BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1124 (Perea) - Workers' compensation: prescription medication  
          formulary.
          
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          |Version: July 14, 2015          |Policy Vote: L. & I.R. 4 - 1    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 17, 2015   |Consultant: Robert Ingenito     |
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          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  







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               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,  








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          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  








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               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  








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          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.




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