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Non-Formulary Drugs

Closed Formulary Could Decrease Use of ‘N’ Drugs

The recent success of the closed pharmacy formulary in the Texas workers’ comp system shows promise for other states, especially in regions where non-formulary drugs are prevalent.
By: | July 21, 2014 • 3 min read
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The recent success of the closed pharmacy formulary in the Texas workers’ comp system has caught the attention of practitioners in other states. A new report from the Workers Compensation Research Institute concludes that, all things being equal, other states could see similar results.

Texas was the first multi-payor state to adopt a formulary that requires pre-authorization for certain medications deemed as investigational, experimental, and those with “N” drug status under the Official Disability Guidelines, including many opioids. A study by the Texas Department of Insurance last year showed the formulary resulted in a decrease of about 80 percent in payments made for non-formulary drug prescriptions.

“If other states are able to successfully implement a Texas-like formulary, there is a huge potential for decreasing the utilization of the drugs designated as non-formulary drugs by Texas,” the report says, “which may in turn lead to substantial prescription cost savings in all states, particularly New York.”

The study looked at 23 states in terms of how a closed formulary might affect the prevalence and costs of drugs. Non-formulary drugs — those requiring pre-authorization in the Texas system — were most prevalent in New York.

The Texas study found physicians reduced prescriptions for non-formulary drugs by 70 percent and infrequently substituted formulary drugs for non-formulary drugs in response to the closed formulary. In assessing the potential impact of a closed formulary in the other states, the authors considered various alternative assumptions about how physician prescribing practices might change.

In the scenario where the response of physicians in other states is similar to that of their Texas counterparts, total prescription costs could be reduced by 14-29 percent among the study states with New York on the higher end. “Other states that could realize potential prescription cost savings of 20 percent and higher are New Jersey, Virginia, Massachusetts, Pennsylvania, Connecticut, and Maryland,” the report said. “Even at the lower end, states like California and Missouri might reduce their prescription drug spending by 14 percent.”

Some states may instead see physicians substitute with formulary drugs more frequently than Texas physicians did. “States may realize sizable but lower cost savings if all non-formulary drugs are substituted with other drugs,” the report states. “We estimated that within-class substitution of all non-formulary drugs with formulary drugs may reduce prescription costs by 4 to 16 percent in other study states.”

Cost savings could be greater in states where brand name medications are common. Even if physicians substituted all non-formulary drugs with cheaper generic alternatives, there could be substantial cost savings.

The researchers noted that the formulary is only one aspect of the Texas workers’ comp system that may differ from those in other states. States that do not have a “well-defined” utilization review process might see less cost savings due to the increased litigation.

Nonetheless, the authors said non-formulary drugs were prevalent in the 23 states studied, which could result in at least some cost savings. “States with higher prevalence [of non-formulary drugs] like New York, and Louisiana, have a larger scope for reducing the use of non-formulary drugs. In these states, workers’ compensation payors have an opportunity for more active management of prescribing patterns.”

Nancy Grover is co-Chair of the National Workers’ Compensation and Disability Conference and Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at riskletters@lrp.com.
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The Impact of Marijuana

WC Payers More Likely To Face Reimbursement Requirements for Pot

A New Mexico appeals court decision ordering an employer and insurer to reimburse an injured worker for his medical marijuana is believed to be the first such court ruling in the nation.
By: | July 21, 2014 • 4 min read
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Peter D. White is compiling receipts and other financial transactions to determine how much his client has spent on medical marijuana since a state workers’ comp judge OK’d reimbursement last year. Once done, the New Mexico attorney will submit the information for payment of past and ongoing use of the drug to the employer and insurer — with the backing of the New Mexico Court of Appeals.

The case has drawn a plethora of comments and reactions from workers’ comp practitioners. While the case may not generate major changes in the near future, the issue is not going away anytime soon.

“To be honest, it’s a matter of timing as much as anything,” White said of the ruling. “It’s the tide in this country.”

White noted that the U.S. House of Representatives recently voted to restrict the Drug Enforcement Administration from using funds to enforce the federal ban on the drug against state-licensed medical marijuana patients and providers.

“I think this [case] would certainly serve as a model,” he said. “I would hope that would be the trend.”

The case, Gregory Vialpando v. Ben’s Automotive Services and Redwood Fire & Casualty, involved a worker whose lower back injury in 2000 resulted in multiple surgical procedures. All parties to the case ultimately agreed he had a 99 percent permanent partial disability.

Last year, a New Mexico workers’ compensation judge found that Vialpando was qualified to participate in New Mexico’s Medical Cannabis Program authorized by the state’s Compassionate Use Act. The WCJ also ordered his employer and the insurer to reimburse the worker for the medical marijuana. The appeals court upheld the decision.

Several factors likely contributed to the ruling, White and others said. One of the factors is that another client of White’s has been getting medical marijuana for the past four years. In that case, the workers’ comp judge ordered the employer — the state of New Mexico — to reimburse the injured worker for the drug rather than pay for it outright.

“We used the order from his case and think it mattered that there had not been any issues that had arisen,” White said.

A unique aspect of the case is that there was no divergence of medical opinion as to whether the claimant would benefit from the use of medical marijuana.

The court also considered medical marijuana more of a service than a medication. “In New Mexico, workers’ comp physicians do recommend a lot of things that are not medications such as therapy and acupuncture,” White said. “The idea being that this is part of the overall picture of reasonable and necessary medicine.”

In its appeal, the employer said the WCJ’s order was illegal and unenforceable under federal law, and that the state act and regulations promulgated pursuant to it do not recognize reimbursement for medical marijuana. But the appeals court disagreed (see box).

“I kind of felt it gave a little short shrift to the issue,” said Albert B. Randall Jr., a Baltimore-based attorney with Franklin & Prokopik PC. “Rather than the court trying to find out what was the correct answer, it pointed to the attorney saying ‘if you didn’t raise the issue or supply enough information, we’re going to rule the way we are going to rule.”

Looking Into the Future

If the same scenario were presented again, Randall does not necessarily believe there would be a different outcome. “I find it hard to believe that the Court of Appeals will rule on the constitutionality of the Compassionate Use Act within the context of a workers’ compensation claim; rather, I think that would have to be a separate challenge addressed by the court.”

Other attorneys were not so sure. “The employer apparently did an inadequate job of making the argument because the appellate court could not identify any federal law that was being violated,” said Colorado attorney Ronda K. Cordova of Ritsema & Lyon PC. “This seems like an argument that could be explored further.”

Another workers’ comp attorney concurs that a more definitive defense could have been mounted. James Pocius, a shareholder with Marshall Dennehey Warner Coleman & Goggin in Philadephia, believes a criminal attorney or workers’ comp attorney with a more extensive background in other areas of the law could determine that requiring reimbursement would make the employer an accomplice by violating a federal law.

“If the federal argument is not made more clearly, you could have another state make the same decision,” Pocius said. “I think it will be incumbent on the person with the next case to argue it correctly.”

As to whether the ruling will prompt similar litigation, Randall believes it will open the flood gates. “There is no question any savvy claimant’s attorney will use this in support of his argument,” he said. “I think this is going to be a groundbreaking case and likely will be cited throughout the country in support of the use of medical marijuana in workers’ compensation claims.”

This is the first of a two-part series exploring the potential legal and practical ramifications of the order. In part two, experts weigh in on the likelihood the case may spur more requests for medical marijuana in the workers’ comp system and issues surrounding reimbursement.

Nancy Grover is co-Chair of the National Workers’ Compensation and Disability Conference and Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at riskletters@lrp.com.
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Sponsored Content by ACE Group

5 & 5: Rewards and Risks of Cloud Computing

As cloud computing threats loom, it's important to understand the benefits and risks.
By: | June 2, 2014 • 4 min read
SponsoredContent_ACE

Cloud computing lowers costs, increases capacity and provides security that companies would be hard-pressed to deliver on their own. Utilizing the cloud allows companies to “rent” hardware and software as a service and store data on a series of servers with unlimited availability and space. But the risks loom large, such as unforgiving contracts, hidden fees and sophisticated criminal attacks.

ACE’s recently published whitepaper, “Cloud Computing: Is Your Company Weighing Both Benefits and Risks?”, focuses on educating risk managers about the risks and rewards of this ever-evolving technology. Key issues raised in the paper include:

5 benefits of cloud computing

1. Lower infrastructure costs
The days of investing in standalone servers are over. For far less investment, a company can store data in the cloud with much greater capacity. Cloud technology reduces or eliminates management costs associated with IT personnel, data storage and real estate. Cloud providers can also absorb the expenses of software upgrades, hardware upgrades and the replacement of obsolete network and security devices.

2. Capacity when you need it … not when you don’t
Cloud computing enables businesses to ramp up their capacity during peak times, then ramp back down during the year, rather than wastefully buying capacity they don’t need. Take the retail sector, for example. During the holiday season, online traffic increases substantially as consumers shop for gifts. Now, companies in the retail sector can pay for the capacity they need only when they need it.

SponsoredContent_ACE

3. Security and speed increase
Cloud providers invest big dollars in securing data with the latest technology — striving for cutting-edge speed and security. In fact, they provide redundancy data that’s replicated and encrypted so it can be delivered quickly and securely. Companies that utilize the cloud would find it difficult to get such results on their own.

4. Anything, anytime, anywhere
With cloud technology, companies can access data from anywhere, at any time. Take Dropbox for example. Its popularity has grown because people want to share large files that exceed the capacity of their email inboxes. Now it’s expanded the way we share data. As time goes on, other cloud companies will surely be looking to improve upon that technology.

5. Regulatory compliance comes more easily
The data security and technology that regulators require typically come standard from cloud providers. They routinely test their networks and systems. They provide data backups and power redundancy. Some even overtly assist customers with regulatory compliance such as the Health Insurance Portability and Accountability Act (HIPAA) or Payment Card Industry Data Security Standard (PCI DSS).

SponsoredContent_ACE5 risks of cloud computing

1. Cloud contracts are unforgiving
Typically, risk managers and legal departments create contracts that mitigate losses caused by service providers. But cloud providers decline such stringent contracts, saying they hinder their ability to keep prices down. Instead, cloud contracts don’t include traditional indemnification or limitations of liability, particularly pertaining to privacy and data security. If a cloud provider suffers a data breach of customer information or sustains a network outage, risk managers are less likely to have the same contractual protection they are accustomed to seeing from traditional service providers.

2. Control is lost
In the cloud, companies are often forced to give up control of data and network availability. This can make staying compliant with regulations a challenge. For example cloud providers use data warehouses located in multiple jurisdictions, often transferring data across servers globally. While a company would be compliant in one location, it could be non-compliant when that data is transferred to a different location — and worst of all, the company may have no idea that it even happened.

3. High-level security threats loom
Higher levels of security attract sophisticated hackers. While a data thief may not be interested in your company’s information by itself, a large collection of data is a prime target. Advanced Persistent Threat (APT) attacks by highly skilled criminals continue to increase — putting your data at increased risk.

SponsoredContent_ACE

4. Hidden costs can hurt
Nobody can dispute the up-front cost savings provided by the cloud. But moving from one cloud to another can be expensive. Plus, one cloud is often not enough because of congestion and outages. More cloud providers equals more cost. Also, regulatory compliance again becomes a challenge since you can never outsource the risk to a third party. That leaves the burden of conducting vendor due diligence in a company’s hands.

5. Data security is actually your responsibility
Yes, security in the cloud is often more sophisticated than what a company can provide on its own. However, many organizations fail to realize that it’s their responsibility to secure their data before sending it to the cloud. In fact, cloud providers often won’t ensure the security of the data in their clouds and, legally, most jurisdictions hold the data owner accountable for security.

The takeaway

Risk managers can’t just take cloud computing at face value. Yes, it’s a great alternative for cost, speed and security, but hidden fees and unexpected threats can make utilization much riskier than anticipated.

Managing the risks requires a deeper understanding of the technology, careful due diligence and constant vigilance — and ACE can help guide an organization through the process.

To learn more about how to manage cloud risks, read the ACE whitepaper: Cloud Computing: Is Your Company Weighing Both Benefits and Risks?

This article was produced by ACE Group and not the Risk & Insurance® editorial team.


With operations in 54 countries, ACE Group is one of the largest multiline property and casualty insurance companies in the world.
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