Study Finds California Drug Costs up Sharply Since 2002 Despite Reforms

Workers' compensation-related drug costs in California have increased significantly since the state enacted medical reforms and adopted a pharmacy fee schedule.

According to a report by the California Workers' Compensation Institute, the average number of prescriptions and total pharmaceutical payments per claim in the state are up sharply since 2002. Among the key cost drivers identified in that study was a post-reform surge in the use of Schedule II drugs such as oxycodone, fentanyl, morphine and short-acting barbiturates -- controlled substances that the federal government has said not only have accepted medical uses, but very high potential for abuse or addiction.

For the study, the CWCI compared first-year prescriptions and pharmaceutical payments for claims from accident year 2002 to 2007. Researchers found that the average number of prescriptions per claim rose steadily from 3.3 in 2002 to 5.0 in 2007 -- up nearly 52 percent over the six-year span. At the same time, average first-year prescription payments jumped from $269.05 to $461.90, or nearly 72 percent. Overall, for the post-reform period of 2005 to 2007, the average number of first-year prescriptions per claim was up 25 percent, while first-year prescription drug payments per claim rose 35.6 percent.

Institute takes closer look at Schedule II drugs (10/12/09)

Use of Schedule II narcotics decreases among California injured workers (08/13/12)
IAIABC, ACOEM target state workers' comp agencies with opioid message (10/24/11)
Study shows increasing frequency, costs of physician-dispensed meds (09/06/12)
Opioids, physician dispensing continue to concern practitioners (02/25/13)

The study noted that the increase could only partially be explained by the increasing number of scripts per claim. Researchers ascribed the growth in total prescription costs to both increasing utilization and a shift toward more expensive brand medications. Notably, the average amount paid for generics declined from 2002 to 2006, while average payments for brand medications rose nearly 56 percent.

Schedule II drugs. Taking a closer look at the changing mix of medications used to treat injured workers, the study identified a steady increase in the use of Schedule II medications. The institute's data show the use of these drugs nearly tripled from 0.4 percent of the 2002 prescriptions to 1.1 percent of the 2004 prescriptions. Use of the drugs fell back to 0.9 percent of the 2005 prescriptions -- the first full year after the Senate Bill 899 reform legislation was enacted -- then took a sharp jump in 2006, accounting for 1.3 percent of all prescriptions. Researchers said that percentage more than doubled to 2.9 percent in 2007 and doubled again to 5.9 percent by the third quarter of 2008.

At the same time that utilization of Schedule II medications was climbing, the study noted that the average amount paid for these drugs was rising as well, with the average amount paid for a prescription in workers' comp nearly tripling from $97.73 in 2002 to $279.75 in 2008. With both utilization and average reimbursements on the rise, the study found that Schedule II drug payments skyrocketed from 0.7 percent of California workers' comp prescription dollars in 2002 to 18 percent of prescription payments in the first three quarters of 2008.

Effectiveness of reforms. The study also took a look at the effectiveness of regulatory reforms enacted in 2007 to close a loophole that had allowed medical providers who dispensed repackaged drugs from their offices to obtain much higher payments than pharmacies for dispensing the same drugs. According to the institute's data, just prior to the closure of the loophole in 2006, repackaged drugs represented well over half (54.7 percent) of all filled prescriptions and 59.2 percent of all prescription payments in California workers' comp. However, by the mid-2007, repackaged drugs had declined to 10.5 percent of the prescriptions and 8.3 percent of the payments. Furthermore, researchers said that those percentages continue to decline, with data for the first three quarters of 2008 showing repackaged drugs accounting for just 8.1 percent of workers' comp prescriptions and 5.8 percent of the pharmaceutical payments.

The study found that even though reforms such as modified fee schedules and non-differential pricings for repackaged drugs have successfully curbed some of the excesses in California workers' comp, prescription drugs remain a key cost driver as the fluid nature of pharmaceutical pricing, new drugs, limited generic substitution, direct-to-consumer advertising, and lack of formulary controls limit the system's ability to better control utilization and cost increases from year to year. In addition, researchers said the recent addition of a pain management treatment guideline to the Medical Treatment Utilization Schedule raises questions about the future use of pain medications and ancillary services.

The institute said it plans to conduct follow-up research next year that will measure the association between pain management protocols, changes in pharmaceuticals, the use of opioids and claim outcomes.

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October 12, 2009

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