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More states look to closed formularies to lower workers comp costs

Posted On: Feb. 8, 2015 12:00 AM CST

Workers compensation systems in Arkansas, California and Tennessee are working to implement closed formularies for prescription drugs in part to combat overutilization of costly opioids.

Closed formularies, which have reduced workers comp medical costs in Ohio, Texas and Washington, allow only a limited list of covered medications for workers comp claims.

Formularies help change prescribing patterns by making it more difficult — by requiring proof that non-formulary drugs are medically necessary before they can be prescribed to injured workers — for physicians to prescribe some opioid painkillers, benzodiazepine psychoactive drugs, soma muscle relaxants and other medications that sources say are often used inappropriately in workers comp.

States are looking to formularies “for more control at the prescribing level to help reduce the use of opioids in our work comp system,” said Brian Allen, Westerville, Ohio-based vice president of government affairs at pharmacy benefit manager Helios.

Certain formulary designs also can limit the use of compounded drugs.

Texas' closed formulary went into effect in September 2011 for new injuries and in September 2013 for all injuries.

The number of new claims with nonformulary drugs that required preauthorization decreased 67% in 2011 compared with 2010, according to the Texas Department of Insurance.

Monopolistic workers comp states Washington and Ohio implemented formularies in 2004 and 2011, respectively. Both also have credited their formularies for significant declines in opioid prescriptions.

In Oklahoma, the Workers' Compensation Commission last year established a formulary under “emergency rules.” It applies only to workers injured on and after Feb. 1, 2014, and is set to expire in September. Sources say the state is still figuring out how to integrate legacy claims.

California has talked about implementing a formulary for several years, said Alex Swedlow, president of the Oakland, California-based California Workers' Compensation Institute.

The institute's October 2014 study found that adopting a mandatory formulary like Texas or Washington could reduce California's workers comp pharmacy costs by $124 million to $420 million a year.

The Texas formulary, which is more inclusive, would exclude 17% of prescriptions and 29% of payments, while the Washington formulary would exclude 39% of prescriptions and 70% of payments, according to the study.

In 23 states studied by the Workers Compensation Research Institute, nonformulary drugs accounted for 10% to 17% of all prescriptions and 18% to 37% of total prescription costs.

The June 2014 study included Arkansas, California, Louisiana, Michigan, North Carolina and Tennessee, which sources said are interested in implementing formularies.

There's little payers can do to direct care in many states, said Joe Paduda, principal of Madison, Connecticut-based Health Strategy Associates.

“If the doctor prescribes it, they have to provide it,” Mr. Paduda said.

By listing powerful drugs, such as OxyContin and Actiq, as “N drugs,” which are generally not recommended and require preauthorization, the burden shifts from the payers to the state to deny injured workers a particular drug under a closed formulary, Mr. Allen said.

Lower risk opioids, such as Vicodin and codeine, are considered “Y drugs” on Texas' formulary and don't require preauthorization.

PBMs' formularies should be used in conjunction with state-based formularies for maximum savings and safety, sources said.

State based formularies are general, whereas a PBM's formulary is likely to be more injury-specific, Mr. Allen said.

“Where you have all these different PBMs each trying to compete for business … it creates an opportunity for some innovation in the marketplace,” Mr. Allen said.

Despite the potential risk reduction and cost savings, formularies take a long time — Texas took more than two years from the time the idea was first presented — to implement because of the many stakeholders in the workers comp system, sources said.

“If the medical association is not on board … it could increase utilization reviews, it could increase (independent medical examinations), there could be increased friction costs,” said Mark Pew, senior vice president of product development at Prium, a Duluth, Georgia-based medical management company.

Mr. Pew noted that if the medical association is not on board, it could increase utilization reviews, independent medical exams and friction costs.

There are a lot of stakeholders in California who are comfortable with implementing a formulary, Mr. Pew added, “but the medical association is still not on board quite yet.”

Mr. Swedlow said one concern is that a formulary could be “disruptive,” though workers compensation represents no more than

5% of the California health care economy.

“Whether it's group health, Medicare or Medi-Cal, physicians are well acquainted with formularies and how they work and it doesn't seem to be a disruptive force in those delivery systems,” he said.

Though Texas has already created a model for other states to follow, sources said it could be awhile before formularies pop up in other states.