wellpartner incorporated v. department of revenue, docket no 10-228 (wash. bta sept. 15, 2011)

8/3/2019 WELLPARTNER INCORPORATED v. DEPARTMENT OF REVENUE, Docket No 10-228 (Wash. BTA Sept. 15, 2011)

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BEFORETHE BOARDOFTAXAPPEALSSTATEOFWASHINGTON

WELLPARTNER INCORPORATEDDocketNo1028

Appellant RE ExciseTax AppealV FNALDECISIONSTATEOFWASHINGTONDEPARTMENT OFREVENUE

RespondentThismattercamebefore the BoardofTax AppealsBoard onAugust 24 25 and 26

2011 foraformal hearing pursuant to the rules andprocedures set forth in chapter45609Washington AdmnistrativeCodeWAC JohnRidge GKmRisenmay andMichael PerryAttorneyswith Stoel Rives LLP represented Appellant Wellpartner IncorporatedWellpartnerRebeccaRGlasgow and Charles Zaleskey Assistant Attorneys General representedRespondent StateofWashington DepartmentofRevenue Department

TheBoardheard the testimony reviewed the evidence and considered the argumentsmade onbehalfofbothparties TheBoardnowmakes its decisionasfollows

ISSUES

SebrinIssue 1UnderWAC45820977cule1977oes Wellpartner havesufficientnexusforpayment ofBaxesonsomeof its transactions wthWashingtoncustomersAnsweWellpartner concedes this issue per its Trial Brief Thenexusissue is

wthdrawn byWellpartnerIssue2oesWellpartner qualify for the lowerBax rate provided inRCW82472hat applies to personsengagedwithin the state in the businessofwarehousing andreselling drugs forhumanusepursuant toaprescription Thehigher rate071percent is forgeneral retailing classificationRCW824501nd038percent is forwarehousepharmacies RCW824721 Because of illness KayS Slonim Chair didnotparticipate inhis hearing ordecision

FINALDECISION Page 1 DocketNo1028


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AnswerNoWellpartner does notqualify for the lower tax rate Wellpartner does notresell drugs toaqualifying entity TheUniformMedical Plan UMPandots subcontractorsOregonDental ServiceODSandMedImpact Health CareSystemsMedImpact aenothealthcare service providers Enrollees in the UMPaethe purchasers of the prescription drugsfromWellpartner TheUMPandots subcontractors ODS and MedImpact aeinvolved inthe healthcarensurancebusiness they donot provide healthcaretreatment and theydonotpurchase drugs fromWellpartner TheUMPonly reimbursesWellpartner for drugs provided totheUMPsenrollees the persons insured

MOTIONS OF THE PARTIESMotion inLimne1 Wellpartner filedamotion in limneto excludetwoofhe DepartmentsitnessesTBD2 wthMedImpact and TBD wthWashington DepartmentofHealthbecause the specificnamesofhe witnesseswerenot provided by the designateddate in theBoadsscheduling order TheDepartment only furnishedageneral

descriptionofhe persons by employer and topico TheDepartment replies that it complied with the spirit ofthe order andprovided the namesofhe witnesses assoonastheywereavailable toitPer the Department the issue in dispute wasnot raisedbyWellpartneruntil latein the discovery process duringadeposition ofMsAddingtonWellpartnersontroller who claimed that the drugs weresold topharmacybenefitsmanagers such as MedImpact not the clients towhomthe prescription ismade out to andmailed todelivered

oTheBoard denies the motion toexcludeJames GollaherVicePresidentControllerwthMedImpact2Departmentmovestoexcludepartofhe testimonyofGlbertBrewer an

employee ofthe Department asirrelevant TheBoard denies the motion at thebeginningofhe hearing Note the testimonywaslaterexcludedwhenWellpartner calledMBrewer Athat point theDepartmentsounsel madefurther representations as to theDepartmentsosition onts practices and agreed

2 TBD is apparently short hand fortobe deemned

FNALDECISION Page 2 DocketNo1028


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thatouoaearehouses werecovered underRCW82472he sameasin1

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statewarehousesMotions toExcludeExhibits1 WellpartnermovestoexcludeExhibit R42 the declarationofJamesGollaherVicePresidentControllerwithMedImpact TheBoard denies themotion andnotesMGollaherwill beawitness

2 TheDepartmentmovestoexcludeExhibitA17 unless it is for demonstrativepurposes only Wellpartner stipulates Exhibit A17 is for demonstrative purposeonly Exhibit A17 isadmtted as anllustrativeexhibit

UNDISPUTEDFACTS

The following factsaenot disputed by the partiesWellpartner isanOregonmlderpharmacy with headquarters inPortland Oregon It

sells prescription drugs and afewoveheouneOTCmedications toWashingtonconsumers it also sells toconsumersin other states Wellpartner isamldenyharmacywthonephysical building inPortland Oregon it isnotaphysical pharmacy inWashingtonState suchasalocapharmacy likeSafeway Costco and Walgreens that have buildings andasupplyof drug inventory inWashington

Wellpartnersnnual Washington destination sales range from2llion to3mllionper yearfor the period 2005 through 2007 ItsWashington sales increased to approximately50mllion in 2008when Wellpartner became the mlderpharmacy forWashingtonStaesUniformMedical PlanUMP

TheUMP isoneof several health insurance plans offered tostate employees enrolleesalso referred toaspatientsunder the PublicEmployees BenefitBoardPEBBofhe StateofWashington ThePEBB isaboard established under the Health CareAuthorityHCA oftheStateofWashington TheUMPcontracts withWellpartner via twosubcontractors1DS3Trial Brief page8The UMP contractedwthODS anOegonasednd licensed HealthMaintenanceOrganizationHMO that has offices inWashington Idaho and Alaska Under the contractODS is requiredprovide bothprescription drug benefits andawde rangeofotherhealthcare services and products to theUMP andits enrollees It is afee for services contractwthUMP reimbursingODS separately foreach drug dispensed using aprice schemebased upon the wholesalevalue of drugs dispensed



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which contracts with2edImpact aCaliforniabased corporation MedImpact then contractswthWellpartner

TheDepartment discovered thatWellpartnerwasmaking sales toconsumersinWashington TheDepartment determned thatWellpartner hadanexuswithWashington andassessed retailing Business and Occupation taxBax forWashington destination retail salesfor2005008ased upon information provided byWellpartner Wellpartner appealed to theDepartmentsppeals Division which upheld the assessment inDetermnationNos0979nd179R This appeal followed

Theassessment is as follows2005006375950200718741720082499994

PerWellpartner the tax interest and penalty amounts for the aboveassessmentstotal 3191366ellpartner paid the total amount before the due dateofJune

18 2010 Wellpartner states however the correct amount of tax interest andpenalties areactually903155nder the lower tax rate Itrequests arefundofthe overpayment4

CONTENTIONS OF THE PARTIESWellpartnerspmensWellpartner initially appealed and argued that its sales toWashington consumerslacked therequired transactional nexus for taxation under Complete Auto Transit IncvBrady 430U274 97 S Ct 1076 51LEd 2d326 1977 For this reason it didnot originally

register ofile tax returnswith the StateofWashington After further investigation onheextentoftsactivities inWashington Wellpartner decided towithdrawthe issueofackofnexus

seeWellpartnersrialBrief Footnote 1 and statement at the beginningofhehearingWellpartner claims that aower tax rate applies because it sold drugs to governmentalagencies and private businesses that had entered intocontractswith it The agencies and

4 In closing argumentWellpartner states that thecorrecrefundamounis about200essoabout22700lusadjustments forarecalculation of interestand penalties onhe adjustedamouns



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businesses through theircontracts controlwhich drugs Wellpartner will dispense topatientsand theUMPsubcontractors determne the prices theywill payWellpartner for the drugsthatweredispensed to the enrolleesof theUMPTheDepartmentsosition in this appeal iscontrary to its legal conclusion inarecentlypublished tax caseTheDepartment ruled thatamalderpharmacy sold prescription drugstoanunlicensed private business that dispensed those drugs toWashington residents seeDetermnationNo0811127WTD 221 2008Wellpartner operates twoseparate and distinct linesofbusiness1 Itprovides pharmacy management services for entities eligible toaccessSection340B programs drug pricing Under this programWellpartner dispensed asmallamountofprescription drugs 3335omembers of the Snoqualmie Indian Tribeonbehalfofhe federalheathaelinic thatwasdesignated toprovide publichealthcare services for the tribeunder the federalPublicHealth ServiceAct

Under thecontractharmacyagreement the covered entitySnoqualmieTribeHealth CareFacility dispenses itowninventory to eligible patientsThecovered entity then replaces those dispensed drugs for its inventory byusingWellpartnersiscountedprices The replacement orderswereentdirectly to the contractpharmacy byWellpartner Under thiscommonpharmacy purchasing and salesmodel the covered entity isnotaicensedpharmacy and does not take possession ofhe drug inventory By law thecovered entity remains the purchaser sellerofprescription drugs underSection 340B

2 It provides prescription drug services through itsmalderpharmacy dispensingprescription drugs via prescription benefit management firms Medicareand Medicaidplanssefundedemployer groups and insurers located throughout the UnitedStates

Thevastmajorityofhe drugs it dispensed 55mllion inWashington resulted fromWellpartner being subcontracted toserveasthe dispensing pharmacy for theUMP

5 To provide prescription drugs to distressedounderservedpeople Congress enacted section 340B of thePublicHealth Services Act42UCection256bereinafter referred toas340B programFNALDECISION Page 5 DocketNo 1028


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Wellpartner dispensed amuch smalleramountofdrugs approximate2mllion via theNorthwest Pharmacy Services IncNWPSwhich isanunrelated pharmacy benefitmanager inWashingtonWellpartner also dispensed approximately9mllion in prescription drugs toWashingtonresidents whoareenrolledwith variousnonashingtonhealthcare organizations primarilythrough theircurrentoformer employers located in other statesWellpartner states Trial Brief page 18 that the Department hasnowaccepted the fact that itfulfills allofhe statutory requirements underRCW82472xcept

Whether it resold drugs toperson selling prescription drugs to retailither pharmacieshospitalsclinicshealthcare providerootherproviders ofhealthcare services

PerWellpartner the Departmentsosition is that1 Wellpartner is selling drugs to individual UMPenrollees because it wouldbe illegalforMedImpact oODSto purchase these prescription drugs and resell themtoanyone including the UMP HCAothe individual enrollees

2 MedImpact ODSandUMPwereneitherhealthcareprovidersnootherprovidersofhealthcare services under the intendedmeaningofhose termsWellpartner argues that the facts show1 Washington lawallows prescription drugs tobedispensed tooneperson at the sametime they aesold tosomeoneelse Washington lawmakesadistinction between thedispensing ofprescription drugs versusthe saleofprescription drugs TheDepartment confuses the dispensing ofdrugs with the saleofdrugs InDetermnationNo0811127WTD221 2008 theDepartment recognizes thatmanyclasses oflicensed entities purchase prescription drugs for theiremployees as longasthosedrugs aehandled and dispensed by those purchasers licensed bypharmacies2Wellpartner sells drugs to the UMPnot its enrollees

3RCW82472asnorequirement regarding the persons towhomthe drugs inquestion aedispensed odelivered Thestatute only requires that Wellpartner resell



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the drugs tooneofthe five qualifying categories listed TheDepartment by arguingthatWellpartner must also deliver the drugs toaqualified purchaser is adding arequirement that isnot found in the statute4The termresel isnotdefined in the statute therefore it has its ordinarymeaning

Wellpartnerstnesses1 Jason Hardaway isWellpartnersenior DirectorofContract Pharmacy Programs forits section 340Bprescription drug programMHardaway admnisters the 340B programDrugs sold under this programareprice limted by the Medicaid rebateratesWellpartner only contracted these services through the Snoqualmie Tribe theTribe during the audit periodTheTribe ontractwithWellpartner isExhibit AT Wellpartner is thecontractpharmacy for the Tribe TheTribe purchases the drugs andWellpartner dispenses the drugs only toTribalmembers seeExhibitA74paragraph 2a The drugs soldaeonly 340B programdrugs preapproved bythe programTheprogramis only viamail order for services byWellpartner which fills theprescription fromits Portland Oregon facility TheTribe is located inCarnation Washington Ifthe Tribal memberwants tophysically get thedrugs atapharmacy heoshemust go toanonellpartnerpharmacy whichis local inCarnation onearby Wellpartner does not haveanonitepharmacy inWashington forTribalmembers touseWhen the Tribalmemberpurchases bynonlorder meaning ataocalpharmacy heoshe pays for 100 percent ofhe cost and isnot reimbursed bythe 340B programofhe TribeWellpartner is paid aee perprescription plus anadmnistration feeWellpartner takes possession ofhe drugs but doesnotpurchase oresell thedrugs in the 340bprogram When the prescription order fromaTribalmemberarrives bymail and Wellpartner fills the order Wellpartner oansthe drugs it has inWellpartnersnventory inOregon to the Tribe



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Wellpartner then shortly thereafterorders torefill the dispensed drugs andrefills its general inventory the Tribe pays for the replacement drugs orderedby Wellpartner onheTribesccount atWellpartner Typically theTribesdrugs aenot stored separately when they arrive Occasionally there isagreat price onaroutine drug and the drug ispurchasedinukinadvanceofaTribal prescription arriving When this occurs the drug is stored inaphysically separated shelfospace atWellpartnersortland facilityOtherwise drugs toTribalmembersaredispensed fromWellpartnerseneralinventorywithaaterreplacement ordered The laterordering onheTribesaccount isonly tracked electronically not byphysical inventory segregation

2 LarryCartier isWellpartnersicePresidentofPharmacyMCartier isaicensed pharmacist in Oregon and hesupervisesWellpartnersharmacists call center and purchasing at its Portland facilityExhibitA27 ishisresumeExhibitA18 wholesale license and A19nonesdenpharmacy license aeWellpartnersashington licensesThepatient is the endsef the prescriptionWellpartner takes physical possession ofdrugsExhibit A17achart is illustrative for theUMP andWlartnersrocessingofprescription drugsWellpartner only does businesswth UMPenrollees patients who chose toorderoget theirdrugs viamail order Wellpartner isamldenypharmacy with onephysical building in Portland Oregon it isnotaphysicalpharmacy inWashington State suchasaocapharmacy like SafewayCostco and Walgreens that have physical buildings and asupplyofdrugs inWashingtonMostof themedications orderedbymail fromWellpartner aemaintenanceoreccurringmedications TheUMPoffersadiscount to the enrolleepatientformanyof the drugs purchased fromWellpartner TheUMP also savesmoney when drugs aepurchased fromWellpartner



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Thepatient orders the prescription fromWellpartner by asking theirdoctor toelectronically transmt the prescription toWellpartner via fax by email viaasecuelinkobymailing regular postagemailahardcopyofheprescription toWellpartnerTheUMP hasaformulary that lists the drugs forwhichUMPwill reimburseand the amount ofthe reimbursement to the patient Ifthe patient wants thedrug not in the formulary heoshemust pay 100percent ofthe costwthoutreimbursement from the UMP The formulary isapreferred drug listofgeneric drugs and preferred drugs Thereimbursement rates vary dependingonhe drugMedImpact admnisters the UMP enrollee informationand plan restrictionsMedImpact provides Wellpartnerwith information electronically thatincludesUMP enrollee eligibility UMP formulary howmuchcoayment isrequired and whatWellpartner will bereimbursed for the drugs The drugs inthe formulary and the reimbursement amounts change overtime Thepatientsoayment is typically made by creditcadebtcard occasionallyby check and in rarecasesby cashpaper moneymailed by the patientStep therapy iswhen other drugs must betried firstbefore the prescribeddrug is reimbursedby the UMP Thepat ient a lways candecide topay 100percent for the drugs andoverdehe formularyootherUMPrestrictionsincluding step therapy Patients rarelydecide to reject the UMPrestrictionsforreimbursement and topay 100 percent ofhe drugs costPNTs the Pharmacy and Therapy Committee which decideswhich drugsaein the UMP formulary ExhibitA301sacomputerscreenhofamessage rejectingaprescription drug fromMedImpact These messagesrequire Wellpartner to communicatewth the patientandohe patientsdoctor Wellpartner tells the patient that you canpay cashmeaning 100percent ofhe costwthout reimbursementoyou canget your doctor toadjust the prescription OccasionallyMedImpact contacts thepatientsoctortoseeifadifferent formulary drug oamount of the drug isappropriate andauthorized Theprocessing ofhe UMP formulary and other restrictions is



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simlar tocommunication aocal pharmacy wouldperform forapatientprescription it isnot unique tojust WellpartnerWellpartner isphysically different thanaocapharmacy one physically inWashington

It is located inPortland Oregon inabusiness park Signs donotindicate that drugs aekept atodispensed fromthe facilityPatients cannot walk in to the facility and order theirprescriptiondrugsIt isphysically large warehouse facility3400square feetExhibit A26 has photos of the facilityIthasawarehouse fordrugsItbuys drugs fromwholesalers and resells those drugs

Wellpartner iscontrolled and limted by its contractswthODSMedImpactand the UMPonhowit processes prescriptions and howit is reimbursedopaid fordrug prescriptions that it fills forUMPenrollees patientsWellpartner dispenses to the enrollee and ispaid byMedImpact Theenrolleecoays processed byWellpartner and thenpaid toWellpartner InMCatiespinion Wellpartner resells the drugs toMedImpactExhibitA6sannvoicefromWellpartner toMedImpact foranenrolleeofthe UMP Itlists the amount Wellpartnerwill bepaid the enrolleepays anybalance asacoayment

The patient canpurchase drugs fromWellpartner wthoutUMPreimbursement the patientmust pay in full by cash credit cardoothermeanswhen the prescription is dispensedWellpartnersnteractionis wth MedImpact onfillingprescriptions under theUMPTheUMPadmnisters the pharmacy benefit viaMedImpact for the enrollees

Cross examnation

6 Exhibit A6oesnotshow theamounoftheenoleeso

aymenotheamounMedImpact pays toWellpartner



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Thepatient must pay thecoayifoneisdue before the drug will bedispensedmailed byWellpartner tothe patient Wellpartner relies onMedImpact for this informationWellpartnermostly stocks drugs listed in the UMP formulary Wellpartnerhas possession ofhe inventoryofdrugs for the UMP in its inventory inPortland Wellpartner pays for the costofshipping the drugs to the patientWellpartner selects howthe drugs areshippedMCartier has notseenExhibitA7he ODSagreement wthMedImpactMCartier does notknowhowapatientsredit card shows thecoaymentin the prescription transactionwthWellpartnerOuofpocketmeansapatient will pay forsomeoallofhe prescriptioncostOuofbenefitmeansthe drug isprobablynot in the plansormularyUnderthe Washington Prescription DrugProgram the patient pays 100percent of the cost provided byMedImpact but Wellpartner files aclaimforthe discountwithMedImpactExhibitR47isajob description signed byMCartier foracustomerservicerepresentative ofWellpartner The employee position ispartofWellpartnersall center The department MCartier supervises includes pharmacists andtechnicians Ints documents Wellpartner refers to enrollees patients ascustomesReimbursement and paymentmeanhe samethingThe termnotcovered typicallymeansthe UMP does not provide forreimbursementopayment for the drugsWhen the prescribed drug is not coveredby the formulary and the patientdecides topurchase wthout reimbursement from the UMPWellpartnerdetermnes the amount tobecharged the patient wthout any reference to theUMP contract

RedirectThecustomeis the patientoenrollee

FNALDECISION Page 11 DocketNo 1028


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InMCartier opinion Wellpartnersruecustomer is MedImpactReimbursement iswhatWellpartner gets paid byMedImpactAnenrollee canappeal the drug disallowance to theUMP

3 Robert Judge is afoundingmemberofWellpartner He is its ExecutiveVicePresident

Wellpartnerwasounded in2001ItisanOregon corporationIts primary business isasamalderhomedelivery business Itfocusesonchronicmediations that aereccurring Customers need these drugs ona

regular basis and canget thembymail orderWellpartner partners wthWashingtonaeorporations for the delivery ofdrugs ThereisacorandednessWeput their labelonoudrugsExhibitA isatypical contractwithaharmacy BenefitManagerPBMPBM isanindustry termit does not refer toaspecific entityocorporationMedImpact isaPBMThePBMmanages the formulary and verifieswho iseligible and theamounofpaymentAreviewofaclaim is calledanadjudicationExhibitAdescribes howcoaysaemanaged Wellpartner isrequired tocollect the amounof theco

ayment per the agreement Itisanoffseagainst the total amount due toWellpartner by theUMP viaMedImpactWellpartner cannot change owaive the amountofhe copayment TheUMPsets the reimbursement rate for the drugs it isadiscountoffareferencepriceTheUMP doesnotallow the PBM topocket the differencespreadbetween the referencepriceofdrugs and what isactually paid for the drugsWellpartnersgreement ExhibitAiswthMedImpact whichconractswithODSwhichconractswith theUMPExhibit A2 isMedImpactsolicy and ProceduresManualWellpartner submts claims toMedImpact tobeadjudicatedUnderthe UMP Wellpartner cannot seek amanufacturer rebate for drugs itsubmts rebate claims onbehalfofhe UMP to the drugmanufacturer The



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UMP ispaid the rebate directlyby the drug manufacturer Lipitor isanexample ofamanufacturer rebatedrug it ismanufactured byPfizer Many ofthe formulary drugs havemanufacturer rebates See ExhibitA551ExhibitA56a contract shows thatODSwasawarded the contract ODSwasrequired to contractwth both local pharmacies inWashington and amalderpharmacy ODSpicked Wellpartner asthemalderpharmacyODSset upMedImpactasits onineprocessing entity ODS admnisters thepharmacy benefit for theUMPInMJudgespinionWellpartnerwarehouses drugs it hasawarehousePiorauthorization limtswhether the specific drug canbedispensed toapatient Wellpartnermust get additional documentation fromthe doctor ifthedrug does not haveprior authorization Step therapy isasimlarprogramSee ExhibitA5Wellpartner typically gets paid 30days after the prescription is ssuedoshipped to the patientMJudge references the useofhe term purchase inExhibit A15 aPerformanceAuditofhe Prescription Drug Purchasing Consortium Report081ated October22 2008 to the Washington legislature referred to astheJLARReportCrossexamnationNorthwest Pharmacy Services isaPBM located inPuyallup Washington itdoes not have itsownmalderpharmacyUnderthe contract ExhibitAMedImpact actsasthe intermediator forpayment toWellpartner ODS is the admnistrator for prescription drugsMedImpact isasubcontractortoODS Wellpartner isasubcontractor toMedImpactWellpartner has the riskofloss under the contract for all drugs shipped tothe patient ExhibitA11fdrugs aenot received by the patient thenWellpartnerwillnotbepaid UnderExhibitA28edImpact charges



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Wellpartner anadmnistration fee Thecontract does say thatMedlmpact isthe purchaserofhe drugsWellpartner purchases drugs frommanufacturers and wholesalers Itsinventoryofdrugs is in its Portland facility Wellpartner sells brandnamedrugs generic drugs andoveheouneOTC itemsomedications Anexample ofanOTCononovereditemisasyringe During the auditperiodnoOTCitems could bepurchased by the UMP enrollees fromWellpartnerthis changed in 2009Wellpartnermarkets the convenienceofmlderdrugs as home deliveryPrescriptions aeentered intoWellpartnersomputer system called theWERX for adjudication After the enrolleesrescription order isauthorized it is entered intoWellpartnersrescription dispensing systemExhibitA2447nd R16 aeexamples ofdocuments typically sentwith thedrug shipment to the patientExhibitR1618sanexampleofacoayment amounexceeding the total costofhe drug The adjudicated price ofhe drug is typically not listedonheinvoiceto the enrollee because the reimbursementamouncanchange andtypically comes15 to 30days laterMJudge argues that MedImpact is purchasing the drug for the enrolleesofthe UMP He hasnoknowledgeofhowMedlmpact accounts for themoneypaid to themby the UMP He agrees thatMedImpactothe PBMnevertakes possession ofhe drugs MJudge opines that the PBM is the purchaserofhe drugs eventhough the drugs aedeliveredmailed to the patient Evenwhen the patient pays 100 percentofhe costof the drugs the PBM is thepurchaserWellpartner dispenses the drugs whichaegoods Itisnotin the businessofproviding services Wellpartner gets paid based upon goods drugs that itdispenses

7 The exhibitscontain information about the drugs and thedspensngderingrocesswthWellpartner thebrochuresareprintedwthWellpartnersamedisplaced8 The exhibit is labeledanInvoceints top right and in the toplet The label readsWASHNGTONSTATEPRESCRIPTIONSERVICES aboveWellpartnersamewthts mailing address aPOBox inPortlandOregonThePaenAmounis131or this exhibit thepatientsameis blackedoufor confidentially reasonsFNALDECISION Page 14 DocketNo1028


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ExhibitR7 is signed by the CFOofWellpartner MJudge agrees that hehasgreater understanding ofWellpartnersccounting than otherwtnessesMedImpactnevertakes possession ofhe drugs dispensed to theUMPpatientsAsmallnumberofdrugs aewarehoused for 340B clients and storedseparately as the propertyofhe 340B client the Snoqualmie Tribe TheUMP isnota340B entityThe sales to the Washington Prescr iption Drug ProgramWPDPare100percent paid by the patients atadiscounted pricepeegotiated by theWPDPMedImpact tellsWellpartner the amountofhecoayment fromthe patientenrolleeofhe UMP

1

Cashpayment claims areexternal to the UMP and its prescription drugprogramAcashpayment occuswhen the customeenrolleeopatientpays 100 percentofhe costofhe drugs fromWellpartnerWellpartner isnot claiming that the cashpay claims qualify for the lowerBaxrate Cash payments arecurrently less than1percent ofWellpartnersevenues theywereabout 3 percent ofts revenuesinoneofthe years at issueMedImpact sets the price for all drugs sold through the UMP Wellpartnerlosesmoney onsomeofts sales asaresultBothreimbursement and paymentmeanhe sameBothareaaleofdrugs MJudge does not agree wth the characterization by theDepartmentsitnesses that the UMP just reimburses Wellpartner for thesaleofdrugs totheUMPsnrolleesMJudge has neverseenExhibitA731 before hedoes not knowifitsubtracts ou the cash payments



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4Angela Addington is WellpartnersontrollerMsAddington handles the accounts receivable and budgeting functions inaddition tootherduties Her training is in accounting but she isnotaCPAortax expertExhibitA70 contains several invoices filedby the Department related to thiscaseExhibit A73 isasummarychartoftaxes interest and penalties in this caseColumn 3 lists the OTCsales 1456nWashington anexample wouldbethe saleofaspirin Wellpartner paid 3191366o the Department onheassessment Thebottomhalfof the exhibit isarecalculationofhe assessmentusing the lowerwarehousing rate it shows the revisedamount dueand theamountofrefund claimed Therecalculation includes the OTCsales at thelower warehousing rates it statesTotaAmount ActuallyDues2298210

Exhibit A71 isacopyofaJune 4 2010 checkfor3034666aid to theDepartmentWellpartner paid the Department the assessments in ful

Crossexamnation and direct examnationastheDepartmentsitnessWellpartner has fouraccounts forrevenues

BrandnamedrugsGeneric drugsOTCoveheounternd340B accounts

Wellpartnersrug inventory isaccounted forasownedbyWellpartnerThe copayments received frompatients arepartofWellpartnersccountsThe reimbursement frominsurance is typically paidwithin 15 to 30days afterthe dispensing and billing5PeterBuss isapartner wth the accounting firmPKSchifferKiechkhafer Schiffer

CompanyLLPMBuss handles state and federal corporate incometaxreunsforclients

FINALDECISION Page 16 DocketNo 1028


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Heand his firmdidWellpartnersaxreturnsfrom007through 2010 See1

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ExhibitA66 and laternumbersExhibit A68 lists the apportionment schedules for2007 Washington throwbackswerenotincluded in the Oregon apportionment calculation due to lackofnexusExhibit A69 lists the sameinformationasExhibit A68 Hence theWashington saleswerenotincluded intheregon state tax calculationsRebuttalMBuss reviewed the Form1OKs anannual public document filedwith thefederal government FCCby all public corporations ofMedico and ExpressScripts competitorsofMedImpact Hestates these twocompetitors handledthe accounting oftheir pass through payments differently thanMedImpactHe read the notes in the FormIOKs tocometo this conclusion the reports donotcall the payments pass throughsbut refer to themasprincipal andagent transactions MedImpact does notuseproper accounting proceduresforpasshrough payments asset by the Financial Accounting StandardsBoard inhis expert opinion TheDepartment notesMBusswasnot listedasanexpert witness by Wellpartner and objects to his expert opinions andinterpretations ofForm IOK9

6Raymond Hanley isSeniorManagerwith the HealthcareAuthorityHCA ofWashington State

MHanley draftedExhibit A21 for the Washington Prescription DrugProgramWPDP the exhibit isanoverviewofhe Washington StateNorthwest PrescriptionDrug Purchasing ConsortiumConsortium Theexhibit bears hisnameas its author

9 TheBoard finds thatMBussstestimony about theFormIOKis expert innatureandhewasnotdisclosed asanexpert wtness His testimonyas to the FormIOK isnotconsideredbecause it is expert innaueand hewasnotdisclosed asanexpert A lay personwouldnotbe abletolook at aFormIOKand telwhat the footnotesmeantnoknowwhat a passthroughpaymentwasoifitmight be thesameasaprincipaland agent transaction



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MHanley is famliarwith Senate SubstituteBllSSB 5471 which createdthe Consortium The law isaninitiativetosavemoney in purchasing drugsItisaneffort to get the best pricesIntheory the larger you aethe betterprice you shouldbeable toget in themarketplace Thegoal is tonegotiate the largest possible discounts for theState and its agencies TheConsortiumcaninclude other state governmentsand agenciesAvariety ofstate agencies purchase drugsSomeagencies such as theWashington State Department ofHealth DOHcanget drugs cheaper than the Consortium For example DOH purchasesdrugs for itsHVprogramviaaederal government subsidyODSwasthe successful bidder for the Consortiumsirst contract ODSincludedMedImpact asapartnerTheUMP isjust oneofhe agencies that establishedarelationshipwth ODSaPBMcontractorMHanley is famliarwith the Exhibits A14 and A15 Hedoes not knowiftheUMP had anactual cost savings by using the Consortiumand its contractsTheUMP purchases approximately 158mllion in annual drug prescriptionsseeExhibitA1510hePDLis the Preferred Drug Listwhich isauthorizedby the legislation it isalso known as the formulary APNTCommtteewascreated andmakes recommendations onwhichdrugs canbeused assubstitutes forotherdrugs

CrossexamnationThePrescription DrugProgramwascreated tohelpundensuredouninsured residents ofWashington Theprogramis 100 percent copayment forthe residentoenrolleeState agencies fall intotwocategories those that purchase drugs directly andthose that reimburse for drugs For example the DepartmentofCorrectionDOCpurchases drugs directly toprovide to its prisoners TheUMP isan



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example ofhe other type ofagency it just reimburses claims for drugs TheUMPdoes not purchase drugs directly likeDOCMHanley is the contractmanager for the umbrellacontract that hesignedseeExhibitA38

xhibitA37ets forth the reimbursement raesformalorderpharmacies Theparticipating groups includeODS BPD is theabbreviation forBenefitPlan Design Underasefayrogram like theWashington State Prescription Drug Program the enrollee is the card holderThecontractExhibit A3 only talks about reimbursement for claimsincluding reimbursement to themaldervendor Wellpartner The contracttalks only about reimbursement for claims it does notrefer to the UMPasapurchaserofdrugsExhibit A5 isacontract for the UMP specifically DonnaSullivan anemployeeofHCA is the manager for thisconractTheJLARC Report Report ExhibitA15 andMHanley bothusethe tempurchase asacatch all phraseMHanley says theReport laterdistinguishes between those agencies that purchase directly and those thatpurchase via reimbursement TheUMP does not directly purchaseprescription drugs it just reimburses for its enrollees purchases IncontrastDOCisanexample ofastate agency that isadirect drug purchaserofprescription drugs

RAAAnTheprices for the Prescription Drug Program adiscountprogramareset bythePBMMedlmpact Theprice discountsaeset by the umbrellacontractbetween ODS and the StatesofWashington and OregonThePNTCommittee referred to above isnot part ofhe ConsortiumMHanley is famliarwth the rebateprogramsofMedicaid DepartmentofLabor Industries and theUPMTheUPM rebates aefrommanufacturersofdrugs asaresultofcontract negotiations between the UMPand themanufacturers Therebates aepassed through tohe UMP inamannetobenefit the UMP and its enrolleesoparticipates the state employees



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AWPs the AverageWholesale Priceofdrugs frommanufacturers Anexample ofadiscount termedAWP24meansadiscountof24 percent ofthe AWP

7Glbert Brewer isapolicy employee of the Department TheDepartment againobjects toMBrewesestimony based upon relevancyWellpartner statesMBrewerisbeing called as anexpert onstatutoryinterpretation and the Departmentsractices referenceothertaxpayers andWellpartner

TheDepartment agrees the statute RCW82472pplies toouoaelocatedwarehouses aswellasintaeocated warehouses TheDepartmenthas madenoprior written interpretations asto the meaning ofotherprovidersofhealthcareservices underRCW82472heDepartment admts itchanged its internal interpretation to includeouoaearehousesInitially theDepartment only interpreted the statutory language tomeaninstatewarehouses Exhibit R18 isprovided by theDepartment it reflects thisin terpretat ion changeTheBoard changes its earlier ruling and nowexcludesMBrewestestimony He isbeing called as anexpert to testify asto the lawand itsmeaning The Boarddoes not allow legal experts to testify to the meaningofstatutes regardless ofwhichparty calls thewtness Itis theBoadsole todecide the law and the meaning ofstatutes and regulations TheBoard notesthenumeroustimes it sustained objections in this casetowitnesses testifyingasto legal conclusions ratherthan just facts

8MikeWright isWellpartnersresident and ChiefExecutiveOfficerCEOalso oneof its founders

MWright testifies about ExhibitA35 the exhibit relates to Wellpartnerslaimofunderpaymentsundeeimbursement fromtheUMPviaODS andMedImpactMWright says the enrollee isnothis customer in hisopinion the UMP isthe customerunder the contract Wellpartner cannot claimfurtherpaymentfromthe enrolleesafter the initialcoayscollectedMWright cites



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correspondence between himselfand the UMP ODSand MedImpact assetforth inExhibit A36 and A39 Thecontract dispute wasabout5mllionofunderpayments between Wellpartner and the UMP

9Wellpartner will ask questionsofwitnesses Donna Sullivan and TomDavis when theDepartment calls themas witnesses in theDepartmentsaseDepatmensrgumentsWellpartner argues that sales in Washington shouldbe taxed under the lowerBae

provided inRCW82472hestatute applies topersonsengagedwithin the state in thebusinessofwarehousing and reselling drugs for humanusepursuant toaprescription Toqualify the personmust buy the drugs fromamanufacturerowholesaler and then resell thedrugs toapersons selling at retailotohospitals clinics healthcareprovidersootherproviders ofhealthcare services See RCW824

722ellpartner isselling prescription drugs to the ultimate consumer enrollees not toretailershospitals clinics healthcareproviders osimlar providersofhealthcare services HenceWellpartner does not qualify for the special warehousing rateItisgenerally understood thatastandonepharmacy benefitmanagerPBMdoesnotpurchase prescription drugs from its networkpharmacies SeeDrugMatPharmacy CorpvAmHomeProdsCorp 472FSupp 2d385 413EY 007standoneBMs do

notipurchase prescription drugs 10 Instead the network pharmacymakes sales ofprescription drugs to the patients that order and receive thosedrugs See generally InrePharmIndusAverage WholesalePriceLitig230FD61 69DMass 2005 describingin general howthepharmacyPBMeahlan relationship works the federal district courtfound thatsef

dmnsteeddrugs bothbrandamend generic aetypically bought byaconsumerthrough aretailomalderpharmacy which is then sometimes reimbursedbyathrdartyayor oPBM11his relationship issodescribed eventhough partofheamount paid for those prescription drugs comesfromannsurancecompanyoother thirdparty payor IdWellpartner contends that its business operations differ fromthis normalcircumstance

10 Copy attached to theDepartmentsaterials asAppendixA11 Copy attached to theDepartmentsaterials asAppendixBFNALDECISION Page 21 DocketNo1028


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Wellpartner is incorrect when it contends that the prescription drugs it sells and sends to2

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patients aeactually sold to the PBM that has contractedwthWellpartner tobeamalderpharmacy forenrolleesWellpartner doesnotmeet the requirements underRCW82472ince it issellingprescription drugs to the patientoenrolleeasthe consumer not to retailers hospitalsclinics healthcareprovidersosimlar providers ofhealthcare servicesInts effort to characterize its businessactivity asaaleofprescription drugs toPBMsWellpartner confuses the termsaewith the termcontract forsaeWellpartner does thisseveral times in its hearing brief Forexample at page21ofts briefWellpartner provides adictionarydefinition of the termsaecitingBacksawDictionary 1364 8 1 h ed 2004On the nexpage page 22 Wellpartner contends that it madenosales to patients whoordered and received the drugs because it hadnoconractswth themEmphasis addedFromthis initial premise Wellpartner contends thatteactsofthiscasedemonstratethateach element ofhe conractofsalewaswth the PBMrather than the individual enrolleesIdEmphasis added12y switching fromthe conceptofsaeo the conceptofconractofsaleosales contractWellpartner attempts to prove that therewasnosaeo thepatients that ordered and received the prescription drugs because there wasnoconractwith thatpatientThePerformanceAuditofhe Prescription Drug Purchasing ConsortiumAuditReportExhibitA5 isareport to the legislature TheAudit Reportusesthe termpurchase in ageneric senseocatchalsenseTheAudit Report isnot attempting todescribe the legal ostatutory relationship ofWellpartnerODSoMedImpact to theUMPoother stateagencies to address who is the legal purchaserofhe prescription drugs under the taxstatute TheAudit Report is looking at the cost effectivenessofdrugs purchases thataeadmnistered by state agencies where public beneficiaryandotate employee funds aeused in drug payments asreimbursementsooccasionally direct purchasers such as theDOCMost state agencies like the PEBBothe UMPannsuranceprogramofthe PEBBonly provide reimbursement for drugs purchased by theirenrolleesobeneficiaries

12Another example whereWellpartner reliesonhe concept of aconrac for sale is found in its heading to PartIIIB1f its hearingbrie There Wellpartnerargues thatalfthe legal elements of a sales conractexistedbetweenUMP andWellpartner Wellpartnersearing brieat 21Emphasis addedFINALDECISION Page 22 DocketNo1028


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o TheDepartmentstnesses1 TomDavis is Senior Revenue Agent for the Department

ExhibitR3 isWellpartnersashington master business application On pageR34 box3c onlyRealischeckedbyWellpartner the boxes forWholesaleManufacturingandSevcearenot checked for thequestion Indicate the business activities inWashington State check all thatapplyThe Department assessment iscorrect and isbased uponinformationprovided byWellpartner Anormal auditwasnot conducted

2 DonnaSullivan isDirectorofPharmacy Services for theHCAMsSullivanwashe contractmanager for pharmacy services for the HCAUMP and ODS contracts seeExhibitA5TheUMP isaPreferred ProviderOrganization PPOnotaHealthMaintenanceOrganizationHMOUnder theUMP enrollees payadeductible for prescription drugs TheUMPhas three tiersofdrug classifications and reimbursements Tier 1 is genericdrugs Tier2 isbrandnamedrugs Tier 3 isnonreferredbrandnamedrugsDrugs that aenot included inoneofhe Tiersarenonovereddrugs Underthe UMPplan enrollees payanannual deductibleof100 perpersono300per familyThecontracthas differentrates formlderversusretail pharmaciesbecause different discounts aeavailable The termrealwasused only todescribe pharmacies physically located inWashington that didnot dobusinessbymail order itwasnot used tomeanhat Wellpartner didnot sell at retailTheprocess is related toclaims that aereimbursed under the insurancepolicyoftheUMPTheUMP does notbuyosell drugs under the contractsounderanyothercircumstancesUnder the conractinExhibitA5 the UMP iscontracting inpart forapharmacy network specialty pharmacies formularymanagement and claimservices TheUMP reimburses forprescription drugs purchased by its



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enrollees whoaepatients TheUMP does not purchase drugs it reimbursesfor drugs purchased by its enrollees TheUMP didnotownany drugs inWellpartnersnventory TheUMP does control the drug purchasing processof its enrollees it tries toguide the enrollees and theirmedical providersdoctors in the prescription purchasing process Control is exercised via thereimbursement processTherebate checks fromdrugmanufacturers aeplaced inaUMP fundthat isused to reimburse for prescription drugs in thiswaythe rebates benefit theUMPsnrolleesTheenrollee pays the drug coayirectly toWellpartner not toMedImpactTheUMPreceives the rebate fromMedImpact who receives the rebate fromthe drugmanufacturers Thecontract requires this transferbyMedImpact tothe UMP Enrollees donotpay the premiums directly to theUMPenrolleepremiums aepaid to their state employer by payroll deduction The stateemployer then pays the premiums to the PEBB fromthe employeesontribution and the employersenefit contribution ThePEBB thenpaysmoney to the UMPifit is chosen as the enrolleesenefit plan Theemployee may choose coverage fromoneofseveral insuranceplans forexample UMP Group Health aHMOKaiser Permanente aHMO PrimeraBlueCross etcTheUMP reimburses for the enrollees drug purchases it does notpayfor the drugs TheUMP isnotabuyeropurchaserofdrugs

3 James Gollaher is ControllerofMedImpact aPharmacy BenefitsManagementPBMcompany located in SanDiego California

MedImpact does notowntsownmalderpharmacy SomePBMscompetitors dohave theirownmlderpharmacies that sell drugsMedImpact processesdrug benefit claims for its clients whoaetypicallymanagedaerganizations healthplans and theirmembersMGollaher is famliarwithWellpartnerMGollaher signed the declaration atExhibitR42 onJuly 12 2011Itistrueand accurate



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MedImpactsccounting practices reflect that it does not purchase osell prescription drugs Its accounting records reflectnoinventoryofprescription drugsMedImpactsccounting records reflectnopurchasesofprescriptiondrugs fromWellpartneroanyother sellernodo they reflect incomearising fromthe sale ofprescription drugsMedImpact isnot licensed as apharmacy and it does not dispense orsell prescription drugs either as aretailerowholesaler

CrossexamnationMGollaher isnotknowledgeable about howMedImpactsompetitorshandle theiraccounting for pass through paymentsInMGollaherspinion MedImpact usesthe proper accounting proceduresfor pass throughpayments MGollaher states heisnotaCPA butMedImpact is reviewed by anoutsideCPA firmthat does its annual auditedfinancial statements and taxesMedImpactsPAfirmhasnotnoted anyproblemwthedImpactsccounting including its accounting ofpassthrough payments

ANALYSIS

RCW82450axonretailers Effective untilJuly 1 20111pon everypesonengaging within thisstate in the businessofmaking sales at retailexcept persons taxableasretailers underotherprovisions ofhis chapter as to suchpersons the amount oftax wth respect to suchbusiness is equal to the gross proceeds ofsalesof the business multiplied by the rate of071percent2poneveryperson engaging within this state in the businessofmaking sales atretail that aeexempt fromthe tax imposed underchapter828CWbyreasonofRCW828261828262o828263xcept persons taxableunderRCW82460losubsection3fthis section as to suchpersons theamounof taxwithrespect tosuchbusiness is equal to the gross proceeds ofsalesofhe businessmultipliedby the rate of084percent3antil July 1 2024 upon everyperson classifiedby the federal aviation



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administration as afederal aviation regulation part 145 certificated repair station and thatis engaging within this state in the businessofmaking sales at retail that areexempt fromthe tax imposed underchapter828CWbyreasonofRCW828261828262o828263sto suchpersons theamounof taxwth respect tosuchbusiness is equal tothe gross proceeds ofsalesofhe business multiplied by therateo904 percentbAperson reporting under the tax rate provided in this subsection3ust fileacomplete annual reportwith the department underRCW82234Emphasis added

6 RCW82472axonwarehousing and reselling prescription drugs1pon every person engagingwithin this state in the business ofwarehousing andreselling drugs for humanusepursuant to aprescription asto suchpersons the amountof the tax shall beequal to the gross incomeofhe businessmultiplied by the rateof0

38percent10

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2or the purposesofthis sectionarescription and drug have the samemeaning as inRCW828281ndbarehousing and reselling drugs forhumanusepursuant toaprescription meansthe buyingofdrugs forhumanusepursuant toaprescription fromamanufactureroanotherwholesaler and resellingofhe drugs topersons selling at retailotohospitalsclinicshealthcareproviders ootherproviders ofhealthcareservices byawholesaleroretailerwho is registered with the federal drug enforcement admnistration andlicensed by the state boardofpharmacy Emphasis added

Thecasepresents afairly simple question whetherWellpartner qualifies forareducedBax rateunderRCW82472ersusthe higher raeapplicable tomostbusiness underRCW824

50Wellpartner attempts to characterize its relationship wth various insurance

entities in aunique fashion Wellpartner claims it resells drugs to theUMP MedImpactandODSwhoit then claimsaeother providers ofhealthcareservicesunderRCW824

72heUMP isasefnsurednsuranceentity under thePEBBofhe State ofWashington TheUMP being oneofseveral plans offered to state employees via thePEBB

ThePEBBprovides health insurance to state employees aspartoftheirbenefitpackage State employees pay partofhe cost via payroll deduction in addition to the



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many restrictions deductibles andcoayments required ofhe enrollees under the planTheUMPenrollees aeissued acertificateofnsuranceocoverage ThePEBB via theUMP does not buydrugs it reimburses formedical care including prescriptiondrugcoverage like other insuranceentities TheUMPsnrollees the patients aethe buyersoconsumersofhe prescription drugs dispensedbyWellpartner and other locapharmacies under the UMP insurance program

TheUMP and its subcontractors ODSand MedImpact aeadmnistrators thathave contractual duties in the insuranceprocess Wellpartner is the sellerofdrugs as amalderpharmacy toonecustomer anenrollee also calledapatient Wellpartnerfunctionsnodifferently that otherintaeolocal pharmacies such as Safeway CostcooWalgreens who fillprescriptions forenrollees The fact thatWellpartner isphysicallylocated inOregon and that itmay havealargerwarehouse than the localintaepharmacy does not change the fact that it isstill aretail providerofprescription drugs toenrolleeswhoaelocated inWashington Wellpartner is required topay the sameraeofBax asother retail pharmacies that happen to bephysically located in Washingtonand get reimbursedvia the coverageofhe UMP

Thestatute RCW82472oes not createaspecial tax rate for all retailpharmacies it only applies towarehouse sellers who resell tohospitals and otherhealthcare providers IfWellpartner resold its warehouseddrugs tohospitals clinicshealthcareproviders ootherproviders ofhealthcareservices itwould qualify for thelower taxrate Itdoes notdoso

Wellpartner isnodifferent than the typical local pharmacy in its legal relationshipwith the enrollee the consumer for purposesofhe statute IfWellpartner qualified fortax treatment underRCW82472hen any local pharmacy would likewse qualify ifit hadawarehouse Most pharmacy chains dohavewarehouses although it isunknownifthose warehouses aesmallerolarger thanWellpartnershe size ofhe warehouseis immaterial to the statutory language

The first issue here iswhetherWellpartner reselstothe UMP and itssubcontractors The secondary issue iswhether the UMP isanotherhealthcare serviceprovider

FNALDECISION Page 27 DocketNo 1028


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Wellpartnersrguments and the testimonyofts witnesses aeattempts tore2

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characterize the natureof its relationshipwith and the roleofhe UMP and itssubcontractors including ODS and MedImpact These entitiesaeall involved in theinsurancebusiness not the saleopurchase ofdrugs They haveaeimbursement rolenotapurchasing role they aenot in the purchasing chain Thepaymentofmoney by theUMP asareimbursement benefit underannsurance contractwith its enrollees isnotadrug purchase Wellpartner fails toprove the first issue underRCW82472he resaleofdrugs byWellpartner to the UMPandoits subcontractors ODS and MedImpact

Wellpartner also fails to prove the second issue TheUMPand its subcontractorsaenothospitals clinics healthcareproviders oother providers ofhealthcareservices under the statute

Wellpartner admts the UMP and its subcontractorsaenothospitals clinics ohealthcareproviders Under chapter 484RCW the termhealthcareservicesincludesmedical dental chiropractic hospital optometric podiatric pharmaceuticalambulance custodialmental health andother therapeutic services Thestatute RCW4841010learly contemplates that healthcareservicesmeanstherapeuticservices provided directly topatients bymedical personnel not health insuranceocoverageservices

13

TheUMP isnotahealthcareservices entity it isannsurer Wellpartner arguesthat the UMP and its subcontracting administrators ODS and MedImpact aeotherproviders ofhealthcareservices The argument fails for simlar reasonsbecause thisadded language ismeant to include entitiesopersons thataetreatment providers likehospitals clinicsohealthcareproviders but thatmay haveadifferent title Thestatutory language ofRCW82472s notmeant to include insurancecompanies oinsuranceentities like the UMPosubcontractors that admnister the insurancecontractincluding the paymentsofinsurancebenefits Insuranceentities donotprovide healthcaretreatment they just pay formedical treatment and attempt tolimt costs

13Other references to health careservices inheRCWs contemplate directmedical services topatients SeeRCW188A206CW187A60CW78803CW18020CW482003nd RCW43060MFINALDECISION Page 29 DocketNo1028


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Thedrug formularies tiered drug payments limts onprescription amountsodrug brand types ashandled by MedImpact and others aspartofhe UMP contracts aeinsurance cost containment examples These restrictionsaenotmedical treatment bymedical providers ofhe UMPenrollee

Whether the health insurance contractrestrictions possibly benefit the enrolleemedically in somecircumstances isvery subjective Thedrug reimbursement process isnotmedical treatment by the insurance admnistratorODSoMedImpact onbehalfoftheUMP Wellpartner didnot provide expert medical testimony that drug reimbursementreview in anyof its forms ismedical treatment given to the UMPenrollee The fact thatsomeofhe employees ocommttees that create these contract restrictions includelicensed treatment professionals does riotmake themmedical providers for the enrolleeopatient related to the prescriptions thatweressued by their doctors

TheBoard finds that these cost containment actions aenot qualifyingmedicaltreatment byahealthcareproviders oother providersofhealthcareservices underRCW82472t isdifficult to imagine that the legislature wouldhave consideredinsuranceadmnistrativeactionsastransformingoqualifying the UMP MedImpactoODSall insuranceentitiesoadministrators asahealthcareproviders ootherproviders ofhealthcareservices underRCW82472o legislative history ispresented to support Wellpartnersrgument

FINDINGSOF FACT

1 The Board has jurisdictionoverhe subjectmatterofthisproceeding2 TheBoadsanalysis and undisputed statementoffacts set forth above aeincorporated

by reference TheBoadsdescriptionofhe parties contentions and arguments andofthe testimonyofwitnesses aenot incorporated by reference in these findings

3 Wellpartner is anOregon corporation located inPortland Oregon4 The UMP is oneofseveral health insuranceplans offered toWashington state employeesvia thePEBBThe state employee pays for the health insurance coverage in part byapayroll deduction the balance ofhe costofhe insurance isanemployee benefit paid bythe employeestate agency to the PEBBwhich provides health insurance coverage



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including aprescription drug benefit The employee patient selects whichPEBBplanwill provide the employeesnsurancecoverage TheUMP isjust oneofhe severalavailablehealthinsuranceplans for state employees5The termenoleemeansthe sameaspatientoinsuranceplan enrollee in thisdecision

6Drug prescriptions aefilled after the patient seeksmedical carefromadoctorootherhealthprofessional whocanssue aprescription Thepatient decideswhere tohave theprescription filledunder theUMP program

7Patients typically chose Wellpartner when there is lead tmeor the prescription tobefilled bymail order Many prescriptions needto be filled and taken immediatelywthinafewhours however and filling the prescription viamail order isnotworkable

8 TheUMP plan provides aost incentive to itsenrollees forsomeof the drugs availableviamail orderwthWellpartner

9ManyUMP enrollees choose tohavetheirprescriptions filled at locapharmacies likeSafeway CostcooWalgreens thataephysicallynear the patient because the drugs aeneeded immediatelysoon after the prescription iswrittenby the doctor AnunknownnumberofUMPenrollees chose touselocal pharmacies for other reasonsand decline touseWellpartnersalderpharmacy

10Wellpartner is located in Oregon theUMPcontractsoes not specifywherethemalordervendormust be located Thesametax issueswould be presented ifWellpartnerwereocated in Washington oanother state

11Whenanenrolleeofhe UMPplaces adrug prescription orderwithWellpartner theenrollee is not placingawshfordrugs thephrase used byWellpartner in closingargument the enrollee isplacinganorder forprescription drugs that the enrollee hasalegal right toreceivepursuant to the contract covering prescriptiondrugs The factthatthe UMPoits subcontractors have the duty under the UMP benefits plan to only receivereimbursement for specific formulary drugs does not alter the fact that the enrollee is theonly purchaser of the drugs

12 TheUMP enrollee retains the right to totallysefayorprescription wthout anyreimbursement via the UMPwhenoifthe UMPoits admnistratorsODSo



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MedImpact decline insurance coverage and reimbursement to the enrollee for the drugprescribed by the enrolleesoctor

13 TheUMP isperforming areimbursement function governed by theenoleesnsurancecontractwth the UMPwhen itpaysODSMedImpact and Wellpartner

14AUMPenrolleeslacementofaprescription orderwithWellpartner isnotdifferent thananenrolleeslacement ofaprescription orderwithalocapharmacy suchasSafewayCostco osimlar pharmacy TheUMP is the insuranceprogramin both situations15Drug sales byWellpartner aeretail sales to enrolleesofthe UMP and the Washington

Prescription Drug Program16UMP ODS and MedImpact arenotahospitals clinics healthcareproviders oother

providers ofhealthcareservices underRCW8247217Northwest Pharmacy Services IncNWPS is notahospitals clinics healthcare

providersootherproviders ofhealthcareservices underRCW8247218UMPODSMedImpact andNWPS arenot the purchasers ofprescription drugs from

Wellpartner19Wellpartner does not sell oresell prescription drugs toODSMedImpact NWPS oheUMP

20ODSMedImpact NWPS and the UMPaeinvolved in the health insurancebusinessThey aenotconsumersopurchasers ofprescription drugs TheenrolleesofUMPaethe only purchasers ofprescription drugs fromWellpartneroother pharmacieswhethermalderooca

21Theenrollees in the insurance plan admnistered throughNWPS arepurchasers ofprescription drugs fromWellpartner

22WhenMedImpact admnisters and applies aformulary tieredlevelsofdrugs payments oother contract restrictionsonreimbursement for drugs by the UMP it is engaged ininsuranceadmnistrationactivity It isnotprovidingaealthcareservice to the enrolleesofhe UMPprogram

23The drug formularies tiered drug payments limtsonprescription amounts and brandtypes as handled byMedImpact and others aspartofhe UMP contracts areinsurancecost containment examples they aenotmedical treatment bymedical providersofheUMP enrollees



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24TheUMP does notmakeagftas argued byWellpartnerofprescription drugs to itsenrollees TheUMP pays reimbursements for drugs toWellpartner viaODS andMedImpact and its other subcontractors tofulfill theUMPsontractual obligations toits insurers whoaethe enrollees in the UMP

25Wellpartner isnotamanufacturerofdrugs26Wellpartner isnot awholesalerofdrugs toODSMedImpact NWPharmacy Serviceso

theUMP27Wellpartner does notsell oresell prescription drugs asamanufacturerowholesaler to

hospitals clinics healthcareprovidersootherproviders ofhealthcareservices underthe evidence presented in thiscase

28Exhibit R3 isWellpartnersashington masterbusiness application On pageR34f theapplication box3cWellpartner checksonly theRealbox the boxes forWholesaleManufacturing andSevceaenot checked for the question Indicate the businessactivities inWashington State check all thatapply This document isasignificantadmssion byWellpartner it indicates that Wellpartner isnotawholesalerofdrugs to theUMPoits subcontractors

29Wellpartner has awarehouse in Portland Oregon whereprescription drugs aestored anddispensed

30Neitherparty knowswhether the sales under the Snoqualmie Tribe 340Bplan aeincluded in theDepartmentsssessments TheDepartment based its assessment uponfigures provided byWellpartner Wellpartner testified that 340B programsaleswereaccounted for separately from sales to theUMP enrollees Theparties agree thatWellpartner may fileanamended tax return for the years at issue ifit laterdiscovers thatthe 340B programsalesofapproximately2300ellpartnersounselsepresentationin closing argumentwereinadvertently included in theUMP enrolleesales Wellpartnerwould thenhave the right to appeal any determnationby the Department asto thetreatmentofrevenuesfrom the 340Bprogramofhe Snoqualmie TribewithWellpartner

31Wellpartner offered testimonyonSnoqualmie Tribe 340B plan solely because itwasarguing thatthe4013contractwth the Tribewassimlar to the UMP contract andtherefore relevant to the UMP issues TheSnoqualmie Tribe 340B plan is factually



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different in significant ways fromtheUMP situation and the Board disregards the1

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testimony about the 340B planwhen deciding the UMP issues32Wellpartner sells drugs to enrollees in theWashington Prescription Drug Program Theenrollees pay 100 percentofhe cost set byMedImpact This programisadiscountprogramthe discountprices aenegotiated by the programvia its Washington Stateadministering agency TheWashington Prescription Drug Program and its administeringstate agency donot purchase the drugs fromWellpartnernofromODSoMedImpactOnly the enrolleesofhe Washington Prescription Drug Program purchase drugs fromWellpartner

33The Performance Audit of the Prescription Drug Purchasing ConsortiumAudit ReportExhibitA5 isareport to the legislature TheAudit Report and related exhibitsusetheterm purchase inageneric senseocatchalsenseTheAudit Report isnotattempting todescribe the legal ostatutory relationship ofWellpartner ODSoMedImpact toheUMPoother state agencies to address whois the legal purchaserofthe prescription drugs for tax purposesunderRCW82472heAudit Report islooking at the cost effectiveness ofdrugs purchases that aeadmnisteredby state agencieswherepublic funds beneficiary fundsandotate employee fundsareused forprescription drug payments Somestate agencies buy drugs directly such as the DOCMost state agencies like the PEBBothe UMP annsuranceprogramofhe PEBB onlyprovide reimbursement for drugs purchased by theirenrolleesobeneficiaries

34 Little informationwaspresented about howtheDOCdirectly purchases drugs for itsprisoners inmates TheBoard notes that theDOC employs treatment personnel doctorsphysician assistants nurses pharmacists etcbothasemployees and independentcontractors to treat prisoners

35Wellpartner also referenced drug purchasing programsofWashington State DepartmentofLabor and Industries and Department ofHealth No testimonyodocuments aeinevidence about the detailsofhese programs TheBoard accepts that there aeanumberofWashington State agencies and programs involved in drug purchasing these programsdiffer in unknown ways fromthe UMP



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36Under the UMPrebates fromdrug manufacturers aeadministratively paid to theUMPand handled in amannetobenefit the enrolleesofhe UMP TheUMPsaccountingpractice is consistentwith the enrollees not theUMPbeing the purchasers ofhe drugs

37 Thecontracts between the UMP and ODSMedImpact Wellpartner and others donotrefertoUMPODSoMedImpact asabuyeropurchaser ofdrugs Thecontracts aeallpart ofthe insurance contracts entered by the UMP to provide benefits to its enrolleespatientsUMPsnrolleesaethe patients and recipientsofhe prescription drugsdispensed eitherbyWellpartneramalderpharmacyoother locanonldepharmacies

38Wellpartnersmployees aenotcredible when theyusethe term purchase torefertoanymoney they receiverelated toWellpartnersispensingofdrugs toenrolleesof theUMPothe Washington State PrescriptionBenefitPlan

39Wellpartnersmployeeswhen testifying incorrectly relate the paymentofmoney fromanysouceasthe purchase ofdrugs by that entity suchstatements aesefervngnthe contextofthis case they aenot factuallyolegally correct in the contextofhe taxstatute at issue

40Wtnessesofhe Department aecredible when theydescribe the UMPasbeingahealthinsuranceprogramfor state employees and assert that the UMPand its subcontractorsODS and MedImpact arenot purchasersofprescription drugs forenrollees Theenrollees arehe purchasers ofprescription drugs

41Wellpartner via the testimonyofMJudge its ExecutiveVicePresident admts that allcash saleswhere the enrolleepays 100percent ofhe price foraprescription drug donot qualify for treatment at the lowerBax rate ofRCW82472

42 Inhe tax context ofRCW82472healthcareinsurer such as theUMPoaninsurance company isnottheurchaserofprescription drugs when it reimbursesopaysin partowholly for the drugs fromapharmacy for the benefitofts insured

43WhenRCW82472eferencespersons selling at retailotohospitals clinics healthcareproviders oother providers ofhealthcareservices the termotherproviders ofhealthcareservicesmeanslicensed providers suchasdoctors nurses chiropractorspharmacist and othermedical treatment persons licensed by the State This languagerefers topersons who providehealthcaretreatment andcareThetemdoes not include



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insurancecompanies oentities that provide insurance coverage to theirenrolleesbeneficiaries via contractswith variousentitieswhoaehealthcareproviders The termhealthcareproviders should beinterpreted consistentwith the terms hospitals clinicshealthcareproviders The termhealthcaeproviders isnotaeference to insurancecompanies ohealthcarebenefit programs such as the UMPprovided by the StateofWashington The termhealthcareproviders is notaeference tosubcontractors ofUMPwhodonot provide healthcaretreatment Thecontextofhe statutory reference istoentities that treat patients directly not that admnisterhealth insurance plans like theUMP

44UMP ODS and MedImpact arenot healthcaretreatment providers asreferenced in RCW824

7245Wellpartner fails tomeet its burdenofproof46Wellpartner fails to showthat it qualifies for lowerBaxtreatment underRCW824

72Any Conclusionof Lawthat should bedeemed aFindingofFact ishereby adopted as

suchFromthese findings the Boardcomesto these

CONCLUSIONSOF LAW

1 TheBoard has jurisdictionoverthis appeal RCW823302 Thepayment ofmoney for prescription drugs byannsuranceentity suchasthe UMPoPEBB isnot the purchase ofdrugs when it isdoneaspartoftheir insurance relationshipwith their enrolleesobeneficiaries underRCW82472hepaymentofmoney byahealth insuranceprovider suchasthe UMP is legallyareimbursementnotadrug saleopurchase ofprescription drugs underRCW824723UMPODS and MedImpact arenot purchasersofprescription drugs fromWellpartnerWellpartner does not sell oresell prescription drugs toUMPODS and MedImpact4Wellpartner does notmeet the requirements ofRCW82472o qualify for the lowerBax rate provided in the statute



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5n the tax contextofRCW82472ealth insurer suchasthe UMPoannsurancecompany isnot the purchaserofprescription drugs when it reimbursesopays inpartowholly for the drugs fromapharmacy for the benefit of its insured

6TheUMPODS and MedImpact aenotanother providers ofhealthcareservicesunderRCW824727Under chapter484RCW the termhealthcareservices includesmedical dentalchiropractichospital optometric podiatric pharmaceutical ambulance custodialmentalhealth and other therapeutic services ThestatuteRCW4841010learly

contemplates that healthcareservicesmeanstherapeutic services provided directly topatients nothealth insuranceocoverage

8WhenRCW82472eferencespersons selling at retailoto hospitals clinics healthcareprovidersootherproviders ofhealthcareservices the term other providersofhealthcareservices means licensed providers such as doctors nurses chiropractorspharmacist and othermedical treatment persons licensed by the State in otherwordspersons whoprovide healthcaretreatment andcareThe termdoes not include insurancecompanies oplans that provide insurancecoverageto theirenrollees beneficiaries andthat contractwth various entitieswhoaehealthcareproviders The termhealthcareproviders shouldbeinterpreted consistentwth the terms hospitals clinics healthcareproviders The termhealthcareproviders isnotaeferenceto insurancecompanies ohealthcareprograms provided by the State Nor is the termhealthcareproviders areferenceto subcontractorsof insuranceprogramsofUMPlikeODS and MedImpact

9Theburdenofproof is as argued byWellpartner Wellpartner isnot asking for the Boardto apply aax exemption provision to its business activities inWashington it isonlyasking the Board to apply analternative and lower taxprovisionostatuteascontained inRCW824

72From these conclusions thisBoard enters this



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DECISION

TheBoard sustains the DepartmentsetermnationNos0979nd 179R assessingtax interest and penalties against Wellpartner and deniesWellpartnersefund claim

DATEDhis 5ayo 2011BOARDOFTAXAPPEALS

4

AAOSTEPHENLJOHNSONViceChair

TERRYSEBRING tuber

RightofReconsideration ofaFinalDecisionPursuant toWAC4560955oumay fileapetition forreconsiderationofthisFinalDecision Youmus file the petition for reconsiderationwth the BoardofTaxAppeals within 10business daysofhe dateofmailingofthe FinalDecisionThepetitionmust state the specific grounds upon whichrelief is requested Youmus also serveacopyonallother parties and theirrepresentativesofrecord TheBoardmay deny the petition modify its decisionoreopen the hearingBeadvised thataparty petitioning for judicial reviewofthis Final Decision isresponsible for the reasonable costs incurredby this agency inpreparing thenecessary copiesofhe record for transmttal tohe superiorcout Charges forthe transcript arepayable separately to the courtreporter

wellpartner incorporated v. department of revenue, docket no 10-228 (wash. bta sept. 15, 2011)

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