Insight, analysis & opinion from Joe Paduda


The Texas AG opinion on work comp pharmacy

After mulling over Texas Attorney General Greg Scott’s just-released opinion [opens pdf] on the use of PBMs in workers comp, I’m still confused.
That wouldn’t be so bad, except so is everyone else.
The opinion appears to contradict itself, with declarative statements about the legality of paying less than fee schedule for drugs in one place, and apparently contrary statements a few sentences later.
Then, the opinion concludes “”…although a WCHCN [work comp Health Care Network] must not provide prescription medication or services, an insurance carrier may enter into a contract with a WCHCN to obtain a contract with a health care provider to pay for prescriptions at a negotiated rate after January 1, 2011”.
Sounds great, right?
Except experts opine that PBMs don’t meet the definition of ‘providers’ under Texas law.
So, does this mean an HCN will have to contract with pharmacies directly? In the next two weeks? Because that’s when PBMs turn into pumpkins under the involuntary network ‘sunset’ provisions.
Or does it mean that HCNs can actually subcontract with PBMs? In which case the dominant HCN – Coventry – may well require its customers use FirstScript – Coventry’s inhouse PBM.
The DWC has prepared two different regulations in anticipation of the AG’s opinion – one in case the opinion killed PBMs, which reduces the fee schedule to a rate that, according to Bill Kidd of WorkCompCentral, “to adjust fees in an attempt to maintain overall costs in the workers’ compensation system.”
I’d emphasize Bill’s use of the word “attempt”.
Drug prices are NOT the same as costs.
Drug COSTS are driven more by the type and quantity of drugs than the the price of the pill.
If low fee schedules controlled costs, we wouldn’t have seen pharmacy costs in California explode after adoption of the lowest fee schedule in the country.
In fact, CA’s drug costs increased significantly, driven by significant increases in both the average number of prescriptions per claim and the average payments per claim for prescriptions. In addition, payments for Schedule II narcotics, categorized as having a high potential for abuse and addiction, increased nine-fold after reform. Schedule II drugs are also strongly associated with extended disability duration, driving up both medical and indemnity costs.
According to the California Workers Compensation Institute, the average number of first-year prescriptions per claim increased 25 percent after the implementation of the Medi-Cal link, while the average drug cost per claim went up 37 percent. (Changes in Pharmaceutical Utilization and Reimbursement in the California Workers’ Compensation System, September 2009)
So, where does this leave us?
1. The opinion doesn’t provide enough clarity to ensure PBMs can legally operate after January 1 2011.
2. The penalty for operating an involuntary network in Texas is huge – $25,000 per day plus loss of license to operate.
3. Pharmacy costs in Texas account for around 15% of loss costs – with PBMs operating. I don’t see how PBMs can continue to operate in Texas, which means they won’t be able to address either the price of the pill, the types of pills, or the quantity of pills, dispensed to injured workers.
4. Realistically, legislation to ‘fix’ the problem won’t be completed until sometime this spring. Which means employers, insurers, governmental entities, and taxpayers are going to have to foot the bill for higher drug costs – for at least several months – until this gets fixed.

2 thoughts on “The Texas AG opinion on work comp pharmacy”

  1. Before this opinion was published, the one fact that I thought I knew for certain from a clear statute was that certified networks could not deliver pharmaceutical benefits. Now, the only clear way that the AG has told us that a payer can access contracts with pharmacies is through a certified network. This outcome was bizarre.

  2. The real question that comes to mind….is retail pharmacy allowed to charge ABOVE their U&C when billing work comp claims?

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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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