There’s a good bit of activity on the regulatory front as states with work comp pharmacy fee schedules consider possible changes to address the myriad issues inherent in AWP.
A little background will help frame the issue.
First, it’s important to understand the fee schedule amount is only paid if the script doesn’t go thru a PBM, and the vast majority of scripts do go thru a PBM, ensuring the carrier/employer/fund pays substantially less than the fee schedule.
My firm’s survey of large payers indicates network penetration was 82% in 2008. Therefore, fewer than one in five scripts are paid at fee schedule.
Some think setting a fee schedule at Medicaid solves the problem neatly. Were it only that simple.
Let’s look at California, which is the only state using Medicaid (known as Medi-Cal in CA). In point of fact, drug costs per claim are up 72% despite a fee schedule reduction that cut price more than 25%. Clearly, the lower fee schedule did NOT control cost.
I believe what has suffered is the clinical management of drugs; as evidenced by CWCI’s recent report narcotic opioid usage is up 600% over the last few years. In addition, cost per claim is up dramatically – driven primarily by utilization.
Medicaid could be used as the basis for a reimbursement calculation, however Medicaid has several inherent problems.
First, it is a political football, subject to the political winds. This has caused significant problems in New York already, and has led regulators in California to prevent implementation of the lower MediCal reimbursement rates for work comp. As state budgets become increasingly constrained and as Medicaid greatly expands, we will undoubtedly see more states seek to reduce program costs by price reductions – simple, politically palatable, and score-able.
Second, Medicaid doesn’t cover a some drugs used in comp, especially pain meds and drugs that are not on individual states’ Medicaid formularies. As states seek cost reductions beyond those available from simple across-the-board fee cuts, they will move to tighter formularies covering far fewer medications, reference pricing, and other mechanisms that will effectively limit the drugs on the ‘fee schedule’.
As a result, a Medicaid-based fee schedule would be the subject of ongoing lobbying activity and legislative/regulatory action as it requires constant ‘maintenance’; legislators change reimbursement, drugs came on and off formulary, prices go up and down.
In terms of alternatives, WAC, AWP, and some of the other methodologies are inherently flawed. However there are other standards – standards such as Federal Supply Schedule, Average Manufacturers’ Price that are not subject to the same flawed processes as AWP. Examining these may help stakeholders assess their usefulness as an alternative.
(for a synopsis of the various pricing metrics, click here.
What does this mean for you?
1. Fee schedules for drugs are not applicable to most drugs paid under workers comp as PBM rates apply.
2.States will move away from AWP; it will be important to understand the alternatives, their pros and cons.

There’s a bit of confusion in the comp pharmacy management space, as there appears to be contradictory evidence from two respected sources about the use of narcotic opioids in workers comp.
First, everyone agrees there’s just far too many claimaints getting far too many far too potent narcotics. Perhaps not in those exact terms, but close enough. Heavy duty, potent, potentially addictive, divertable, high-street-value drugs are dispensed far too often in comp.
But there is a bit of disagreement about exactly what’s going on.
First, CWCI, the always-authoritative California Workers Comp Institute, has been researching and reporting on this problem for several years, and their data shows the use of narcotic opioids is increasing. Dramatically.
In contrast, one of the largest work comp PBMs, PMSI, recently published their results which indicate a decline in usage of this type of drug early on in the claim cycle. I asked Maria Sciame, PharmD, PMSI’s Director of Clinical Services what she thought might account for the decrease in the use of opioid analgesics in the acute phase of injury.
Here’s her take (and I quote):
1. increased physician awareness of the potential negative effects of opioids
2. additional organized opioid monitoring strategies (mandatory reporting) associated with opioids may have reduced “off the cuff” opioid prescribing
3. increased awareness of pain management guidelines that call for non-opioids for the initial treatment of mild to moderate pain
4. decreased prescriber fear regarding the use of non-steroidal anti-inflammatory agents over the past year…remember the FDA warnings that have been issued within the past few years regarding the negative cardiovascular affects associated with NSAID use…started with Vioxx…physicians are becoming less cautious and have regained their comfort level with the use of NSAIDs again; thus, replacing narcotics for acute injuries with NSAIDS.
There are a couple other factors worth considering.
a) PMSI’s business all flows thru a PBM, whereas CWCI’s script data is from payers that use PBMs and some that don’t (even in this day and age, some payers don’t use PBMs; go figure). PBMs have clinical management programs in place to address things like early usage of narcotics.
b) CWCI’s data isn’t specific to early usage, whereas PMSI’s is (in this instance)
c) CWCI is specific to California; PMSI’s is national and as NCCI has reported, there are dramatic differences in prescribing patterns across states. NCCI’s research also indicates narcotic usage across the country has stabilized somewhat of late after several years of consistent increases.
So, what does this mean for you?
If you aren’t using a PBM, get with the program. If you are, find out if they are actively, assertively, and effectively managing narcotic opioid scripts and claimants on those scripts. If they aren’t, find out why not (hint, it may be because you’re not able to provide data or support their efforts, if that’s not it, they’ve got some explaining to do)
Ask for data on narcotic usage for claims less than a year old, and older ones as well, and decide if your results are acceptable.

I attended a meeting of work comp insurance execs in DC yesterday that addressed, among other topics, the dynamic situation in Texas, fee schedules for drugs, pending Federal legislation and the potential impact on comp, and the Gulf oil spill and its potential ramifications for Jones Act and Longshore/Harbor workers coverages.
While there wasn’t a common theme (beyond the obvious) at the outset, by the end of the morning I was struck (as were several others in attendance) by the unintended consequences of past actions, and potential adverse consequences of future legislation and regulation.
As an example.
California slashed the work comp pharmacy fee schedule just about in half six years ago. Since that time, the number of scripts per claimant has increased 25% and costs per claimant are up 31% (CWCI stats). And that’s not the worst of it. Schedule II narcotics have gone from less than one percent of scripts to almost six percent, a six-fold increase.
Why? How could costs go up if the fee schedule cut prices so deeply?
Simple. Some bad actors figured out how to game the system by repacking drugs and inventing their own prices, prices that were several times higher than they should have been. OK, that was fixed, albeit several years, and several hundred million dollars, later.
But there’s another problem, one highlighted by the huge growth in narcotic dispensing – PBMs could not afford to effectively manage the drugs dispensed to claimants.
PBMs make their margin on the delta between what payers pay the PBM for scripts and what the PBM pays the pharmacy. When that delta is negative, as it is in California, there isn’t any money to pay for data mining to identify potentially problematic prescribers; pharmacies that have low generic fill rates; claimants taking multiple narcotics and/or other meds that may conflict with those narcotics. And if they can identify the issues, they can’t pay pharmacists and physicians to review medical records, contact the treating physician, discuss the issues, and resolve any disagreement.
Sure, PBMs and payers could decide to operate on a cost-plus basis, but there are business reasons payers prefer bundled pricing – its easier to assign it to a file, simpler to administer, and easier to report to clients and regulators.
That’s not to say all PBMs don’t try to clinically manage claimants’ drugs – many do, and do a pretty good job given their severely limited resources. The payers that operate in multiple jurisdictions know that the PBM’s fees in other states subsidize their California drug spend…and as long as California is the only state with a catastrophically low pharmacy fee schedule, that’s OK (unless you’re a California only payer, in which case good luck finding a PBM that will handle your pharmacy at fee schedule). But if other states decide to use a similarly low fee schedule, the wheels fall off the system.
This is but one example of unintended consequence of a seemingly obvious and easy way to reduce comp costs – costs actually increased dramatically, and I’d argue that length of disability did as well for those claimants on narcotics that otherwise would not have been.
The pending sunset of pharmacy networks in Texas is another example; due to the wording of Texas’ comp reform legislation (as interpreted by the decision makers in Texas), PBMs can’t operate in the state after 12/31/2010. There’s a good bit of activity in Austin as various entities attempt to resolve this situation before the end of the year, and there’s some hope those efforts will be successful. That said, there’s no question a lot of work is being done by a lot of people who are tasked with cleaning up the ‘unintended consequence’ of unfortunately-worded legislation.
What does this mean for you?
As some smart person said years ago, “What makes you think you’ll have time to fix it if you don’t have the time to do it right to begin with”. Lest readers construe this as a ‘blame the regulator/legislator’ rant – it isn’t. Rather, stakeholders must engage with the people tasked with addressing these issues – before the laws are passed and regulations written. And yes, regulators and legislators would be well served to listen to those who live these issues every day.