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Third party billers and usual and customary

My post of a couple weeks ago on Third Party Billers (TPBs) generated a good bit of heat and even some light amongst interested readers. It has also caused a few payers to examine their own reimbursement policies in some detail. Caution – Most regular visitors will find this a touch too esoteric, but for interested parties nothing could be more intriguing.
Reminder – TPBs are “factors”; companies that buy workers comp scripts from retail pharmacies and try to collect from payers such as insurance companies. Seems pretty straightforward – pay a discounted price, the pharmacy gets their money quickly and then the TPB makes money on the margin between what they pay and what they collect. There are a few nuances and twists that make this a lot more complicated, and therefore a lot more frustrating for payers.
In about half the states, there is a fee schedule mandated by the state government which sets the maximum reimbursement amount for most drugs. Thus, when TPBs request reimbursement from payers, they ask for the fee schedule amount. So far, so good.
Except when the pharmacy is in the payer’s Pharmacy Benefit Management vendor’s network of contracted pharmacies. In this instance, some payers and payers/PBMs have reduced the amount payable to that owed under the terms of the contract rate at the dispensing pharmacy. TPBs do not approve of this interpretation, and in some instances have aggressively pursued additional payments.
A different situation arises in the non-fee schedule states. Most of these require reimbursement to be at “usual and customary”, which is defined by the NCPDP (standard field 426-DQ) as the “amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed”. It appears that this definition is not used by the TPBs, who are actually billing at rates that appear to be based on a multiple of the Average Wholesale Price, or AWP. (Various sources within payer organizations have indicated that the multiple is in the range of AWP + 15% to AWP + 20%.).
Some payers pay the requested amount while others pay the bills at what they deem to be “U&C”. In some instances TPBs have threatened to initiate legal action against payers failing to pay what the TPBs have stated they are owed.
The net is this – there appears to be a disagreement as to what constitutes “usual and customary”. After reviewing research on drug fee schedules and reimbursement arrangements in the individual states, there does not appear to be a consistent, clear definition of usual and customary.
There have been some court cases that at least part involved this issue; to my knowledge there have not been any precedents set or definitive rulings written. If any reader is aware of more conclusive information please let me know.
What does this mean for you?
Confusion and different interpretations are never helpful and can lead to excess costs and hassles for all involved. The sooner this is publicly resolved the better for all parties.
Note to reader – I contacted executives at third party billers in an effort to get their perspective on this issue; none have returned my calls as of this morning. This despite the request from one (Third Party Solutions) in a comment on a previous post that I contact them to get their input.

One thought on “Third party billers and usual and customary”

  1. I have extensive experience in both the TPB and PBM arenas for workers’ compensation (And yes I do know the proper spelling!). As far as the U&C discussion goes the only consideration given by the TPB is what the pharmacy is reimbursed. TPB’s contracts usually state the pharmacy is reimbursed the lesser of U&C or a contracted amount based upon a +/- percentage of the AWP of the medication plus an additional negotiated dispensing fee. When it comes to the billing of the payor the TPB will use the state fee schedule for the states that have fee schedules or will use the second AWP calculation that you listed plus a nominal dispensing fee. As you can imagine the TPB’s profit margins increase dramaticaly when the U&C pricing is used to reimburse the pharmacy and then billed at fee schedule or the selected amount billed for non fee schedule states. I do not know the exact percentage of pharmacy reimbursements that calculate from U&C but I can assure you that it is somewhere in the neighborhood of sixty to seventy percent of the processed prescriptions for TPB’s if not higher.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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