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.
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.
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.
