BILL ANALYSIS Ó
AB 1124
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(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB
1124 (Perea)
As Amended September 4, 2015
Majority vote
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|ASSEMBLY: | 79-0 | (June 3, |SENATE: | |(September 11, |
| | |2015) | | |2015) |
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(vote not available)
Original Committee Reference: INS.
SUMMARY: Requires the Administrative Director of the Division
of Workers Compensation (administrative director) to adopt a
prescription drug formulary for workers compensation benefits by
July 1, 2017.
The Senate amendments:
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1)Declare legislative intent that the formulary adopted by the
administrative director include the following:
a) Guidance for access to pain medications.
b) Guidance for the off-label use of prescription drugs.
c) Use of generic medications.
d) Brand name medications when those medications are
cost-effective.
e) Exemptions for medication provided in a hospital or
emergency room.
f) Guidance on the efficient use of the formulary.
2)Require that the formulary be phased in for existing patients.
3)Require the administrative director to consult with
stakeholders prior to adopting a formulary.
4)Require the administrative director to update the formulary on
a quarterly basis.
5)Exempt changes to the formulary from the rulemaking provisions
of the Administrative Procedure Act.
6)Require the administrative director to establish a pharmacy
and therapeutics committee (committee) and consult with the
committee on formulary updates.
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7)Specify the composition of the committee and establishes
conflict of interest and confidentiality requirements for
committee members.
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.
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.
5)Requires the employer to establish a utilization review
process that is to be used when the employer seeks to modify,
delay, or deny a request for treatment.
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6)Requires that disputed utilization review determinations be
resolved by independent medical review.
FISCAL EFFECT: According to the Senate Appropriations
Committee, Department of Industrial Relations 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. As amended, the bill would likely
have a similar fiscal impact.
COMMENTS:
1)Purpose. According to the author, this bill gives the
Administrative Director clear authority to establish a
formulary. An effective formulary will 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.
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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.
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.
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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.
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
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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 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.
a) 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
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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%.
b) 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
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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
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.
Analysis Prepared by: Paul Riches / INS. / (916)
319-2086 FN: 0002270
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