BILL ANALYSIS Ó
AB 1124
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ASSEMBLY THIRD READING
AB
1124 (Perea)
As Amended June 1, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
|----------------+------+----------------------+--------------------|
|Insurance |12-0 |Daly, Beth Gaines, | |
| | |Calderon, Cooley, | |
| | |Cooper, Dababneh, | |
| | |Frazier, Gatto, | |
| | |Gonzalez, Grove, | |
| | |Mayes, Rodriguez | |
| | | | |
|----------------+------+----------------------+--------------------|
|Appropriations |12-0 |Gomez, Bonta, | |
| | |Calderon, Daly, | |
| | |Eggman, Eduardo | |
| | |Garcia, Gordon, | |
| | |Holden, Quirk, | |
| | |Rendon, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Requires the Division of Workers Compensation to adopt a
prescription drug formulary for workers compensation benefits.
Specifically, this bill:
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1)Requires the Administrative Director of the Division of Workers
Compensation to develop a prescription drug formulary.
2)Requires the Administrative Director to convene an advisory
committee to assist in the development of the formulary.
3)Requires the recommendations of the advisory committee to
address the following issues:
a) Providing injured workers access to appropriate opioids
and other pain management drugs.
b) Providing workers receiving potentially addictive drug
treatment with gradual detoxification programs.
c) Ensuring timely updates to the formulary.
EXISTING LAW:
1)Requires employers to provide medical treatment to an injured
worker that is reasonably required to cure or relieve an injury
that occurs on the job.
2)Requires the Administrative Director to adopt a medical
treatment utilization schedule (MTUS) that addresses the
frequency, duration, intensity, and appropriateness of all
treatment procedures and modalities commonly performed in
workers compensation cases.
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3)Provides that the MTUS is presumptively correct on the extent
and scope of treatment for workers' compensation patients. This
presumption is rebuttable by proving with a preponderance of the
evidence that a treatment is reasonably required to cure or
relieve the injured worker.
4)Requires pharmacies to dispense generic drug equivalents for
workers' compensation patients unless the prescriber expressly
prohibits it.
FISCAL EFFECT: According to the Assembly Appropriations Committee:
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:
1)Purpose. According to the author, current law is unclear if the
Administrative Director has authority to establish a
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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.
2)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.
Formularies use a number of strategies to control costs driven
by utilization including:
a) Quantity Restrictions - formularies commonly prohibit
dispensing a greater quantity of the drug than is typically
necessary. Antibiotics and opioids are examples of drug
categories where there have been historical patterns of
overprescribing and abuse that can be addressed by quantity
restrictions.
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b) Refill Restrictions - formularies commonly will not allow
a prescription to be refilled until the period of time that
the initial prescription was expected to last has elapsed.
c) Use of Generics - formularies commonly will not include a
name brand drug if there is a generic version of that drug
available. Generic drugs are chemically identical to a name
brand drug but typically are available at dramatically lower
prices.
d) Category Restrictions - formularies can also exclude some
categories of drugs entirely, generally because there are
drugs in other categories that are more effective.
e) Prior Authorization - formularies also commonly impose
prior authorization requirements on certain drugs because of
the high cost of the drug or because some drugs have common
non-therapeutic uses. Drugs requiring prior authorization
are covered by the formulary, but only after the prescriber
has established a medical need for the drug. Prior
authorization is commonly used for expensive biotech drugs
prescribed for serious conditions and for drugs that have
common cosmetic or recreational uses.
f) Step-therapy - formularies commonly require that a
prescriber begin therapy with the lowest cost drug in a
category and demonstrate the drug failed to remediate the
problem before prescribing higher cost drugs in the category.
In many categories there are less expensive (generally
older) but comparable drugs available and step-therapy
requirements push treatment to these drugs but allow for a
more expensive (generally newer) drug if the cheaper drug
doesn't work for the individual patient.
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g) Co-Payments - formularies outside of workers compensation
almost always include a patient "co-payment" for each
prescription. In the mainstream world of health plans, a
tiered structure of co-payments is commonly used where the
lowest co-payment is for generic drugs, a higher co-payment
is for the preferred branded drug, and non-preferred branded
drugs are subject to a still higher co-payment. Typically
these co-payment structures are steeply slanted to create
financial incentives for patients to choose a generic or
lower cost branded drugs over higher cost alternatives. This
structure is also commonly referred to as an "open"
formulary.
Formularies are constructed to drive treatment to the most
cost-effective options for treating the group of patients as a
whole. However, formularies do generally include provisions for
prescribing outside the formulary after the prescriber has
established that the formulary restrictions are not appropriate
for an individual patient.
In addition to using these strategies designed to control the
utilization of drugs, PBMs also use formulary construction to
reduce the price of drugs. By aggregating the purchasing power
of multiple health plans, a PBM can negotiate discounts from
competing drug manufacturers. By making a particular drug in a
category the preferred drug on the formulary, the PBM can
increase the sales volume of that particular drug and many
manufacturers are prepared to offer favorable pricing to secure
the added volume of sales. The combination of utilization
controls and the exercise of market power to reduce pricing has
been effective and made formularies a pillar of managed care.
3)Why A Formulary? Drug costs have been growing significantly in
the workers compensation system in recent years (especially the
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cost of opioids which is discussed in greater detail below) and
formularies have a proven track record of reducing drug costs in
other states. As noted above, formularies work both by both
restricting utilization of higher cost drugs and reducing the
cost of drugs and present a logical alternative to restrain the
increasing cost of drugs in the workers compensation system.
This would be particularly true for workers' compensation as
there is no financial incentive for prescribers or patients in
the system to control drug utilization or to have cost factor
into prescribing decisions. The absence of copayments in the
workers' compensation system also means that the tiered
copayment structure (what is also referred to as an open
formulary) will be ineffective in the workers' compensation
system. However, a closed formulary does not rely on the
financial incentive of a copayment to influence drug utilization
and would be required for any formulary to be effective in
workers' compensation.
4)CWCI Study. The California Workers Compensation Institute (a
highly regarded industry research organization) published a
study in November of 2014 that evaluated 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 non-formulary drugs 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.
The Texas formulary was phased in beginning in September 2011,
with initial implementation for new injuries and subsequent
expansion to legacy claims. It had an immediate impact. In the
first year, non-formulary drug payments fell by 82% (from 17% to
4% of total drug expenditures) and the number of prescriptions
fell 74%.
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Washington implemented its formulary in 2004, and it also had a
significant effect on the utilization and cost of workers'
compensation prescription drugs. A 2011 Workers' Compensation
Research Institute (WCRI) study found average prescription
payments per claim in Washington were significantly lower than
the median cost in 17 other states. According to the WCRI,
Washington has lower drug prices for several reasons, including:
a pharmacy fee schedule; mandatory generic substitution; and a
formulary, which mandated substitution of generic alternatives
when no generic equivalents are available. The WCRI study also
looked at prescription drug payments from California's workers
compensation system and found that the California exceeded the
average prescription payment per claim of the 17 other study
states by 80%.
5)Opioids. CWCI has also produced a significant volume of
research documenting the rapid escalation in the use (and
associated cost) of opioids in workers' compensation. Opioids
include powerful painkillers such as morphine, fentanyl,
oxycodone, codeine, and hydrocodone. Opioid use has been rising
nationwide and there is a well-documented problem with abuse of
and addiction to these prescription painkillers, and workers'
compensation patients are not excluded from this phenomenon.
According to a recent CWCI report,
The findings show that in the first half of 2013, Schedule
II opioids, which include powerful narcotics such as
oxycontin, fentanyl and morphine, have grown to 7.3 percent
of California workers' compensation prescriptions - nearly
6 times the proportion noted in 2002. Over the same
period, payments for these drugs have increased from 4.7
percent to 19.6 percent of California workers' compensation
prescription dollars. The data also suggest that the use
of Schedule II drugs in workers' compensation may have
stabilized near this record level, as over the most recent
3-1/2 years these drugs have accounted for between 6.5 and
7.3 percent of all prescriptions dispensed to injured
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workers, while over the most recent 4-1/2 years Schedule II
drug payments have represented about 1 out of every 5
dollars paid for workers' compensation prescriptions in
California. The findings also show that since 2002, less
powerful Schedule III opioids - primarily Vicodin or other
forms of hydrocodone compounded with a non-steroidal drugs
such as acetaminophen - have accounted for a much more
consistent share of workers' compensation prescription
drugs, generally representing around 20 percent of all
prescriptions dispensed to injured workers and 10 to 11
percent of the overall drug spend.
A workers' compensation formulary would likely have a powerful
impact on the spiraling use of opioids. The utilization control
mechanisms such as quantity and refill restrictions, prior
authorization requirements, and step therapy requirements are
all likely to be very effective at weeding out cases with
excessive opioid use and potential abuse. Pain medication is
always going to be present at a meaningful level in occupational
medicine given the nature of occupational injuries, but there is
compelling evidence that there are far more workers on long
term, high-dose opioid therapy than would is consistent with
sound medical practice. In this area a formulary is likely to
both reduce costs and improve the quality of care received by
workers suffering from chronic pain.
6)Work In Progress. Most stakeholders agree that a
well-constructed formulary for workers' compensation has the
prospect of controlling costs and providing quality care to
injured workers. Like any change to a very complicated workers'
compensation system of providing healthcare, establishing a
formulary is a complex venture and will require stakeholders to
work over the coming months to arrive a fully formed solution.
This perspective is not universally subscribed to. The
California Applicants Attorneys Association argues that
establishing a formulary is just another in a long line of take
aways from injured workers.
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Analysis Prepared by:
Paul Riches / INS. / (916) 319-2086 FN: 0000791