner on this issue, we do not address Petitioner’s
constitutional arguments. See Wertz v. Chapman Township, 709 A.2d 428, 431 (Pa. Cmwlth.
1998) (stating “it is a cardinal principle of jurisprudence that where decision can be had on other
than constitutional grounds, the court should decide the case on the nonconstitutional grounds”).

                                                3
based online pharmacy that provides Claimant with her prescription
medication for her work injury. (Id. ¶ 4.) Beginning in 2019,
Respondent submitted to Petitioner, and Petitioner paid to Respondent,
bills for drugs dispensed to Claimant totaling approximately $109,000,
which were billed at a wholesale price proposed by Respondent.
(Application [For Supersedeas] (Appl.), Attachment C.) In 2021,
Petitioner determined that Respondent’s billed pricing was far above
the actual . . . []AWP[] of the drugs, as reported in the National Average
Drug Acquisition Cost Index (NADAC). (Appl. ¶ 4.) Thus, for the
bills Respondent submitted between April 15, 2021, and September 8,
2022, totaling about $74,011.81, Petitioner adjusted its payments to be
110% of AWP as determined using NADAC, totaling $1,511.93. (FOF
¶ 4; Appl. ¶ 4.) This left $72,499.88 in disputed, unpaid bills, plus
interest. (FOF ¶¶ 4, 7.)

Respondent filed applications for fee review. (Id. ¶ 5.) The Bureau’s
Fee Review Section issued determinations applying a different cost
index, known as “Red Book,” based upon the cost containment
regulations promulgated under the Act. See 34 Pa. Code §§ 127.1-
127.755; see also Section 306(f.1)(3)(vi)(A) of the Act, 77 P.S.
§ 531(3)(vi)(A) (limiting reimbursement for drugs and professional
pharmaceutical services to “one hundred ten per centum of the . . .
[]AWP[] of the product, calculated on a per unit basis, as of the date of
dispensing”). The determinations ordered Petitioner to pay the disputed
$72,500. Petitioner filed 15 requests for fee review hearings ([1] for
each separate bill), and Respondent filed 3 such requests, which were
consolidated before the Hearing Officer for hearings over 6 days. (FOF
¶¶ 6-7.)

At the hearing, Petitioner bore the burden of proving, by a
preponderance of the evidence, that it had properly reimbursed
Respondent. See 34 Pa. Code § 127.259(f); Liberty Mut. Ins. Co. v.
Bureau of Workers’ Comp., Fee Rev. Hearing Off. (Kepko), 37 A.3d
1264, 1269 n.11 (Pa. Cmwlth. 2012). To do so, it sought to show that
Red Book pricing is artificially inflated and does not represent actual
AWP, which is what the Act requires be used to determine pricing.
Petitioner presented the expert testimony of Fred Selck, Ph.D., a
healthcare-market economic consultant. (Hearing Officer Decision,
FOF ¶¶ 16-20 (summarizing Selck’s testimony); . . . R.R.[] at 35a-156a
(notes of testimony).)3 Selck explained that a drug’s AWP is the
average of the amounts that all purchasers pay to purchase that drug
from a wholesaler. (R.R. at 99a [(emphasis omitted)].) Selck
contrasted that meaning of AWP with Red Book, which is “just a

                                    4
number that the . . . manufacturer provides,” and the manufacturer does
not “do[] any kind of analysis to understand what providers are paying
for their product” when determining the Red Book price. (Id. at 101a.)
Red Book provides the list price that manufacturers use as a starting
point in negotiations with wholesalers or insurers; it has “nothing to do”
with the actual acquisition cost of the drug at wholesale. (Id.)

      3. Respondent objected to Selck’s qualification as an
      expert. Selck admitted he had never worked as a
      pharmacist, was not familiar with the Act or the cost
      containment regulations, and has never testified as an
      expert in Pennsylvania about AWP. (R.R. at 87a-92a.)
      He also admitted he had never reviewed any of the
      Bureau’s annual statements specifying a benchmark for
      AWP, which are published annually in the Pennsylvania
      Bulletin pursuant to the cost containment regulations.
      (Id.); see 34 Pa. Code § 127.131(b). The Hearing Officer
      allowed Selck to testify as a healthcare economist and not
      as a legal expert. (R.R. at 96a.)

Selck explained that, unlike Red Book, NADAC AWP is determined
through a monthly survey of pharmacies’ actual acquisition or
“invoice” prices paid for a drug, and then by calculating an average of
the responding pharmacies’ reported invoice prices. (Id. at 104a-06a.)
In most cases the invoice price used in NADAC is paid to a wholesaler
to acquire the drug, but in some cases the invoice price is paid directly
to a manufacturer. (Id. at 108a.) Though manufacturers state a
suggested retail price—which is approximated by Red Book—they
routinely discount that price heavily in order to compete for sales to
pharmacies. (Id. at 111a-12a.) NADAC reflects those discounted,
actual wholesale prices. (Id. at 112a.) NADAC is used by several state
Medicaid agencies, and increasingly by commercial insurers, to
calculate reimbursement rates. (Id. at 108a-09a.) Generally,
“everybody understands . . . within the generic [market] that the . . .
Red Book AWP . . . nobody pays that price.” (Id. at 112a.)
Respondent’s submitted prices reflected Red Book prices plus 10%,
and “were far in excess of . . [.] the actual acquisition cost[]” reflected
in NADAC. (Id. at 118a.)

On cross-examination, Selck acknowledged there are national cost
indices other than NADAC, but reiterated that NADAC is by far the
most reliable for determining actual [AWPs] paid. (Id. at 133a.) There
are other cost indices that, like Red Book, measure list prices provided

                                    5
by manufacturers rather than actual wholesale prices paid by
pharmacies. (Id. at 135a-38a.) Selck also added that, when using
NADAC price to calculate AWP for purposes of reimbursement, he
added a 10% markup to allow a small profit margin to the pharmacy for
making the transactions in question. (Id. at 142a.)

....

In rebuttal, Respondent presented P.J. Ortmann, a consultant and
licensed Pennsylvania pharmacist, as an expert on pharmaceutical
pricing. (FOF ¶ 26; R.R. at 792a.) Ortmann agreed that NADAC
reflects a drug’s acquisition price, or “[t]he cost [at which] the
pharmacy can buy [a] drug from a wholesaler.” (Id. at 804a.) He
explained, however, that pharmacies cannot profitably be compensated
based on wholesale acquisition cost, even if the reimbursement includes
a 10% markup, because the acquisition costs are extremely low. (Id. at
802a-03a.) For example, for a drug with a $10 NADAC acquisition
cost, reimbursement at 110% of the NADAC cost would leave the
pharmacy with only $1 to cover its overhead cost of filling the
prescription. The average cost to fill a prescription is $12.50, so the
pharmacy would lose money on each transaction. (Id.) Thus,
pharmacies are typically reimbursed based on the higher Red Book
AWP in order to make it profitable to dispense drugs to recipients of
WC benefits. (Id. at 806a-09a.) Red Book AWP often differs
dramatically from NADAC acquisition prices, especially for generic
drugs. (Id. at 808[a]-09a.) For example, the Red Book AWP for a
bottle of generic Prozac is approximately $2,000, but the NADAC
acquisition price (which the pharmacy pays at wholesale) is $9. (Id. at
809a.)

On cross-examination, Ortmann again distinguished between Red
Book, which he stated provides an AWP, and NADAC, which
measures average acquisition cost. (Id. at 815a.) He disagreed that
NADAC could be described as reporting an [AWP]. (Id. at 815a, 822a.)
He agreed that Red Book states a wholesale price suggested by
manufacturers and “does not necessarily reflect the actual wholesale
price charged by a wholesaler.” (Id. at 817a.) Ortmann further agreed
that pharmacies do not rely on Red Book prices when purchasing drugs
at wholesale—Red [B]ook is used for reimbursement only. (Id. at
820a.) When asked about his earlier testimony about the disparity
between a $2,000 Red Book price and a $9 wholesale acquisition price
for a bottle of Prozac, Ortmann stated:

                                  6
      The reason that comes into play is the large [prescription
      benefit managers (]PBMs[)] offer the insurance company
      85[%] discounts to make it look like they’re getting a
      significant savings when, in fact, that’s still much more
      than the drug actually costs.

             Q. And just to be clear for the record, PBM is
             [a] prescription benefit manager?

             A. That is correct.

             Q. Okay.

             A. They’re the companies that actually
             process the prescription claims, and they are
             the go-go [sic] between the insurance
             company, the pharmacy[,] and the patient.

             Q. Do you have any documentation as to how
             much [Respondent] has paid for any of these
             medications in question, Doctor?

             A. I have no idea.

(Id. at 830a-31a.) On redirect, Ortmann indicated that the phrase
“average wholesale price” is a term of art in the pharmaceutical
industry. (Id. at 836a.) In his view, AWP is not a mathematical average
of actual prices paid, but rather a manufacturer’s suggested price that is
used as a reference in benefit negotiations between pharmacies, PBMs,
and third parties. (Id.)

In the January 11, 2023 Decision, the Hearing Officer affirmed the
Bureau’s fee review determinations. He concluded that Selck’s
credentials did not qualify him as an expert, and even if they did, he
found Selck’s testimony “wholly unpersuasive, inapposite[, and]
obfuscatious.” (FOF ¶¶ 17, 22.) The Hearing Officer found that, where
the testimony of Ortmann and Selck conflicted, Ortmann’s testimony
was more credible and accepted over Selck’s testimony. (Id. ¶ 25.) He
concluded that Petitioner failed to meet its burden to show that its
payment of 110% of NADAC price had properly reimbursed
Respondent under the Act and the cost containment regulations. (Id.
¶ 28.) In so concluding, the Hearing Officer distinguished cases cited
by Petitioner where courts have opined in other contexts that Red Book

                                    7
       pricing is inflated or fictitious. (Hearing Officer Decision at 15
       (distinguishing . . . TAP . . . , 36 A.3d 1112 . . . (Commonwealth action
       against pharmaceutical manufacturers alleging the Red Book AWPs
       were inflated and violated consumer protection laws) . . . ; In re Pharm.
       Indus. Average Wholesale Price Litig., 491 F. Supp. 2d 20 (D. Mass.
       2007) (MDL 2007) (class action against pharmaceutical manufacturers’
       inflating prescription drug costs), 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).) He also disagreed that a
       recent decision of this Court allowed an insurer “to ignore [the] Red
       Book” or required or supported the use of NADAC, and, in fact,
       rejected an argument similar to Petitioner’s here. (Id. (discussing
       Indem. Ins. . . . , 245 A.3d [at] 1168 . . . ).)

Federated Ins. Co. v. Summit Pharm. (Bureau of Workers’ Comp. Fee Rev. Hearing
Off.) (Pa. Cmwlth., No. 115 C.D. 2023, filed June 13, 2023) (single-judge op.)
(Cohn-Jubelirer, P.J.), slip op. at 2-7 (emphasis omitted) (some alterations added).
Accordingly, the Hearing Officer directed Petitioner to reimburse Respondent the
amounts set forth in the fee review determinations using the Red Book values.
Petitioner now asks this Court to review that Order.3

II.    DISCUSSION
       A. Parties’ Arguments
       Petitioner argues the Bureau’s continued adoption of the Red Book to provide
default values in payment disputes, and the Hearing Officer’s application of those
values here, are inconsistent with Section 306(f.1)(3)(vi)(A)’s language, which
utilizes the AWP of a drug to determine the maximum reimbursement amount.
According to Petitioner, while the Act provides that reimbursement is to be made at
110% of the AWP, it does not define AWP, which, in Petitioner’s view, should be

       3
         “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.” Indem. Ins., 245 A.3d at 1163 n.5.

                                                 8
defined by the plain and common usage of “average” and “wholesale price,” not as
a term of art. Petitioner maintains AWP means “actual” AWP, or an average of the
AWPs pharmacies throughout the country pay for the prescription drugs, they then
resell to their customers, a definition Petitioner contends is supported by our decision
in Indemnity Insurance. Petitioner argues the Red Book, adopted as the default
AWP by the Bureau, cannot be used to calculate AWP because it is not an average
of actual acquisition costs, or the prices paid by any pharmacies to
manufacturers/wholesalers. Instead, Petitioner asserts, this Court in Indemnity
Insurance and TAP, and federal district courts in MDL 2007, recognized that the Red
Book is an entirely fictitious and inflated index made up of a manufacturer’s
“suggested” AWP that far exceeds, as both Ortmann and Selck testified, the amounts
actually paid by any pharmacy. Petitioner notes that Medicare, along with other
state legislatures, no longer use the Red Book for this reason. In contrast to the
fictitious numbers used in the Red Book, Petitioner argues, the NADAC reflects the
AWP paid by pharmacies and satisfies the factors identified in Indemnity Insurance
as being the qualities of an AWP, facts that were unrebutted by Respondent’s
evidence. And, Petitioner contends, the use of the NADAC would significantly
decrease costs, which furthers the purpose of the cost containment amendments that
added the limiting language to Section 306(f.1)(3)(vi)(A). Finally, Petitioner argues
the issue is not whether pharmacies can make a profit, on which the Hearing Officer
appeared to focus, but whether the Bureau is complying with the Act’s language,
and it is not.
       Respondent argues the General Assembly used “average wholesale price” in
Section 306(f.1)(3)(vi)(A), 77 P.S. § 531(3)(vi)(A), not “actual wholesale price” or
“actual average wholesale price,” and the Court may not substitute language that it

                                           9
might prefer for that used by the General Assembly. Keystone Rx LLC v. Bureau of
Workers’ Comp. Fee Rev. Hearing Off. (Compservs. Inc./Amerihealth Case Servs.),
265 A.3d 322, 330-31 (Pa. 2021). Respondent asserts the General Assembly’s use
of AWP in Section 306(f.1)(3)(vi)(A), as interpreted in the Bureau’s regulations to
include the Red Book’s values, is consistent with how the phrase is used in the
pharmaceutical industry, as well as within other Pennsylvania statutes and
regulations. (Respondent’s Brief at 31-33 n.9, 40-41 (citing various statutory and
regulatory provisions that use “average wholesale price” or similar language).)
Because the Bureau’s regulation is consistent with the Act’s plain language,
Respondent argues the Court should not substitute its judgment for that of the
Bureau, which the Bureau has exercised since it first promulgated regulations on this
topic in November 1995. According to Respondent, numerous stakeholders were
involved in that process, and the Bureau’s adoption of the Red Book occurred at that
time.    Respondent observes that the regulation identifying the Red Book is
repromulgated annually in a process subject to review and objection by stakeholders,
but none have ever been made by Petitioner.
        Respondent contends Petitioner’s other arguments are likewise without merit,
pointing in particular to the fact that the Hearing Officer credited Ortmann’s
testimony and rejected Selck’s testimony.       Respondent maintains the credited
testimony supports the continued use of the Red Book, rather than the NADAC plus
110%, as suggested by Selck, because the latter standard has never been adopted and
does not account for the fact that Medicare (and every state that bases reimbursement
on the NADAC) allows for the charge of “dispensing fees” to cover pharmacy costs.
Respondent argues Indemnity Insurance did not authorize the abandonment of the
Red Book in all instances; it held that alternative evidence as to a more accurate

                                         10
AWP could be introduced but did not require that the alternative evidence be
credited. Respondent further argues TAP should not be relied upon to determine
what AWP means under the Act because TAP was not a WC case, did not examine
the Act’s language, and was decided before the Supreme Court’s admonition in
Keystone Rx LLC that this Court should not rewrite the Act where it believes the Act
should have been drafted differently.

       B. The Statutory and Regulatory Language
       The parties have placed the meaning of “AWP” in Section 306(f.1)(3)(vi)(A),
and the regulations promulgated to implement that provision, before the Court.
Section 306(f.1)(3)(vi)(A) relates, in part, to “medical services and supplies,” and
provides, in relevant part:         “The reimbursement for drugs and professional
pharmaceutical services shall be limited to one hundred ten per centum of the . . .
[]AWP[] of the product, calculated on a per unit basis, as of the date of dispensing.”
77 P.S. § 531(3)(vi)(A). This subsection was added to the Act, via amendment, by
Section 8 of the Act of July 2, 1993, P.L. 190, No. 44 (Act 44), which also
renumbered the section as Section 306(f.1) of the Act. It was subsequently amended
to its current language by Section 1 of the Act of October 27, 2014, P.L. 2894, No.
184 (Act 184).4 Neither Act 44, Act 184, nor the Act more broadly, define “AWP.”
77 P.S. § 531(3)(vi)(A).
       The Bureau promulgated cost containment regulations pursuant to, inter alia,
Act 44, and those regulations provide:

       § 127.131. Payments for prescription drugs and pharmaceuticals--
       generally.

       4
         Relevantly, Act 184 added “calculated on a per unit basis, as of the date of dispensing”
after “average wholesale price (AWP) of the product.” 77 P.S. § 531(3)(vi)(A).

                                               11
      (a) Payments for prescription drugs and professional pharmaceutical
      services shall be limited to 110% of the . . . []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 prescription drugs and
      pharmaceutical services and 110% of the AWP of the product.

34 Pa. Code § 127.131. As described in subsection (b), the Bureau publishes annual
notices in the Pennsylvania Bulletin designating the Red Book as the schedule to use
in determining the AWP of prescription drugs. See, e.g., 52 Pa.B. 7792 (Dec. 17,
2022); 46 Pa.B. 3389 (June 25, 2016); 40 Pa.B. 5025 (Aug. 28, 2010). The version
of such notice in effect at the time the parties filed the fee review applications here
provided that “[u]nder 34 Pa. Code § 127.131(b) (relating to payments for
prescription drugs and pharmaceuticals--generally), the . . . Bureau . . . [] gives notice
that it utilizes the IBM Micromedex Red Book to determine the average wholesale
price of prescription drugs.” 51 Pa.B. 7804 (Dec. 11, 2021).

      C. Analysis
      The arguments currently presented to the Court raise an issue of statutory
construction regarding the meaning of AWP, which forms the basis of the
reimbursement scheme of Section 306(f.1)(3)(vi)(A) and the cost containment
regulations. Our statutory interpretation is guided by the Statutory Construction Act
of 1972 (SCA). 1 Pa.C.S. §§ 1501-1991. Under Section 1921(a) of the SCA, “[t]he

                                           12
object of all interpretation and construction of statutes is to ascertain and effectuate
the intention of the General Assembly.”         1 Pa.C.S. § 1921(a).     “The clearest
indication of legislative intent is generally the plain language of a statute.” Walker
v. Eleby, 842 A.2d 389, 400 (Pa. 2004). “When the words of a statute are clear and
free from all ambiguity, the letter of it is not to be disregarded under the pretext of
pursuing its spirit.” 1 Pa.C.S. § 1921(b). The Court employs statutory construction
only if “the words of the statute are not explicit[.]” 1 Pa.C.S. § 1921(c). In doing
so, the general rule is that “[w]ords and phrases shall be construed . . . according to
their common and approved usage.”          Section 1903(a) of the SCA, 1 Pa.C.S.
§ 1903(a); Walker, 842 A.2d at 400. However, “technical words and phrases and
such others as have acquired a peculiar and appropriate meaning or are defined in
this part, shall be construed according to such peculiar and appropriate meaning or
definition.” Section 1903(a) of the SCA, 1 Pa.C.S. § 1903(a). “[T]he proper
interpretation of a statute[] [] is a question of law.” Walker, 842 A.2d at 392.
          We begin by observing that we are not starting our review of Section
306(f.1)(3)(iv)(A) on a blank slate. An en banc panel of this Court in Indemnity
Insurance has already construed the AWP by using its plain meaning, not as a term
of art.
          In Indemnity Insurance, the insurer determined that a WC pharmacy’s use of
Red Book values on its invoices was excessive and paid a reduced amount, and the
pharmacy challenged that reduced payment by filing a fee review application. At
the hearing, the insurer offered an affidavit identifying the difference in the retail
price, (i.e., the price charged by the pharmacy), and the wholesale price of one of the
five ingredients in the compound cream in question, reflecting that the retail price
appeared less than the wholesale price, as well as an excerpt from the Red Book

                                          13
editor’s policy stating the book did not contain “the actual AWP charged by a
wholesaler.” Indem. Ins., 245 A.3d at 1161-62 (emphasis in original). Arguing that
a pharmacy obviously would not sell drugs at a price lower than the AWP, the insurer
maintained that the lower retail price demonstrated that the Red Book AWP did not
represent actual AWP, but an inflated, fictitious AWP.           See id. at 1164-65
(summarizing insurer’s argument before hearing officer). The hearing officer did
not credit the insurer’s evidence on the retail price and held that the insurer had not
met its burden of showing it properly reimbursed the pharmacy and, therefore, had
to reimburse at the Red Book rate. Id. at 1162.
      Before this Court, the insurer asserted, as Petitioner does here, that the Act
requires use of actual AWP for reimbursement, and the Red Book demonstrably does
not represent AWP, but fictitious prices. Id. at 1163. The insurer also argued that
the regulations’ use of the Red Book’s fictitious pricing, rather than actual AWP,
was not consistent with the Act’s language. Last, the insurer asserted, based on
Protz, that there was a violation of the nondelegation doctrine because the General
Assembly delegated its legislative authority to a private entity, the Red Book’s
editor. The Court addressed these arguments in turn.
      On the first issue, the Court observed that the hearing officer had rejected the
insurer’s evidence of retail prices as not credible and that the Court could not
consider the extra-record factual allegations contained in its appellate brief. Id. at
1164-65. Based on the credibility determination and noting that proper appellate
review is confined to the record made before the government unit, the Court rejected
the insurer’s unsupported assertions that Red Book AWP is “fictitious” based on the
contrary retail prices. Id. at 1165. With the insurer’s evidence rejected as not
credible, the Court held the insurer failed to meet its burden of proving that it

                                          14
properly reimbursed the pharmacy. Id.
      The Court then considered whether the regulations’ use of Red Book violated
the Act’s requirement that reimbursement be based on AWP, summarizing the
history of Section 306(f.1)(3)(vi)(A), as follows:

      The General Assembly did not define the term “[AWP].”

      In . . . TAP . . . , this Court explained as follows:

             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]. . . .

      [36 A.3d] 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 Pharm[.] Prod[s.], Inc. (Pa.
      Cmwlth., No. 212 M.D. 2004, filed Oct[.] 14, 2010) (single-judge op.)
      (Simpson, J.), slip op. at 8) (citation omitted). In short, the AWP

                                           15
       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. . . . The amendment did
       not define the term “average wholesale price.” It did, however, add
       [the] phrase [“calculated on a per unit basis, as of the date of
       dispensing” to the end of] Section 306(f.1)(3)(vi)(A) . . . .

Indem. Ins., 245 A.3d at 1166-67 (some alterations and emphasis added). Thus, in
Indemnity Insurance, we held that AWP was intended to be an objective estimate of
the costs of acquiring drugs derived on a national basis.
       The insurer asserted that the best proxy for actual AWP, which it argued was
not reported by the Red Book or any other readily available source, was average
retail price. The Court rejected this position, holding that “[t]he legislature could
have amended Section 306(f.1)(3)(vi)(A) to define ‘average wholesale price’ to
mean ‘average retail price,’ as suggested by [the i]nsurer. It did not do so.” Id. at
1167. The Court concluded that the plain meaning of the phrase “average wholesale
price” does not contemplate use of an “average retail price,” which is what the
insurer in Indemnity Insurance sought to prove and use before the Bureau. Id. at
1168 (emphasis added).
       In response to Judge Ceisler’s concurring and dissenting opinion that agreed
with the insurer’s “persuasive statutory construction argument that the AWP”
denotes the “actual average wholesale price, not a fictitious AWP,”5 the majority

       5
         Judge Ceisler, joined by Judge McCullough, filed a concurring and dissenting opinion.
The minority opinion agreed with the majority regarding the procedural and factual posture: the
insurer had failed to meet its burden before the Bureau because it presented evidence of only retail
price—it did not attempt to prove actual AWP. The minority dissented, however, from the Court’s
construction of the phrase “average wholesale price.” Citing TAP and In re Pharmaceutical
Industry Average Wholesale Price Litigation, 460 F. Supp. 2d 277, 287 (D. Mass. 2006) (MDL
2006), the minority would have held the phrase to be construed according to its plain meaning, not
(Footnote continued on next page…)

                                                16
agreed “that [its] task is to construe ‘AWP’ according to its plain meaning.” Id.
at 1167 (emphasis added). Relevant to our current inquiry, the majority went on,
explaining:

       [t]he 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.
Id.
       Thus, pursuant to Indemnity Insurance, the “plain meaning” of AWP is a price
that is an industry average not one that is “charged by a single manufacturer,” and
“is a number derived by averaging the wholesale prices of all manufacturers or
wholesalers.” Id. Because “in its plain meaning, Section 306(f.1)(3)(vi) requires
the use of ‘average wholesale price’ and not ‘average retail price,’” the insurer’s
attempt to rely on the latter, through “a conclusory affidavit laden with simple math
errors,” did “violence to the words used by the legislature.”                   Id. at 1167-68.
However, this did not mean that an insurer could not “produce[] 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,” such as “proposing a
Nationally recognized schedule other than the one listed by the Bureau in the

as a term of art, and the plain meaning was not a “fictitious” AWP but the “actual” AWP that was
tied to prices actually paid by providers. Indem. Ins., 245 A.3d at 1171-72 (Ceisler, J., concurring
and dissenting) (emphasis in original). The minority opinion emphasized that the obvious purpose
of the Act’s cost containment provisions was to prevent inflated drug prices and reasoned that
AWP must be read to require “the actual average wholesale price” of a drug, “not a fictitious
AWP” such as Red Book’s. Id. at 1172-74 (emphasis in original).

                                                17
Pennsylvania Bulletin when litigating a repricing dispute . . .”; it was just that the
insurer in Indemnity Insurance had not done so. Id. at 1168 (emphasis added).6
       “Under stare decisis, we are bound to follow the decisions of our Court unless
overruled by the Supreme Court or where other compelling reasons can be
demonstrated.” Crocker v. Workers’ Comp. Appeal Bd. (Georgia Pac. LLC), 225
A.3d 1201, 1210 (Pa. Cmwlth. 2020) (citation omitted). Although Respondent cites
Ortmann’s testimony to argue AWP has a technical meaning within the
pharmaceutical industry, the meaning of the statutory language is a question of law,
not fact. Walker, 824 A.2d at 392. And, while Respondent asserts arguments
supporting a contrary interpretation, we are not persuaded it has demonstrated
compelling reasons, Crocker, 225 A.3d at 1210, or “a special justification, over and
above the belief that the precedent was wrongly decided,” to reverse this Court’s
prior interpretation of AWP by its plain meaning, Commonwealth v. Alexander, 243
A.3d 177, 196-97 (Pa. 2020) (quoting Allen v. Cooper, 140 S. Ct. 994 (2020)).
Accordingly, we are bound by our interpretations in Indemnity Insurance and apply
them here.
       The parties frame the question as whether the Red Book values are “fictitious”
or “actual” AWPs, but the question is really whether the Red Book values are
“accurate” or “inaccurate” AWPs. Indem. Ins., 245 A.3d at 1167-68. The Bureau’s
regulations adopt the Red Book as an AWP to be used in payment disputes.
However, an insurer may introduce evidence challenging the “accuracy” of the Red

       6
         The Indemnity Insurance Court also rejected the insurer’s nondelegation claim based on
Protz. The Court observed that the regulation does not require the use of any particular nationally
recognized schedule of prices or preclude an employer from offering a different schedule to
establish an AWP for the pharmaceuticals at issue. Indem. Ins., 245 A.3d at 1169. Instead, the
insurer “made no attempt to establish the so-called ‘actual’ AWP” in its effort to reprice the
invoice. Id. Accordingly, the Court found that the insurer had no basis for its constitutional claim.

                                                18
Book pricing for a particular drug’s AWP. Id. Or, as here, an insurer can challenge
the use of the Red Book at all on the basis that its values can never reflect an accurate
AWP as used in Section 306(f.1)(3)(vi)(A), as that phrase has been interpreted by
this Court. In Indemnity Insurance, we set forth standards that provided meaning to
AWP: it is a price that is an industry average, not one that is “charged by a single
manufacturer,” and “is a number derived by averaging the wholesale prices of all
manufacturers or wholesalers.” 245 A.3d at 1167.
      Respondent argues Petitioner’s challenges to the Red Book must fail because,
as in Indemnity Insurance, the testimony of Petitioner’s witness, Selck, was not
credited by the Hearing Officer. Petitioner acknowledges that this credibility
determination cannot be revisited, but argues it is not relying on its witness’s
testimony, but on that provided by Ortmann, Respondent’s expert. This Court
acknowledges that the Hearing Officer, to whom it defers on credibility matters,
credited Ortmann’s testimony over Selck’s testimony.           However, the Hearing
Officer only did so to the extent that the two experts gave conflicting testimony.
(See FOF ¶ 25.)
      A review of that testimony reveals that the witnesses’ disagreements were
more terminological than factual. Both witnesses agreed that NADAC pricing is
based on the aggregated and averaged prices pharmacies actually pay for a drug at
wholesale nationally, while Red Book pricing is chosen unilaterally by a drug’s
manufacturer, is not a mathematical average, and is not based on prices in any actual
wholesale transactions. (R.R. at 104a-06a, 108a, 110a-12a, 135a-39a, 804a, 815a,
817a-22a, 824a.) They also agreed that NADAC and Red Book prices differ
considerably, sometimes by orders of magnitude, particularly for generic drugs. (Id.
at 118a, 808a-09a.) For example, Ortmann testified that while the wholesale

                                           19
acquisition price for a bottle of Prozac was $9, the Red Book price for reimbursement
was $2,000. (Id. at 808a-09a, 830a-31a.) Ortmann admitted that Red Book’s AWP
is not a mathematical average, but rather a manufacturer’s suggested price that
is used as a reference in benefit negotiations between pharmacies, PBMs, and third
parties. (Id. at 836a.)
      Ortmann’s testimony is confirmed by the policy statement of “IBM Watson
Health,” the publisher of the Red Book in 2020, which was admitted as Exhibit J-1.
That policy statement provides:

      [t]he . . . []AWP[] as published . . . is, in most cases, the
      manufacturer’s suggested AWP and does not reflect the actual
      AWP charged by a wholesaler. . . . IBM Watson Health bases the
      AWP data it publishes on the following:

          • AWP is reported by the manufacturer[, defined as
            manufacturers, distributors, repackagers, and private labelers,] 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) [a]s reported by the
            manufacturer[.]

      ....

      Please note that IBM Watson Health does not perform any
      independent analysis to determine or calculate the actual AWP
      paid by providers[, defined as retailers, hospitals, physicians, and
      others buying from the wholesaler or directly from the manufacturer for
      distribution to a patient,] to wholesalers.

(Id. at 843a (emphasis added).)
      Returning to the standards set forth in Indemnity Insurance, an “accurate”

                                         20
AWP under Section 306(f.1)(3)(vi)(A) is a price “use[d by] the industry” not one
that is “charged by a single manufacturer,” and “is a number derived by averaging
the wholesale prices of all manufacturers or wholesalers.” Indem. Ins., 245 A.3d at
1167. The above cited evidence, found credible by the Hearing Officer, does not in
any way reflect that the “AWP” contained in the Red Book meets the standards set
forth in Indemnity Insurance for an “accurate” AWP. Thus, the Red Book values
cannot be an “accurate” AWP.
      Further, in rejecting Petitioner’s argument that the Red Book should not be
used, the Hearing Officer faulted Petitioner for not presenting “evidence of what the
Red Book manufacturers[’] prices are reported to Red Book for the drugs herein
involved,” “evidence as to what the wholesalers’ prices are for the involved drugs
as reported (or not reported) to Red Book,” or “evidence as to any alleged average
acquisition costs reported to Red Book . . . .” (Hearing Officer’s Decision at 16.)
While the first of this list was at least possible for Petitioner to have provided, if it
had chosen to challenge the accuracy of the Red Book AWP for each of the disputed
drugs, the latter items—the wholesalers’ price and the average acquisition cost—are
not data that is reported to or analyzed by Red Book per its policy statement. That
statement reflects that it receives pricing data from the manufacturer, that data is
unrelated to what is actually charged by wholesalers to providers, and that IBM
Watson Health performs no independent analysis to determine what is actually
paid by providers to wholesalers, i.e., acquisition costs. Ironically, these last two
data points are more akin to what this Court identified in Indemnity Insurance as
being needed to establish an accurate AWP, and neither are reported to Red Book.
See Indem. Ins., 245 A.3d at 1166 (“In short, the AWP provides an objective estimate
of acquisition costs for pharmaceuticals available through national pricing

                                           21
schedules.”).
      For these reasons, we agree with Petitioner that the Bureau’s regulatory
adoption and use of the Red Book’s values as the “AWP” to resolve payment
disputes for pharmaceuticals are inconsistent with the phrase “AWP” as used in
Section 306(f.1)(3)(vi)(A), as interpreted by this Court.        “An administrative
agency’s regulations cannot conflict with the statutory intention.”        Stanish v.
Workers’ Comp. Appeal Bd. (James J. Anderson Constr. Co.), 11 A.3d 569, 575 (Pa.
Cmwlth. 2010). If an agency’s regulations “are contrary to the legislative intent of
[the] statutory provisions to which they relate,” they are invalid. Id. Accordingly,
the regulations identifying the Red Book values as the AWP to be used to resolve
payment disputes over pharmaceuticals are invalid, and the Hearing Officer erred in
relying thereon to calculate the amount Petitioner must reimburse Respondent for
the disputed drugs.
      We must now turn to the remedy in this matter, as we hold that the Red Book’s
values cannot be used as AWP as a matter of law because they are inconsistent with
the Act pursuant to our interpretation in Indemnity Insurance. Petitioner asserts this
Court should simply reverse the Hearing Officer’s Order and direct the use of the
NADAC plus 110% as the appropriate AWP to resolve payment disputes. However,
as Respondent points out, the Hearing Officer did not credit Selck’s testimony
regarding using the NADAC as a replacement index AWP for payment disputes.
The Hearing Officer, in rejecting Petitioner’s reliance on Indemnity Insurance,
explained that Indemnity Insurance did not hold that an insurer “[wa]s ‘free’ to
ignore [the] Red Book . . . and select some other modality which this adjudicator
[wa]s somehow obligated to accept.” (Hearing Officer Decision at 15 (emphasis
added).)   During the hearing, the Hearing Officer indicated, in response to

                                         22
Petitioner’s citation to Indemnity Insurance, that “reasonable minds may differ as to
what Indemnity Insurance . . . means.” (R.R. at 827a.)
      We believe this opinion clarifies the meaning of Indemnity Insurance. And,
although we agree with the Hearing Officer that he is not “obligated to accept,”
(Hearing Officer Decision at 15), an alternative modality or index offered by an
insurer, any modality or index used as the AWP to resolve a payment dispute over
pharmaceuticals must be “accurate” pursuant to the standards set forth in Indemnity
Insurance. As discussed, the Red Book does not meet those standards. Thus, we
are left with a record that includes the Red Book, which cannot be used due to its
legal inconsistency with the Act, and an alternative index, the NADAC, which
cannot be used due to the Hearing Officer’s credibility determination. Accordingly,
while we reverse the Hearing Officer’s Order, a remand is required for further
proceedings to determine the appropriate reimbursement due to Respondent.
      However, per Section 127.131(b) of the regulations, the Bureau has the
obligation to identify a “Nationally recognized schedule” that it will “us[e] to
determine the AWP of prescription drugs” to resolve payment disputes and give
notice of that schedule in the Pennsylvania Bulletin annually.         34 Pa. Code
§ 127.131(b). That is the AWP to be used to resolve that dispute unless an insurer
submits an alternative AWP that is credited as being more “accurate” than the one
identified by the Bureau. Indemnity Insurance, 245 A.3d at 1167-68. Having
invalidated the Red Book, we direct the Bureau to promptly identify and publish in
the Pennsylvania Bulletin a “Nationally recognized schedule,” 34 Pa. Code
§ 127.131(b), that provides an AWP for pharmaceuticals that comports with Section
306(f.1)(3)(vi)(A) of the Act, as interpreted by Indemnity Insurance and this opinion,
to be used to resolve payment disputes. The Hearing Officer shall stay the remand

                                         23
evidentiary hearing until the Bureau publishes a new schedule, after which the
hearing will be held to allow the parties to introduce, if necessary, evidence
regarding alternative indices or schedules they believe provide a more “accurate”
AWP under the Indemnity Insurance standard. In evaluating that evidence, the
Hearing Officer must consider which of the indices or schedules offered present the
more “accurate” AWP under Indemnity Insurance and resolve the payment dispute
using that AWP plus 110% as directed by Section 306(f.1)(3)(vi)(A).

III.   CONCLUSION
       Because we conclude that the Red Book values adopted and used by the
Bureau as the AWP to resolve payment disputes for pharmaceutical drugs is
inconsistent with the statutory language of Section 306(f.1)(3)(vi)(A) and is,
therefore, invalid, Stanish, 11 A.3d at 575, we reverse the Order directing Petitioner
to reimburse Respondent 110% of the Red Book values for the disputed drugs in this
matter. We remand for further proceedings before the Hearing Officer. However,
the Hearing Officer shall stay those proceedings pending the Bureau’s identification
of a “Nationally recognized schedule” of AWP to be used in payment disputes and
publication of that schedule in the Pennsylvania Bulletin as required by Section
127.131(b) of the regulations, 34 Pa. Code § 127.131(b). The Bureau is directed to
perform these actions promptly. Upon the Bureau’s completion of this obligation,
the Hearing Officer shall hold an evidentiary hearing and render a new decision in
accordance with the foregoing opinion.

                                       __________________________________________
                                       RENÉE COHN JUBELIRER, President Judge

                                         24
        IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Federated Insurance Company,             :
                       Petitioner        :
                                         :
                   v.                    :   No. 115 C.D. 2023
                                         :
Summit Pharmacy (Bureau of               :
Workers’ Compensation Fee                :
Review Hearing Office),                  :
                        Respondent       :

                                    ORDER
      NOW, January 2, 2024, the Order of the Bureau of Workers’ Compensation
(Bureau) Fee Review Hearing Office, entered in the above-captioned matter, is
REVERSED, and this matter is REMANDED for further proceedings and a new
determination in accordance with the foregoing opinion. Additionally, the Bureau
is DIRECTED to promptly identify and publish in the Pennsylvania Bulletin a
“Nationally recognized schedule[] to determine the [average wholesale price] of
prescription drugs” to be used to resolve payment disputes, 34 Pa. Code
§ 127.131(b), that comports with Section 306(f.1)(3)(vi)(A) of the Workers’
Compensation Act, Act of June 2, 1915, P.L. 736, as amended, 77 P.S.
§ 531(3)(vi)(A), as interpreted by Indemnity Insurance Company of North America
v. Bureau of Workers’ Compensation Fee Review Hearing Office (Insight
Pharmacy), 245 A.3d 1158, 1167 (Pa. Cmwlth. 2021), and the foregoing opinion.
The Hearing Officer shall stay the remand proceedings pending the Bureau’s
publication of a new schedule, after which the remand proceedings shall be held.
      Jurisdiction relinquished.

                                      __________________________________________
                                      RENÉE COHN JUBELIRER, President Judge