DOMESTIC/FOREIGN INSURERS BULLETIN NO.22 TO: …

                  DOMESTIC/FOREIGN INSURERS BULLETIN NO.22

TO:            ALL INSURERS PROVIDING PHARMACY BENEFITS OR PHARMACY
               INSURANCE COVERAGE IN DELAWARE

RE:            COMPLIANCE WITH THE PHARMACY ACCESS ACT (18 Del.C. § 7301
               et. seq.)

DATE:          September 1, 2006

        It has come to the Department's attention that some insurance carriers doing business in
Delaware have unilaterally altered the terms of existing contracts with respect to prescription
drug co-payments, on the pretense that they recently discovered those contracts to be in
contravention of the Pharmacy Access Act (18 Del.C. § 7301 et. seq.). In at least one instance, a
carrier that previously offered consumers a choice between (a) purchasing 90-day supplies of
drugs through a mail order pharmacy with a single co-pay, or (b) purchasing 30-day supplies of
drugs through a local pharmacy by making the same co-pay (every 30 days rather than every 90
days), has tripled the amount of the co-pay for the 90 day supply of drugs. The reason given for
this action has been compliance with the Pharmacy Access Act.

       This bulletin shall constitute formal notice to all insurance carriers that the actions with
respect to co-pays described above will be considered violations of 18 Del.C. §§ 2304(1) and
2304(2) if not remedied within 30 days of the date of this bulletin. For purposes of explanation,
and to give adequate notice of other potential violations, the Department provides the following
two independent bases for its conclusion.

       1.      The Pharmacy Access Act does not require that co-payments for 90-day mail
               order supplies of prescription drugs be the same as the cumulative co-payments
               for the same drugs purchased in 30 day increments from a local pharmacy. The
               relevant portion of the Act in question reads "No insurer shall impose on a
               beneficiary any co-payment or condition that is not equally imposed with all
               contracting pharmacy providers the beneficiary may utilize." This language
               would prevent an insurer from imposing a higher co-payment for a 30-day supply
               of drugs on a local pharmacy than it does on a mail order pharmacy. However, it
               does not prevent an insurer from imposing different co-pays for a 90 day supply
                 of drugs--which is inherently less expensive for the insurer to provide--than it
                 does for three 30 day supplies of drugs.1
        2.       Even if the Pharmacy Access Act did prohibit insurance carriers from charging a
                 higher co-pay for three thirty-day supplies of drugs than it does for a single 90
                 day supply of drugs, to the extent that an insurance carrier made contractual
                 commitments to its customers that are later found to be void under the Act, the
                 financial consequences must be borne by the insurer, not the consumer. Delaware
                 law is well-settled that insurance contracts are presumptively contracts of
                 adhesion. See, e.g., Shook & Fletcher Asbestos Settlement Trust v. Safety Nat.
                 Cas. Corp., Del. Super., C.A. No. 04C-02-087, Johnston, J. (Sept. 29, 2005). For
                 that reason, they must be interpreted strictly against the insurer. Homsey
                 Architects, Inc. v. Harry David Zutz Ins., Inc., Del. Super., C.A. No 96C-06-082,
                 Herlihy, J. (May 25, 2000). In the specific example of 30-day versus 90-day
                 copays, if the Pharmacy Access Act were to be interpreted as prohibiting higher
                 co-pays for multiple 30-day supplies than for a single 90-day supply, 18 Del.C. §
                 7303(g) would require that one of the two co-pay provisions be voided. Because
                 the contracts in question are contracts of adhesion drafted by the insurer,
                 Delaware law dictates that the insurer reform the contract in a manner that will
                 ensure the consumer the benefit of the bargain he was offered in the initial
                 contract, rather than a manner that will result in a financial windfall to the insurer.
                 In this instance, that would require complying with the original terms of the
                 contract with respect to mail-order prescription drugs and reducing the co-
                 payments for 30-day purchases.

        Because the discrepancy between co-payments for 90 day prescription drug supplies
dispensed at once and co-payments for the same drugs dispensed three separate times does not
violate the Pharmacy Access Act, insurers shall not unilaterally alter the terms of their contracts
on the pretense that such a violation exists. To the extent that existing contracts do violate the
Pharmacy Access Act, causing provisions of those contracts to be rendered void, the contracts
shall be reformed in a manner that reflects Delaware law regarding contracts of adhesion2, and
therefore in a manner that protects the terms purchased by the consumer when the contract was
executed.

        The Department expects insurers that have violated Delaware law as outlined by this
bulletin to compensate policyholders and come into compliance with the law within 30 days of
the date of this bulletin.

                                                             Matthew Denn
                                                             Insurance Commissioner




1
  This portion of the Act would, conversely, bar an insurer from requiring a local pharmacy to provide prescription
drugs in 30 day increments while allowing a mail order pharmacy to provide the same drugs in 90 day increments.
Such a distinction would impose a condition upon beneficiaries patronizing local pharmacies that would not be
imposed on those patronizing mail order pharmacies.
2
  Instances where an insurance contract was drafted by the purchaser rather than the insurer, which the Department
believes to be rare, will be considered on a case-by-case basis, and subjected to appropriate Delaware case law.