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Formularies Could Be ‘Missing Piece’ in Cost Control Puzzle
Should California adopt a Texas- or Washington-type pharmaceutical formulary in its workers’ comp system? The California Workers’ Compensation Institute suggests there is strong evidence to support the idea, including estimated cost savings of up to $420 million per year.
“There are quality-of-care, economic, and other social policy reasons that support the adoption of a formulary within the California workers’ compensation system,” according to a report from the organization. “Combined with other tools, such as fee schedules, evidence-based medical treatment guidelines and the state’s prescription drug monitoring program, formularies may be the missing piece that completes the pharmacy utilization and cost control puzzle.”
Like many jurisdictions, California has implemented a number of measures over the years to curb unnecessary spending on medications in the workers’ comp system. But despite the use of fee schedules, pharmacy networks, chronic pain management guidelines, and the optional use of private formularies, “prescription drug payments have continued to increase and remain a significant and growing cost driver in the workers’ compensation system,” the report says. “For example, the Institute’s most recent analysis, published in July of this year, showed that the average amount paid for workers’ compensation prescription drugs in California increased by 28 percent between 2012 and 2013.”
A state-mandated prescription drug formulary is one of the tools that is gaining attention in other jurisdictions. The formularies are essentially lists of approved drugs that dictate what medications are reimbursable.
The formulary in Texas includes an extensive list of approved medications, so is considered inclusive. On the other hand, Washington state’s formulary is considered more exclusive since it has fewer approved drugs and stricter rules on generic substitution of brand name medications. Both states have reported reduced utilization and costs since implementing the formularies.
The authors used a dataset of 1.6 million California workers’ comp prescriptions filled between January 2012 and June 30, 2013, and applied the formularies from Texas and Washington state to determine which drugs would be restricted or eliminated, which would be prescribed as substitutes, and estimated the impact on pharmacy payments.
“The results showed that applying the Texas formulary to the California workers’ compensation prescriptions would exclude 17 percent of the prescriptions, and 29 percent of the payments,” according to the report. “On the other hand, Washington State’s more restrictive formulary would exclude 39 percent of the prescriptions and 70 percent of the payments.”
Additionally, a formulary could also “sharply reduce the use of controversial opioid painkillers,” the report notes. Adopting the Texas formulary would eliminate 36 percent of the more addictive Schedule II opioids from the California system and 65 percent of the costs while a Washington-type formulary would exclude 45 percent of the drugs and 78 percent of the costs.
Savings through a formulary might also be generated through reduced administrative costs, especially dispute resolution. “A state sponsored formulary could remove much of the confusion and many of the challenges that trigger medical dispute resolutions,” the authors noted. “It could reduce the reliance on medical cost containment protocols by as much as one-third.”
Adopting a formulary would require action by the state legislature or through a regulation. But the authors suggest it bears looking into.
“When compared to current utilization patterns and costs in California workers’ compensation, the study found that the additional controls provided by a formulary could reduce total pharmaceutical payments in the system by 12 percent to 42 percent, which translates to a potential savings of $124 million to $420 million a year,” they say. “In addition, the use of such formularies would clarify the rules for drug selection and likely reduce affiliated ancillary services such as drug testing as well as reduce utilization review and independent medical review expenses.”
