Wednesday, September 23, 2015

Prescription Cost Control

In workers' compensation closed formularies and opt-outs are a frequent topic. There is discussion about whether these and other “solutions” are trends in American workers’ compensation or just interesting anomalies.

California has decided to join the states which will have some form of closed formulary for medications. At the close of its legislative session September 11, 2015, California passed Assembly Bill 1124. According to the American Insurance Institute, this “requires the adoption of a workers’ compensation drug formulary by July 1, 2017.”

WorkCompCentral reports this week that North Carolina is the latest to legislate regarding a formulary. It does not mandate adoption, but “directs the state Industrial Commission to conduct a study of implementing a drug formulary. It is to report to the General Assembly next April.

The formulary has been an interesting development, led by Texas in 2011. Formularies define a list of medications that are acceptable for treatment of workers’ compensation injuries. A doctor that wishes to prescribe something not on that list may do so, but additional paperwork and justification is involved. When a new medication enters the market, such as Zohydro in 2013, the presence of a formulary might prevent it from having an immediate market impact. See Zohydro and Closed Formularies (12.13).

The Workers’ Compensation Research Institute (WCRI) says that there is evidence that formularies can save significant money on prescription costs. The medications can be anticipated and purchasing volume could affect prices. It also noted in Texas a trend to fewer prescriptions after the formulary was adopted. See I am Learning More (06.14).

Formularies were In the News in October 2014. A study by the California Workers’ Compensation Institute (CWCI) had contemplated whether a formulary in California would result in savings as seen in Texas. That report acknowledged that Washington also has a formulary. CWCI concluded that California prescription costs would have been significantly lower if either a Washington or Texas style formulary had been in place in California.

Formularies were Back in the News in May 2015. As the subject was discussed in some legislatures, the Claims Journal noted that four states have adopted the formulary approach, “Washington, Texas, Ohio, and Oklahoma.” We now know that California will make five, and North Carolina is at least considering being number six.

While opt-outs are also in the news, that concept has not been adopted elsewhere since Oklahoma ignited the debate. I have written several times on that subject (most recently in What is Hot in Workers’ Compensation 07.15). For now, it is an experiment in Oklahoma. There have been efforts to implement the idea in Tennessee and South Carolina. There have been discussions and prognostications elsewhere. But for now, only Oklahoma has passed legislation. It is fair to say that the formulary idea is gaining acceptance more rapidly, for now.

Coincidentally, the news recently is taking notice of increases in prescription drug prices. The NY Times reported this week that a “62 year-old drug that is the standard of care for treating a life-threatening parasitic infection” recently increased from $13.50 per tablet to $750. That is just over a 5000% increase. Publicity on that increase had results reported by the Times the next day.

The Washington Post note that increase and reported that the “spectacularly high drug prices have become a political punching bag.” It claims that the increase in price was “more than 4,000 percent,” and likened this increase to “waking up one day and finding out a gallon of gas costs nearly $100.” This article details how the costs of medication, even some generics, have increased in recent years. It also details why the increase is not the 5,000% initially reported by the Times, but “merely a 4,000 percent increase.”

These examples are getting attention. But there is evidence that the cost increase in medications is not limited to these anecdotal stories. The Wall Street Journal reports drug costs are increasing. Over one half-million people incur more than $50,000 annually in medication payments. 

The cost of medication may be near to people’s hearts. According to the Washington Post story, “half the American people” use medications, and “a lot of them use multiple drugs.” In a survey in that article, the Post reports that 72% of those surveyed think prescription costs are unreasonable. Even more, 74% think that Americans pay more than people in other countries.

It appears likely that no single idea is “the” solution to “the” issue of prescription prices. Drug companies argue that there is a need for continued research and development of a variety of medications, and that this is expensive. Reportedly, many of the compounds into which they invest time and money never make it to the public; that research is a cost that has to be recouped from the products that do make the market. 

But is the formulary idea “a” solution to some portion of “an” issue of prescription cost? Payers have already instituted cost controls. Prescription Benefit Management or PBM is a growing business according to Forbes. Some see comparisons between the PBM methodology in the private sector and formularies. Moreover, there are insurance carriers that are adopting their own prescription formularies, including workers’ compensation carriers. To some degree it might be argued that formularies are coming to workers’ compensation with or without state regulation.

It appears that prescription costs will continue to rise. The workers’ compensation industry is focused on controlling those costs, and is utilizing tools like formulary and PBM already. Forward-focused states like California, North Carolina, Ohio, Oklahoma, Texas and Washington are either on the band wagon or are edging towards it. According to the Insurance Journal, Louisiana, Montana, Maine, and Tennessee are all considering formularies. That is five states committed, and if those studying it adopt the total could soon be 10 states.

Incidentally, the largest jurisdictions in the country for workers’ compensation are discussed in How Huge is it Anyway, Lex and Verum, Number LVII, June 2014. The ten largest jurisdictions account for 50% of American workers, 54% of the wages paid, and 60% of the workers’ compensation benefits paid in this country. They are (in order): California, New York, Federal, Illinois, Pennsylvania, Florida, Washington, Ohio, New Jersey, and Texas. Those in italics have adopted the formulary concept. It is somewhat curious that some of the smaller states, not in the top ten, are studying the concept while some of these larger states appear disinterested for now.

The adoption of workers’ compensation in this country was reasonably rapid. Thirty-two states enacted laws in the first five years after the first in 1911. Florida was not among them, cautiously waiting until 1935 to join the trend. Obviously, the opt-out and drug formularies will not spread with that speed. The Texas effort came in 2011, and we rapidly approach the close of the first five years thereafter. 

At this point it is fair to question whether opt-outs will spread at all. But formularies appear to be gaining momentum and are likely to come soon to a market near you. Will the momentum build, leading to a more rapid series of state adoptions in years ahead? Will the national or state governments take other actions to restrict profits on medications in light of the recent news of price increases?

Formularies are seen by some as restricting medication choice. That is a policy question that has to be discussed. Anecdotally, there are already stories of recovering workers who present at pharmacies for medication only to be told to return later because authorization of payment cannot be arranged instantly. There are similar stories of delayed prescription refills. How widespread is the complaint of slow prescriptions? Could a formulary law or regulation do anything to streamline the authorization process?

The Florida legislative session begins in January 2016. It is unknown what that will mean to Florida workers' compensation generally. Whether there is legislation regarding prescriptions or not remains to be seen, but there will likely be ongoing discussion of prescriptions and costs in coming months. 

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