California’s work comp formulary

California’s work comp pharmacy formulary process is moving ahead, but I have grave concerns in two areas – timing and cost.  (these are my personal concerns and are not intended to represent the views of CompPharma, LLC.)

First, timing.

The rules writing process is ongoing, while the formulary is slated to be implemented January 1, 2018. 

The rules aren’t even finalized yet, and it’s August.

That’s less than five months away.  Five months for PBMs, payers, prescribers, patients and pharmacies to make massive changes to processes, internal formularies, IT systems, contracts, call scripts, and a thousand other things.

Next, cost.

I’ve talked with regulators, PBMs, payers, employers, about this issue, and tried to re-engage w regulators, without a whole lot of any success.

Regulators have told me that the drastic cut to the fee schedule won’t be a problem because:

a) Payers can pay for clinical and program management costs separately
Well, no.
Unbundling pharmacy management services is a non-starter.
 Most payers don’t have the ability to do pharmacy management inhouse, so they rely on their PBMs. Regardless the payers would have to figure out what should cost how much, and how to charge their employer customers for clinical and program management services. Payers don’t have any way to do this without massive IT changes plus re-doing their internal cost-allocation processes, and/or re-negotiating contracts and policy terms.

b) Payers can just pay above the fee schedule
Again, highly unlikely.
Most payers can and/or will NOT pay above fee schedule. Many TPAs and insurers are precluded from doing so in their contracts with employers, and most would have to re-program IT, reporting, and bill review systems. Plus, many employers just flat-out refuse to pay above fee schedule.

Now there’s a new formulary in the offing, one that will demand even more from PBMs. There remains much uncertainty around implementation details while the implementation date draws ever closer. Setting aside the very real problems inherent in unbundling clinical and program management services, there’s no way PBMs, payers, and pharmacies could plan for and implement all the things they’d need to do to implement an unbundled or above-fee-schedule pricing methodology by January 1.

The bigger issue is this – California employers’ drug costs have declined for several years, opioid and compound usage is down significantly, and the drastic cuts to the fee schedule plus increased costs to implement and manage the formulary are going to:

  • make it harder for all parties to implement the formulary; and
  • make pharmacy management a huge money-loser. 

I don’t understand the logic here.

PBMs have been instrumental in cutting opioid usage in California every year for the last five years, investing huge sums in work that dramatically increases patient safety, reduces employers’ costs, but actually reduces PBM revenues and profits. 

Now, regulators want to further cut PBM revenues while adding a LOT more work to pharmacy management…

That’s not to say the formulary in and of itself isn’t a potential positive.

From Alex Swedlow…

This formulary is an important step forward.  The legislative intent was to increase quality of care and lower the high cost of drugs and the huge frictional costs associated with managing those drugs.

The formulary and regs that link prescriptions to the standard of care (MTUS) will raise quality of care.  The exempt, special fill and perioperative drug lists will reduce some of the dispute resolution costs.  UR is supposed to be for low frequency, high cost treatment like inpatient services, less so for high frequency low cost care such as pharmacy.  That said, those who seek to exploit the new rules and regulations have the incentive and creativity to do so. 

Solution:

  1. Delay the implementation of the formulary and related changes for at least six months after the rules and regs are finalized.
  2. Significantly increase the drug fee schedule.

What does this mean for you?

Adding a lot of complexity to the drug approval and delivery process while continuing to slash reimbursement will lead to unintended and potentially adverse consequences.

 

Note – I’m president of CompPharma, a trade group for work comp PBMs, but fee schedule changes and the like have no financial impact on CompPharma or me personally.

 

3 thoughts on “California’s work comp formulary

  1. Hi Joe,

    Welcome to the world of the work comp provider. DWC will throw a number out there indicating what they will require insurers/employers to pay. Then, regardless of whether this fee covers a provider’s actual cost to provide the service or not, they will declare that the fee is “reasonable”.

    Welcome to this side of the fight.

    • MV
      Thanks for the note. I’ve been on this side of the fight for decades. Done a lot of work for provider organizations.

  2. 40 % of the IMR events in CA are pharmacy disputes. the formulary should help California limit the IMR abuses from medical providers and lower overall administrative expense.
    AB 749 has allowed payers to implement pharmacy networks since 2002 I am surprised that so few payers have implemented pharmacy networks (and the formularies)
    Bill Zachry

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