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 --