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March 07, 2013
Arbitration Board affirms reasonable and customary fee caps

The Ontario Arbitration Board has upheld the principle that benefit plans may include dispensing fee caps based on the reasonable and customary limits used by group benefits underwriters.

The judgement by Arbitrator Joseph B. Rose originated with a grievance filed by a union local that claimed an employer violated a collective agreement by imposing a drug dispensing fee cap based on the principle of reasonable and customary limits used by the plan’s insurer.

According to the union submission, the benefit plans provided by the plan’s insurer made no mention of the dispensing fee cap in the policy when it adopted “reasonable and customary” pricing for covered drug, health and major medical services.

The problem originated when the insurance carrier increased its drug dispensing fee limit from $10.99 to $11.99 per prescription, based on its review of reasonable and customary dispensing fees in Ontario.  The insurer announced the change in December 2009, with an effective date of January 2010.  The employer relayed the change to its union representatives.

The union filed a grievance, stating that by allowing the insurer to impose reasonable and customary pricing on drug dispensing fees, the employer was not providing full benefit coverage to its employees.

At the heart of the dispute was the definition of “reasonable and customary limits.” According to the union, such limits amount to a fee cap that effectively limits coverage for benefit plan members.  Further, the union was not aware of the existence of the cap and that no mention of reasonable and customary limitations appears either in pharmacies or the group’s collective agreement.

The employer countered that reasonable and customary pricing is an industry standard used by all insurance carriers, based on each insurer’s analysis of market trends and pricing.  As there is variation between reasonable and customary pricing between insurers based on their claims experience, its use amounts to an administrative practice rather than an employer-imposed pricing limitation.  This, it said, contrasted from a benefits cap, which can be imposed by an employer at any price level to limit plan costs.  

In his review of the arguments, Arbitrator Rose sided with the employer.

“Evidence demonstrates there is a clear distinction between a dispensing fee cap and reasonable and customary limits,” he wrote.  “A dispensing fee cap is established by the plan sponsor and is aimed at reducing costs.  Reasonable and customary limits are established by insurance carriers.  They are based on market conditions and are standard practice in the industry.  There is no obligation on insurers to provide reasonable and customary prices for all the services and benefits covered by plans.”

As well, ignorance of the practice does not negate this validity, he noted.

“It may be that the union was somewhat ‘in the dark’ with respect to the reasonable and customary limit on dispensing fees, but this does not alter the existence of the administrative practice,” Mr. Rose said.  “Even if members incurred out-of-pocket expenses, this does not alter the fact that reimbursement continued to be based on reasonable and customary limits.”

For both plan sponsors and plan members, the arbitration ruling reinforces the need to be familiar with standard insurance industry practices such as the use of reasonable and customary guidelines in claims adjudication and administration.  It is recommended that plan administrators, union representatives and human resources personnel involved in the administration or communication of the terms of a benefits plan to employees or members contact their underwriter(s) to confirm their reasonable and customary guidelines on their various health and dental coverages.

For more information on reasonable and customary limits, contact Coughlin Managed Care Consultant Joe Zadzora at 613-231-2266, Ext. 256 or email jzadzora@coughlin.ca.

NOTE:   Coughlin’s Ontario clients, particularly those with operations in the National Capital Region, have access to Coughlin’s exclusive Preferred Provider Network of pharmacies, where lower dispensing fees and limited ingredient cost mark-ups help to reduce prescription drug  costs.  Savings are substantial, with dispensing fees of $8.40, well below the average dispensing limits of $11.09 or more.  Some pharmacy dispensing fees exceed $12 per prescription. More information is available from your Coughlin consultant.

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