BILL ANALYSIS Ó
AB 1124
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
1124 (Perea) - As Amended April 14, 2015
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill requires the Division of Workers' Compensation to
adopt a prescription drug formulary for workers compensation
benefits.
AB 1124
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FISCAL EFFECT:
1)$500,000 to the Division of Workers' Compensation for contract
expertise to develop a formulary (Workers Compensation
Administration Revolving Fund). Annual ongoing costs are
expected to be similar.
2)A statewide formulary will likely result in significant
savings, from lower pricing and more appropriate and reduced
utilization. The California Workers Compensation Institute
published a study in November 2014 evaluating the potential
impact of adopting a workers' compensation formulary in
California. The study found that applying the workers'
compensation formularies adopted in Texas and Washington could
reduce California workers' compensation payments for between
$124 and $420 million per year. Both Texas and Washington
adopted formularies in response to sustained, double-digit
growth in their workers' compensation prescription drug costs.
COMMENTS:
3)Purpose. According to the author, current law is unclear if
the Administrative Director has authority to establish a
prescription drug formulary in the workers' compensation
system. This bill is needed to give the Administrative
Director clear authority to establish a formulary, control
rising prescription drug costs in California's workers'
compensation system, limit the over-prescribing of
highly-addictive opioids, and ensure injured workers get the
necessary treatment needed to get back to work.
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4)Formularies. Drug formularies have proven to be very
effective at managing the cost of prescription drugs. Health
plans have been using formularies in California for decades
and they are commonly accepted as a useful cost control
mechanism. They control costs by limiting the utilization of
high priced drugs and reducing the price of drugs.
Formularies are usually developed by companies known as
pharmaceutical benefits managers (PBMs) who design formularies
and manage prescription drug benefits for a contracting health
plan. At the most basic level, a formulary is a list of drugs
that a health plan or insurer agrees to cover. However,
formularies are not simply arbitrary limits on drug use.
Formularies must be broad enough to provide drug treatment
options when they are available, and formulary decisions are
guided substantially by the scientific evidence regarding
individual drugs. However, in most cases there are multiple
drugs available to treat a given condition and formularies are
constructed to drive treatment choices to the most
cost-effective option. Drug spending in California workers'
compensation has risen 28% from 2011 to 2013. Significant
concerns have been raised about the high cost and
inappropriate use of some drugs. In particular, potentially
addictive narcotic use has dramatically increased.
5)Support and Opposition. The California Applicants Attorneys
Association argues that establishing a formulary is just
another in a long line of take-aways from injured workers.
Business groups support this bill and the California Labor
Federation supports the concept of a formulary.
Analysis Prepared by:Lisa Murawski / APPR. / (916) 319-2081
AB 1124
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