BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1124 (Perea) - Workers' compensation: prescription medication
formulary.
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: July 14, 2015 |Policy Vote: L. & I.R. 4 - 1 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: No |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1124 would require the Administrative Director (AD)
of the Department of Industrial Relations' (DIR's) Division of
Workers Compensation to establish an outpatient prescription
drug formulary by July 1, 2017, as specified.
Fiscal
Impact:
DIR estimates that, under the August 17th version of the
bill, it would incur annual costs in the range of $1
million to $1.1 million (special funds) to implement its
provisions.
These costs would likely be ultimately offset by savings
in the workers' compensation system. The extent of the
savings is unknown, but one report indicates that related
AB 1124 (Perea) Page 1 of
?
payments could be reduced in the range of $124 million to
$420 million annually. While most of these savings would be
realized by the private market, the State (as an employer)
would achieve an unknown portion.
Background: In California's workers' compensation system, an employer or
insurer cannot deny treatment. When an employer or insurer
receives a request for medical treatment, it can either approve
the treatment or, if it believes that a physician's request for
treatment is medically unnecessary or harmful, it must send the
request to Utilization Review.
Utilization Review (UR) is the review process for medical
treatment recommendations by physicians to see if the request
for medical treatment is medically necessary. The full UR
process varies, but generally involves initial review by a
non-physician, with higher level review(s) being conducted by a
physician or physicians. Only a licensed physician who is
competent to evaluate the specific clinical issues involved in
the medical treatment services may modify, delay, or deny a
request for medical treatment. If the UR physician does modify,
delay, or deny the medical treatment, then the injured worker
can appeal the decision to Independent Medical Review (IMR), but
without the UR decision there cannot be an IMR decision.
A formulary is generally defined in medical literature to be
list of medications and related policies which (1) is
continually updated by experts, such as pharmacists and medical
providers, and (2) represents the most up-to-date knowledge of
medical treatment and appropriate use of pharmaceutical
products. Formularies are standard in medical care delivery
systems. For example, Medi-Cal utilizes formularies, as do group
health providers and single-payer healthcare systems
internationally.
Formularies are used to place limits on the use of medications
in order to (1) avoid over-use, (2) ensure that the use of
medication matches the latest in medical literature, and (3)
promote optimal outcomes. In addition, formularies allow medical
providers and pharmacists to know which medicines will be paid
for and which will not, and under what conditions. Consequently,
AB 1124 (Perea) Page 2 of
?
formularies can both improve healthcare outcomes and reduce
burdens for medical providers. Thus, a drug formulary is a
listing of approved drugs that dictates the scope and
variability in prices with the intention of controlling costs.
Currently, California, does not have a formulary for its
workers' compensation system. As a result, pharmaceuticals can
be a significant point of friction. For example, about 42
percent of IMR medical disputes involve pharmaceuticals,
outdistancing all other categories. These disputes delay medical
treatment for injured workers, and are also time-consuming and
expensive for both medical providers and payors.
Additionally, concerns have reportedly arisen with respect to
how pharmaceuticals are being utilized in the workers'
compensation system. For example, between 2002 and 2013, the
California Workers' Compensation Institute (CWCI) found that the
prescribing of Schedule II Drugs, which includes oxycontin,
fentanyl and morphine, has grown to 7.3 percent of California
workers' compensation prescriptions and 19.6 percent of
California workers' compensation prescription dollars, an
increase of nearly 600 and 400 percent, respectively.
Proposed Law:
This bill would, among other things, require the AD of the
Division of Workers' Compensation to do the following:
Establish an outpatient prescription drug formulary, on
or before July 1, 2017, as part of the medical treatment
utilization schedule, for medications prescribed in the
workers' compensation system.
Make specified considerations in establishing the
formulary.
Meet and consult with stakeholders prior to adoption of
the formulary. Stakeholders would include, but not be
limited to, employers, insurers, private sector employee
AB 1124 (Perea) Page 3 of
?
representatives, public sector employee representatives,
treating physicians actively practicing medicine,
pharmacists, pharmacy benefit managers, attorneys who
represent applicants, and injured workers.
Publish at least two interim reports on DWC's internet
site describing the establishment of the formulary,
beginning July 1, 2016 and ending when the formulary is
effective.
Update the formulary at least on a quarterly basis to
allow for the availability of all appropriate medicines,
including medications newly approved for use.
Staff
Comments: For the previous (July 14th, 2015) version of this
bill, DIR estimated that implementing the formulary in
California would require (1) certain expertise external to the
department, and (2) access to evidence based prescription
recommendations and related economic analysis. DIR estimated the
resulting annual cost to be between $426,000 and $482,000.
The current version of the bill would require quarterly updates
to the formulary. This would require attorneys and support staff
to update the formulary on a continual, full-time basis,
increasing first-year administration costs to about $1.1
million, and $1 million ongoing.
These costs would likely be offset by overall savings to the
workers' compensation system. An October 2014 report published
by the California Workers Compensation Institute concludes that
system savings could be in the range of $124 million to $420
million. Other states, such as Texas and Washington, have
adopted formularies, and the report found that in the first
year, non-formulary drug payments declined by 82 percent, and
the number of prescriptions fell by 74 percent. If California
AB 1124 (Perea) Page 4 of
?
used the Texas formulary, it would eliminate 33 percent of all
brand-name drugs in its workers' compensation system, and 42
percent of the related payments. While most of these savings
would be realized by the private market, the State (as an
employer) would achieve an unknown portion.
-- END --