Use of Drug Formularies to Reduce Workers’ Compensation Costs

The California workers’ compensation system may soon see some relief from the rising costs of prescription drug use in workers’ compensation cases through the adoption of a drug formulary.  If successful, it may spark a nationwide trend that will allow insurance carriers in more states to push for similar cost saving measures.



What is a “Drug Formulary?”


A drug formulary is a list of prescription medications that practitioners use to identify drugs that provide the patient with the greatest benefit.  They also include a cost-saving element, which is important in the workers’ compensation system.  The medications on these lists are both name brand and generics.  A panel of medical professionals that include doctors, nurse practitioners and pharmacists selects the drugs for inclusion on the drug formulary.  In order to ensure patient satisfaction and cost-effectiveness, these lists are continually evaluated and updated as needed.



Use of Drug Formularies in Workers’ Compensation


Washington, Texas, Ohio and Oklahoma are the only states that currently employ a drug formulary in their workers’ compensation system.  The California legislature recently passed a law that allows for the formation of a drug formulary to be used in its workers’ compensation system by 2017.


There are some differences in how these states operate their formularies.  This includes two specific types of formularies.


  • Closed Formulary. This type of formulary will include all available FDA prescription and non-prescription drugs.  These drugs are dispensed on an outpatient basis and identifies specific drugs, or drug classifications that required a pre-authorization process or are not covered.


  • Open Formulary. This will include all FDA approved prescription and non-prescription drugs with no pre-authorization or coverage barriers.


When a drug formulary is developed, it is includes a Preferred Drug List (PDL).  A PDL is a list of drugs included in the formulary that is “preferred” for coverage purposes.


Drug formularies typically exclude investigational or experimental drugs and “N” listed drugs, which are not recommended for use.  Like drug formularies for private health insurance plans, the injured worker is required to use medications on the formulary.  If a treating doctor prescribes a medication not on the approved list, exceptions can be made by following specified procedures.



Benefits to of a Drug Formulary


The use of drug formularies in workers’ compensation is a rather new concept so the exact impacts and long-term benefits are unknown.  Drug formularies are common in individual and group health plans, which have proven to be successful in reducing cost to the insurance carrier, yet at the same time making sure the patient receives the quality of care they deserve.  Other benefits include:


  • Provide patients with evidence-based outcomes and better results in prescription drug management;
  • Create a consensus on prescription medication treatment and care for patients;
  • Ensure a consistency of medical care and treatment; and
  • Involve a dispute resolution process and expedited appeals.



Additional Workers’ Compensation Applications


The use of a drug formulary can also be used to monitor the usage habits of a workers’ compensation claimant an identify areas of concern.  This can include malingering and use or abuse of opioid-based medications.  Another practical application is the prevention of fraud, waste and abuse in the system.





More states are adopting a drug formulary in their workers’ compensation system.  When used correctly, a formulary can ensure that injured workers receive the medical care and treatment they are entitled to and provide insurance carriers with cost savings.  However, while a formulary does carry many benefits, it is important to recognize it is not a ‘quick fix.’ Employers are encourage to remain actively involved in the process, including the management of a proactive pharmacy benefits management vendor relationship.




Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%.  He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a monthly basis working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact:



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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

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