Using Prescription Drug Formularies to Manage Work Comp Costs

Studies indicate that prescription drugs comprise roughly 15% of money spent on any workers’ compensation claim, and will grow dramatically over the next decade.  The use of prescription drug formularies is one unique tool that can be implemented to address this concern.  Interested stakeholders should take note, and press policymakers and elected officials to implement a formulary in the workers’ compensation system.

What is a Prescription Drug Formulary?

Prescription drug formularies can be used in non-group health plan settings such as workers’ compensation claims to better direct medical care and control healthcare costs.  A “prescription drug formulary” is a list of name brand and generic prescription medications that can be used to treat aliments and conditions.  Formularies allow a member to obtain medications at the lowest possible price.  Drugs are then divided into various tiers such as generic, preferred brand, non-preferred brand, and specialty.

The Science of Evidence-Based Medicine

Use of a prescription drug formulary does not mean it will be successful in reducing costs.  This will only occur is a prescription drug formulary is based on “evidence-based medicine.”  It is really an evolutionary process that takes the following factors into consideration:

• Use of models that rely on the best available scientific information;

• Considers the needs and values of the patient; and

• Allows for all decisions to be made by ethical best practices related to clinical management.

What Steps are Being Taken to Implement Them in Work Comp

States such as Oklahoma, Washington, Ohio, Tennessee, California, Arizona, and Texas have already implemented drug formularies into their workers’ compensation laws.  Since implementation, these jurisdictions have seen savings in their workers’ compensation systems.

Members of the claim management team and other interested stakeholders should take note of recent actions by the National Council of Insurance Legislators (NCOIL). NCOIL is a private organization whose membership is mainly composed to state legislators, and interested stakeholders in the insurance, and financial industry.  It was founded in 1969 to develop uniform state laws in insurance related matters to provide certainty and consistency for insurance carriers that underwriter various forms of insurance in multiple states, or nationwide.  In the scope of their efforts, NCOIL develops suggested statutory framework to educate others, interface with the various states, and improve regulations and laws that impact the insurance industry.

In developing the recommended legislation on prescription drug formularies for workers’ compensation claims, NCOIL involved a number of entities that included the Tennessee Bureau of Workers’ Compensation, ODG by MCG Health, the California Workers’ Compensation Institute, the California Labor Federation, and the American Property Casualty Insurance Association.  In developing this model for use nationwide, the following components are suggested to ensure injured parties receive the prescription medications they need to cure and relieve the effects of the work injury, and contain growing costs related to prescription drug use:

• Requirement for the appropriate state agency to select a nationally recognized, evidence-based drug formulary, or their own formulary using this standard;

• When developing a prescription drug formulary, the appropriate state agency must engage the public by soliciting comments, and holding hearings. Everyone should be involved in the process; and

• Ensure an injured employee is able to obtain a drug not listed in the formulary, provided proper procedures are followed.

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According to Tom Considine, NCOIL Commissioner and CEO, “I am confident that the NCOIL Workers’ Compensation Drug Formulary Model Act will serve its purpose and provide states options so that they can determine what is best for their state.  NCOIL Models are developed to better equip the states to act in the best interest of the public. In this instance of the Workers’ Compensation Drug Formulary Act, NCOIL provides the framework for states to make their workers’ compensation system safer and more efficient, while having the opportunity to expand provisions as they deem appropriate.”

Conclusions

Interested stakeholders need to take an active role in shaping policy related to the laws and regulations that govern their workers’ compensation claims practice.  This includes engaging lawmakers and those setting policy to examine, debate, and implement a prescription drug formulary.  They should also look to NCOIL for guidance on how to create an effective policy that reduces program costs, while ensuring injured employees receive the medical care and treatment they deserve.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%.  He works as a consultant to large and mid-market clients, is a 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 is founder & lead trainer of Amaxx Workers’ Comp Training Center , which offers the Certified Master of Workers’ Compensation national designation.

Contact: mstack@reduceyourworkerscomp.com.

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