Use this button to switch between dark and light mode.

Drug Formularies, Texas Style: Coming Soon to a State Near You?

July 13, 2014 (18 min read)

Karen C. Yotis, Esq., a Feature Resident Columnist for the LexisNexis Workers’ Compensation eNewsletter, provides insights into workplace issues and the nuts and bolts of the workers’ comp world.

As policymakers, risk managers, and insurers seek to contain medical expenditures in workers’ compensation claims, pharmacy charges are lined up squarely in the cost containment crosshairs. Some government programs and an ever-growing number of commercial insurers are using closed drug formularies to keep a lid on pharmacy costs. In a recent investigation titled Impact of a Texas-Like Formulary in Other States that the Workers’ Compensation Research Institute published in June 2014, authors Vennela Thumula and Te-Chun Liu may be moving this cost containment tool that some detractors refer to as “cook book medicine” a few baby steps closer to becoming a nationwide best practice. Their study examines how a closed drug formulary that mirrors the process Texas is currently using might affect the prevalence and costs of drugs in the workers’ compensations systems of 23 other states1 that don’t have a drug formulary. The study concludes that overall prescription costs could be reduced by at least 2-6 percent—and as much as 14-29 percent—across the states, which converts to an awful lot of dollars (and sense). But do the savings that accompany an evidence-based list of permitted medication (from which providers may not deviate without prior authorization) translate into optimal medical care and improved outcomes for injured workers?

We can’t even approach that question with the data from this particular study, because the authors specifically excluded information about patient outcomes from their scope. The authors also chose to report only for new claims (their assumptions rely on Texas, where current available formulary data is limited to new injuries) leaving chronic conditions, co-morbidities, and obesity, diabetes, and other long-term factors typically found in the claims arising from an aging workforce for another day.

The researchers looked at prescription utilization for 138,000 new injuries in those States with over 7 days of lost time that received at least one prescription paid under workers’ compensation. The states that the study examined as potential recipients of the Texas model were selected because they are larger, geographically diverse, and represent over 70 percent of workers’ comp benefits in the U.S.

Data was extracted from the WCRI Detailed Benchmark/Evaluation database, which contains detailed prescription transaction data collected from payors’ and pharmacy benefit managers’ medical bill review and payments systems. Typical data included: amounts charged and paid, number or quantity of pills, date filled, and various codes to identify medication type, brand/generic status, strength, and manufacturer/repackaging firm.

The study also has a number of important limitations. First, because of incomplete pharmacy data, claims used for the study may not be representative of all claims in a few states. In addition, data from some large, regional insurers was missing from a few states. Finally, interstate comparisons for the study were not adjusted for interstate differences in the mix of cases.

The study constructs four different scenarios (with assumptions about what a provider might do with respect to prescribing non-formulary drugs and substituting formulary drugs) to illustrate the extreme sensitivity to provider behavior that is at play when measuring a Texas-like formulary’s impact on a particular State.

The study then estimates the percentage of savings that the 23 studied States might anticipate in each of these four hypothetical situations:

Scenario 1 assumes that physicians in other states respond to a Texas-like closed formulary as Texas doctors did by reducing prescriptions of non-formulary drugs by 70 percent and engaging in very little substitution of formulary drugs. Here the study estimates reductions from 10-17 percent to 3-5 percent of all non-formulary drug prescriptions and a 14-29 percent reduction in total prescription costs.

Scenario 2 assumes an identical 70 percent reduction in prescriptions for non-formulary drugs, with 100 percent substitution with formulary drugs. Here the study estimates a reduction in total prescription costs of 4 to 16 percent.

Scenario 3 assumes that Texas physicians’ behavior was unique (Texas IS one of the few opt-out states in the nation after all) and contemplates reduction of non-formulary drugs by only 25 percent, with very little substitution of formulary drugs just like Texas physicians. Here the study estimates prescription cost reductions of 4 to 9 percent, with prescriptions for non-formulary drugs estimated to drop from 10-17 percent to 7-13 percent.

Scenario 4 is identical to Scenario 3, except it assumes full substitution. Here the study estimates prescription cost reductions of 2 to 6 percent, with prescriptions for non-formulary drugs estimated to drop from 10-17 percent to 7-13 percent.

The study also explains how results are either magnified or muted. In states like New York and New Jersey (where at least 80 percent of non-formulary drug prescription payments were for brand name drugs) the study shows magnified prescription cost savings through adoption of a Texas-like formulary. Since generic mandates influence the use of brand name medications for which generic equivalents are available, the study shows how formularies can be used to significantly lower costs in these and other states such as CT, IL, IN, IA, LA, MD, MO, NC, and PA (where generic substitution is not mandated) by encouraging the use of generic alternative drugs prior to brand name medications.

Conversely, states that permit physician-dispensed medications would experience a muting effect on the potential cost savings from a Texas-like drug formulary. It is common for physician-dispensers to ask suppliers to customize the in-office formulary to include drugs that are not on the list of non-formulary drugs, similar to the high levels of substitution that another WCRI study referenced by the authors found with physician dispensers in Florida after that State banned physician dispensing of stronger opioids.

This type of behavior occurs because of the open and notorious economic returns that providers enjoy in states that permit physician-dispensed medication for injured workers, where it is possible for physician dispensers to maintain their revenues by substituting all non-formulary drugs with other drugs.

As is often the case, my colleague Robin E. Kobayashi, and I reached out to several thought leaders to get their view on whether a Texas-like drug formulary would be an effective (and realistic) means of reducing the use and costs of prescription drugs in their State(s). Although the study reveals that pharmacy cost containment policies like drug formularies in the workers’ compensation arena remain largely unexplored, the individuals we polled expressed very strong opinions on the efficacy of this potential solution.

An Inconvenient Truth: Cook Book Medicine Creates False Savings and Shifts Costs to Another Source

Leading the charge against any treatment that is founded upon evidence-based medicine (EBM) is Robert G. Rassp, a long-time workers’ advocate and author of The Lawyers Guide to the AMA Guides and California Workers’ Compensation (LexisNexis). According to Rassp, selectively chosen data gives a false impression of a formulary’s effectiveness:

“Any medical treatment that is based on EBM is a disguise for cost containment and may not be best medical practices. EBM relies on studies that exclude many patients who we see in our cases and who the effect of medication and treatment modalities have not been adequately tested scientifically. This is especially true for women of child bearing potential, the obese, the aged, and diabetics. Also, utilization reviews seem to cherry pick only the studies that say a given treatment (or medication) has not shown to be effective even though in real medicine, that treatment is a community standard of care, e.g., epidural steroid injections for spinal disorders, properly prescribed opioids for chronic pain where the patient is functional, on a stable dosage, not diverting medication, not hoarding it, and not addicted.”

Rassp also explains another impact that formularies can have—namely the shifting of costs outside the workers’ compensation system.

“Experience has already shown that cook-book medicine in workers' compensation cases in California results in injured workers seeking treatment outside the WC system that creates the false impression that all of this is cost saving for the workers' compensation payer community. A drug formulary like the one in Texas will have the same effect—shifting payments for standard of care treatment to outside the WC system entirely. For patients who do not have access to treatment outside the WC system, access to MediCal (California's Medicaid program) will allow patients to obtain medications the same way as those who can obtain them through health insurance. This creates a false savings by shifting the costs to another source.”

Oh Doctor, doctor, is this love, I’m feeling?

The most damaging formulary impact that Rassp underscores is the weakening of a physician’s ability to provide an injured worker with optimal medical care.

“While EBM pharmacy formularies are clearly cost savings for the WC payer community, the quality of individualized medical care is sacrificed in favor of a ‘one size fits all’ treatment model. It is a duty of a physician to prescribe the appropriate effective and safe medication on an individualized basis to each patient and not apply a rigid standard that is intended to save money by creating a one-size fits all formulary.”

Florida defense attorney Mary Ann Stiles, partner at Quintairos, Prieto, Wood & Boyer, P.A., and her colleague, defense attorney James T. Armstrong with Walton Lantaff Schroeder & Carson, LLP, agreed with Rassp when they commented:

“Formulary medications are inappropriate for workers’ compensation patients. The high cost of formulary medications combined with the difficulty of determining the effectiveness of the medication make them inappropriate for workers’ compensation patients. In short their effectiveness is too subjective making their use contrary to the treatment practice parameters and standards of care identified in § 440.13(15) and (16), Fla. Stat. The cost of medical treatment rises annually in Florida and all steps must be taken to curtail medical expenses especially when spent on formulary medications that do not meet thatcriteria.”

Deborah G. Kohl, The Law Offices of Deborah G. Kohl, an injured workers’ advocate who hails from Massachusetts, agreed that:

“The Texas plan is a means of depriving injured workers of needed medications and is not truly based on cost reduction—[which] would involve the drug industry working together to try and reduce costs and not simply seeking to place the burden on the injured worker. Prescription medication costs are a function of big Pharma overcharging for drugs—use of medications is an issue that needs to be addressed with the physicians and the burden should not be shouldered solely by injured workers.”

You Can’t Handle the Truth! — Striking a Balance Between Savings and Wellness

On the other side of the fence—and opining directly from the horse’s mouth so to speak—is Texas defense attorney Stuart D. Colburn, Shareholder at Downs Stanford, P.C. and co-author of the Texas Workers’ Compensation Handbook (LexisNexis), whose well-considered point of view always manages to strike a balance between savings and wellness. Colburn spoke out against the physicians contributing to the nationwide prescription drug epidemic when he stated:

“The [study] authors realize the adoption of a Texas style formulary will not have the exact same effects in every state. For example, there are different economic incentives for doctors in other states. The culture of some states includes doctors that prescribe for profit; that is, they prescribe not based upon what is reasonable and necessary for the injured worker but rather on their own profit margins. Examples include physician dispensers and owners of pain clinics. Perhaps just as importantly is whether or not a particular state applies a Texas style formulary, as a strong presumption or that can easily be overcome through the dispute resolution process. A strong presumption in Texas leads to a predictable outcome by stakeholders. Texas physicians occasionally respond by substituting formulary drugs in place of not prescribing drugs at all.”

In Colburn’s view, it’s not all about cost containment:

“Reducing the prevalence and reducing costs are important; however this only tells half the story. Lowering the number of schedule II narcotics increases return to work, while reducing impairment ratings and detox programs. It saves lives and improves the lives of injured workers and their families/coworkers. These benefits were not part of any regression analysis in the WCRI study but are equally as important.”

Panic in Needle Park: The Deterrent Effect on Prescribers

Speaking to the potential savings that the study authors predict for states where brand name drugs are prevalent, New York defense attorney Renee Heitger, a partner at Hamberger & Weiss, commented that:

“A drug formulary would be effective in reducing the use and cost of drugs in NYS. The straightforward list in Appendix A, detailing exactly what requires preauthorization and what does not, could lead to reduced abuse of prescribing medications which have been shown by the evidence not to be effective. I could envision almost a deterrent effect on some of the prescribers, at least in the Buffalo area where I practice. Additionally, the New York Workers’ Compensation Law Judges (WCLJ) like a simple way of determining the appropriateness of treatment, including medications, since they are not doctors. Finally, the fact that the Texas Administrative Code states that generally generics are to be prescribed instead of brand names, unless specified and justified, would result in a cost savings. The WCLJ will generally allow brand names if those are what the prescribing doctor recommends, even if there is no real justification.”

Heitger also outlined recent developments in New York arising out of the cost-reduction reform of evidence-based treatment guidelines:

“That said, New York is in the process of adopting Treatment Guidelines of its own, utilizing evidence based medicine to guide and regulate the use of medications in cases of ‘non-acute pain.’ We are hopeful that these Guidelines will reduce the costs of prescription medications in WC claims since some medications are specifically ‘not recommended.’ That characterization will require the prescribing doctor to document certain criteria to meet his or her burden of proof showing why the Guidelines should not be applied, or why the provider should be allowed to vary from them. Those Guidelines also address the fact that brand name medications are generally not preferred. There will also be a focus not only on decreased pain, but increased function if ongoing use of medications is recommended and is going to be authorized.”

Finally, defense attorney Richard C. Kissiah, partner of Kissiah & Lay and author of Kissiah’s Georgia Workers’ Compensation Law (LexisNexis), commented upon how a Texas-like formulary might operate to reduce prescription costs in Georgia, in view of the particular statutes and case law at play. Kissiah stated:

“Right now, pursuant both to statute and case-law decision, the Georgia State Board of Workers’ Compensation has broad discretion, under the standards of OCGA 34-9-200(a), to determine what medical treatment an employer is required to provide to a compensably injured employee so that one of the few case-law decisions on the subject, in noting this broad discretion, specifically held that the Board can even require an employer to provide a compensably injured employee with medical treatment which is experimental and which has not been approved by the FDA. Williams v. West Central Georgia Bank, 225 Ga. App. 237, 483 S.E.2d 607 (1997). Needless to say, anything that would narrow that discretion in terms of what medications an employer could be held responsible for would reduce employer costs. Therefore, while I am certainly no pharmacist, I would think that Georgia’s adoption of a Texas-like, evidence-based drug formulary would be an effective means of reducing the use and cost of prescription drugs here."

Variety is the Spice of Life: a Multi-Faceted Approach for the Real World

While the WCRI study provides compelling details about potential prescription drug cost savings that a State might experience if it adopted a drug formulary like the one used in Texas, the study’s conclusions are open to attack because of the study authors’ lone focus on the Texas drug formulary as a prospective cost-savings  According to our thought leaders—who know a thing or two (or three) about the costs and risks inherent in the workers’ compensation system—a  more comprehensive strategy that includes a variety of drug management techniques and utilization management approaches is the best way to bring cost containment out of the research milieu and into the real world.

Our contributing thought leaders all suggested a multi-faceted approach—that either rejected formularies outright or used formularies as one component of a cost-containment strategy—to the prescription drug problem.

Rassp’s approach to the disputes about prescription medication rejects the compromise inherent in any evidence-based balancing act and places patients’ needs first and foremost above any economic concern. In his view:

“Disputes over the appropriate prescription of medication including opioids, benzodiazapines, and hypnotics is a national concern at this time. But the problem is from a few outlier physicians who over-prescribe them. FDA controls are in the process of being developed on a national basis and a given state's formulary may not be the appropriate way to achieve the cost savings and reductions of dependencies or addictions. Guidelines should never stand in the way of a physician's duty to prescribe medication to a patient based strictly on that patient's needs and individual responses to treatment. In California, placing the responsibility to justify use of these drugs for WC patients should remain on the requesting physician with a more detailed request for authorization (RFA) required for long term use of Schedule II narcotics, hypnotics, and benzos.”

Heitger proposed several solutions that differed based on a claim’s duration. For new claims, Heitger recommends:

“Prompt patient education that sometimes pain will not be cured, but can be managed, is important. In many jurisdictions, this would obviously require doctor education as well. Strict time, quantity and duration guidelines should apply for the use of medications, and I would think that medication use would have to be accompanied by some physical or occupational therapy unless contraindicated.”

As for chronic claims, Heitger states:

“[I’m] guardedly optimistic about NYS’s proposed ‘Non-Acute Pain Treatment Guidelines,’ which put a significant emphasis on a multi-disciplinary approach to treating pain, particularly chronic pain. That is, treatment of pain is not just to be based upon the right medications, but may include therapies, such as physical and occupational, as well as evaluation and treatment of biological, psychological and social factors. It also emphasizes self-management, not just medical management.”

Kissiah also suggested a multi-faceted approach to prescription drug cost containment in Georgia. He stated:

“With regard to the method of reducing the use and cost of prescription drugs in Georgia, I would think that a committee of interested stake-holders appointed by the Board, including physicians, pharmacists, pharmaceutical management company reps, claimants’ attorneys, defense attorneys, employers, insurers, unions and reps from the Board itself could promulgate a list of those medications which would be listed as presumptively reasonably necessary for the treatment of on-the-job injuries. Those medications not listed would enjoy no such presumption in their favor and would have to be specifically proven reasonably necessary for the particular injury in question prior to an employer having to provide same. I suppose another method would be to use FDA regs to prohibit off label uses of medications.”

By far the most provocative (and simple) suggestion for addressing the issue of reducing the cost of prescription drugs in workers’ compensation claims comes from cost containment maven Rebecca Shafer, JD, President, Amaxx Risk Solutions, Inc., an industry risk management expert and author of Your Ultimate Guide to Mastering Workers’ Comp Costs. Shafer’s book encourages payors to follow a multi-faceted and evolving approach that includes evidence-based drug guidelines, incorporates providers in multiple specialties, comprehensive pharmacy reviews and pharmacogenetics—in addition to a drug formulary that is constantly updated and requires prior authorization for all non-forumlary drugs—to reduce pharmacy costs. Shafer opined: 

“While using an authorized drug formulary is an excellent tool, it is only one way in a whole array of options. Consider using a pharmacy benefits management company which provides utilization management (the number of medications) and cost management components (the cost of each medication) containing both prospective elements (before a prescription is filled) and respective elements (after a prescription is filled), and identifies opportunities for appropriate medications throughout the life of the claim.”

Shafer filled in some of the details on the arsenal of options that she recommends:

“Have a nurse case manager oversee medication usage to determine an employee's current condition, compliance and improvement (or not). Implement a chronic pain management program to control opiate dispensing. It is far cheaper to prevent possible addiction problems than it is to treat once addiction as occurred. Use medical doctor peer review to do concurrent review before the employee receives any opioid medication. Complete a utilization review on ‘bad’ doctors that over-prescribe opioids, not on ‘good’ doctors who do not over-prescribe.”

The best way to end things is sometimes with a simple approach. Ms. Shafer concludes her comments (and this article) with the following recommendation:

“Of course, the ideal way to bring down the cost of medicine and medical costs is the most obvious and also the most overlooked—invest in a world-class safety program and work toward a goal of zero accidents.”

Now that’s a Texas-sized idea that would resonate in every State.


1. The 23 states examined in the WCRI study are: AK, CA, CT, FL, GA, IL, IN, IA, KS, LA, MD, MA, MI, MN, MO, NJ, JY, NC, PA, SC, TN, VA, and WI.

© Copyright 2014 LexisNexis. All rights reserved.