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Work comp pharmacy fee schedules – what’s the answer

The evidence is pretty clear – low fee schedules don’t have much, if any, impact on drug costs. Sure, they give the appearance of action, and some actuaries and politicians are able to claim future cost reductions based solely on slashing drug fee schedules from some multiple of AWP to some fraction of AWP, or perhaps even a state’s Medicaid rate. But the data – whether from NCCI, CWCI, or my own firm’s surveys, suggest that the price per pill (with some notable exceptions) is much less important in the scheme of things than how many and what type of pills are dispensed to claimants.
Exhibit One is CWCI’s recent analysis of drug costs post implementation of MediCal as the basis for the work comp fee schedule. Alex Swedlow (one of the best and brightest analysts in the business) and John Ireland’s analysis found “significant post-reform growth in both the average number of prescriptions and the average payments per claim for prescription medications. Between calendar years 2005 and 2007, the number of prescriptions per claim in the first year following a work injury increased 25 percent, while first-year pharmaceutical payments per claim increased 36 percent.” [emphasis added]
Yes, after slashing the fee schedule from AWP+40% for generics and AWP+10% for brand (plus dispensing fees) to something closer to AWP-50% Generic /AWP-20% Brand, drug costs per claim went up. A lot. But that’s not the worst of it.
The biggest percentage gainer? Schedule II narcotics – the heavy-duty stuff, associated with significant risk of addiction and abuse – went from less than one percent of scripts to almost six percent – a 600% jump in three years.
Why? One theory, which I’ve tested in conversations with several clinical pharmacists, is the drastic decrease in reimbursement in the Golden State left PBMs with no funds to do any real Drug Utilization Review (DUR), and even less to intervene on potentially high-cost, high-impact claims. PBMs make their money on the delta between what they charge the payer and what the retail pharmacy charges them; in almost all cases, PBMs’ retail contracts call for reimbursement above the CA MediCal rate.
Tough to make that up on volume…
I’m meeting with interested folks in DC tomorrow to discuss this issue, and perhaps to think thru some potential alternatives to AWP, or God forbid, Medicaid as the basis for comp Rx fee schedules.
And as I prepare for the conversation, I’m thinking that a fee schedule based on Usual and Customary has some appeal.
U&C in pharmacy is the cash price for that drug on that day at that pharmacy; think $4 for the long list of generics pioneered by Walmart (which, by the way, is lower than what Walmart charges comp PBMs for the same drugs). Unlike other U&Cs, it is tougher to game, can be reported and collected electronically, and bears some relevance to market price – unlike AWP, which is known as ‘Ain’t What’s Paid’ as it doesn’t factor in rebates, volume discounts, and other price-reducing mechanisms. True work comp drug geeks will know that 33 states currently use AWP as the basis for their fee schedules.
U&C isn’t perfect – any time you base reimbursement on a rate that can be set by the payee, you open yourself up to abuse. But risk of abuse or gaming is likely pretty low – pharmacies see very few work comp scripts, and aren’t likely to play games with their cash price customers just to make a few more bucks on a comp patient. And pharmacy chains do tend to alter pricing to respond to market demands, making U&C at least somewhat credible.
Perhaps best of all, U&C is going to be around for the long term – unlike the version of AWP that is most popular which will disappear within a year.

3 thoughts on “Work comp pharmacy fee schedules – what’s the answer”

  1. Joe, one more time, why did schedule II narcotics rise so quickly in volume? Would not it have had to have been prescriber decisions? What does the PBM have to do with that?

  2. AS a retired pharmacist from California, as well as a pharmaceutical consultant doing DURs, lowering the price of prescriptions is meaningless if the only cost control is at the retail pharmacy level. What needs to be done is trash the incestuous relationship between the FDA and Big Pharma. Look at the prices of old drugs like quinine and colchicine; both have gone up a hundred-fold since the manufacturers got exclusive rights to market their “safe and effective” product because these drugs were discovered long before the FDA required safety and effectiveness certification. These monopolies now raise the prices on these on reliable drugs,not for recouping costs of R&D, or providing Big Pharma with more capital to innovate and find new cures. No wonder Newsweek last week asked where are the miracle drugs on their front cover.
    Congress needs to shake off the shake-downs and payoffs, and legislate tough cost control measures on the manufacturers, not on the AWP charged or based on the retail prices.
    Otherwise, you will simply see more medication errors made by pharmacies as they hire more unschooled technicians to fill prescriptions, as the pharmacists burn out and quit from the ever increasing work load.

  3. Peter – yes, these were due to docs prescribing meds. PBMs can intervene by discussing the need for the Scheduled drugs with the prescribing physician, and if necessary assigning a pharmacist and/or physician to review the case for medical necessity.
    Clients that have adopted assertive, physician-driven review programs have seen their Actiq scripts drop by over two-thirds.
    PBMs’ value is somewhat in the cheaper price they get for drugs, but much more in their ability to ensure the drugs are the ‘right drug, at the right price, for the right patient’.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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