Pharmacy Benefits

Ruling Ties Employers’ Hands on Pharmacy Choice, Workers Get First Pick

A Kentucky Supreme Court ruling confirms and codifies employee choice in matters of pharmacy.
By: | September 7, 2017 • 3 min read

Injured workers wishing to choose their own pharmacy can now do so with impunity in Kentucky, thanks to an August 2017 ruling from the state’s supreme court.

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Although workers in the state had been choosing where to fill prescriptions for more than two decades, the court ruling codified the practice and gave workers the chance to bypass insurers’ preferences when obtaining a refill.

In March 2010, KESA, The Kentucky Workers’ Compensation Fund, initiated fee disputes in five workers’ comp claims. In all five cases, the injured workers reported difficulty in getting their medications on time, so they turned to Injured Workers Pharmacy, a mail-order business that sells medications on a lien basis.

IWP takes orders from an injured workers’ treating physician rather than from KESA’s pharmacy benefits manager. The business then bills the insurer for payment. A key point of dispute: While KESA’s PBM negotiates price adjustments with pharmacies, IWP refuses price negotiation, arguing its drugs are based on commercially published average wholesale prices that are within Kentucky’s fee schedule.

Ruling Favors Workers

Although the workers in question reported difficulty in getting their medications on time, KESA argued that was no excuse to turn to IWP as an alternative. In the organization’s eyes, these workers sidestepped official channels and were receiving benefits they weren’t authorized for.

KESA informed the employees of its decision to no longer pay for prescriptions filled through IWP, initiating the medical fee disputes.

In 2013, the claimants and KESA made their way to court.

“Since medicines are ‘medical services,’ and a pharmacist provides that medical service, a pharmacist is a medical provider.” — Justice Michelle M. Keller, writing for the Kentucky Supreme Court

Kentucky law permits workers to choose their own “medical provider,” but the question remained whether pharmacies qualified as providers. KESA cited a 2009 opinion written by the attorney general at the time, which stated that pharmacies are not medical providers.

The court reviewed the opinion but concluded that the attorney general’s opinion ignored an earlier Workers’ Compensation Board order from 1996. The order explicitly stated that pharmacies were medical providers.

KESA was ordered to pay IWP the average wholesale prices for the injured employees’ prescriptions, according to court record. On appeal, the Workers’ Compensation Board affirmed the ruling.

The Power of a Single Word

The Kentucky Supreme Court had an interesting decision to make: What did the term “medical provider” encompass?

The court found no concrete definition of the term in the statute it came from, so it turned to the Kentucky definition of “medical services,” which was defined as “medical, surgical, dental, hospital, nursing and medical rehabilitation services, medicines, and fittings for artificial and prosthetic devices.”

“As did the Court of Appeals, we hold that the plain meaning of these two statutes is that a medical provider is one who provides medical services,” the high court wrote. “Since medicines are ‘medical services,’ and a pharmacist provides that medical service, a pharmacist is a medical provider.”

A similar case appeared in Louisiana a month prior to the Kentucky ruling. Burgess v. Sewerage & Water Board of New Orleans found claimant Darvel Burgess filing a disputed claim for compensation after his employer refused to pay for his prescription medications issued through IWP. A Louisiana statute read that workers have the option to choose their treating physician. In Kentucky, the same statute uses the word provider.

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The Louisiana court’s decision hinged upon that one-word difference: Injured Louisiana workers have a right to pick a “physician,” not a “provider.” The high court reasoned that “physician” is a “very specific term,” one that cannot be interpreted to also mean “pharmacy provider.”

“While the injured employee is entitled to choose his treating physician under [Louisiana law], we hold the law does not provide the employee a right to choose a specific pharmaceutical provider,” the court ruled.

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]