States Lack Controls Over Workers’ Comp Drug Costs

June 29, 2006

Public policymakers are considering cost containment measures to bring the costs of prescription drugs used to treat injured workers more into line with similar costs in group health or government insurance programs, according to an analysis by the Workers Compensation Research Institute (WCRI).

A new WCRI report, “The Cost and Use of Pharmaceuticals in Workers’ Compensation: A Guide for Policymakers,” points out that state workers’ compensation laws require fewer pharmacy cost containment tools than are typically used by group health insurance.
Providers of workers’ compensation insurance – insurance companies and self-insured employers – generally pay substantially more for identical medications than do group health or government programs such as Medicare and Medicaid, said the WCRI report, which cited several research studies.

Prescription drug costs account for seven to 12 percent of total workers’ compensation medical costs and these costs are rising rapidly, up to nearly 20 percent per year, according to some estimates, WCRI reported.

Pharmaceutical drugs in workers’ compensation tend to be for medications that manage pain or that counter the side effects of pain medication. By contrast, most prescription medications outside of workers’ compensation are antidepressants, anti-ulcer medications and cardio-vascular related drugs.

The principal cost containment tools to control prescription drug costs used in workers’ compensation are fee schedules and generic drug mandates.

Unlike group health insurance, for example, workers’ compensation systems do not use such common measures as multi-tier copayments that encourage patients to use the least costly therapeutically equivalent medication.

In fact, copayments are generally prohibited in workers’ compensation, WCRI reported.

The WCRI guide pointed out, however, that a variant on copayments is used in nine states to allow the worker to get around the generic drug mandate by paying the difference between the brand name pharmaceutical and the generic version.

WCRI notes that workers’ compensation has some relatively unique friction points that increase expenses to pharmacies and payors, especially in the case of first-time prescriptions, for which the pharmacy does not know if it will be reimbursed, by whom or for what amount.

“These friction points shape both the incentives facing the parties and the leverage points available to public officials,” said Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI.
“They also make the public policymaking about pharmaceuticals in workers’ compensation more complex than in group health insurance or other government programs,” he said.

For example, WCRI reported that even when the pharmacy does not know if the patient is eligible, injured workers seldom have to pay up front for prescriptions. Rather, pharmacies, especially large chains, tend to assume the risk.

“That is an important role pharmacies play in ensuring access to care,” said Victor. “Policymakers should avoid public policy actions that undermine the willingness of pharmacies to play that role.”

The WCRI analysis also noted that public policies and the business practices of payors that help speed eligibility information to the pharmacies – with electronic point-of-service access – will reduce these friction costs, allow public officials to lower fee schedules, and enable payors to negotiate larger discounts.

Pharmacy benefit managers (PBMs) improve the efficiency of this process and negotiate discounts for payors. But pharmacies have incentives to bill payors directly, rather than going through PBMs, because of the possibility of higher reimbursement rates, such as fee schedules or higher “cash prices.”

Public policies that clarify the circumstances under which direct billing is permissible will reduce pharmacy costs, according to WCRI.
The WCRI report also recognized the benefits and costs of the increasing practice of physicians dispensing drugs directly to injured workers.

Advocates for physician dispensed pharmaceuticals, known as repackaged drugs, argue that the practice is more convenient for patients and leads to enhanced compliance with medication regimes. They also point to certain vulnerable populations who may have difficulty accessing retail pharmacies because of distances or language differences.

WCRI noted that evidence from California suggests nearly one-third of prescriptions are dispensed by physicians, and payments for these drugs are much higher than if they were provided by retail pharmacies. The structure of the fee schedules in California creates incentives for physicians to dispense pharmaceuticals.

“Other states should examine their reimbursement policies to ensure that they have not unintentionally created perverse incentives in this area,” said Victor.

Source: The Workers Compensation Research Institute is a nonpartisan, not-for-profit membership organization of employers, insurers, insurance regulators and state regulatory agencies in the U.S., Canada, Australia and New Zealand, as well as several state labor organizations.

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