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Paduda: The Golden State's Work Comp Formulary

By Joe Paduda

Tuesday, August 8, 2017 | 954 | 0 | 0 min read

California’s work comp pharmacy formulary process is moving ahead, but I have grave concerns in two areas: timing and cost. These are my personal concerns and are not intended to represent the views of CompPharma LLC.

Joe Paduda

Joe Paduda

First, timing.

The rules-writing process is ongoing, while the formulary is slated to be implemented Jan. 1, 2018. 

The rules aren’t even finalized yet, and it’s August.

That’s less than five months away. Five months for pharmacy benefit managers, payers, prescribers, patients and pharmacies to make massive changes to processes, internal formularies, information technology systems, contracts, call scripts and a thousand other things.

Next, cost.

I’ve talked with regulators, PBMs, payers and employers about this issue and have tried to re-engage with regulators, without any success.

Regulators have told me that the drastic cut to the fee schedule won’t be a problem because: 

1) Payers can pay for clinical and program management costs separately.

Well, no.

Unbundling pharmacy management services is a nonstarter. Most payers don’t have the ability to do pharmacy management in-house, so they rely on their PBMs. Regardless, the payers would have to figure out what should cost how much, and how to charge their employer customers for clinical and program management services. Payers don’t have any way to do this without massive IT changes plus redoing their internal cost-allocation processes, and/or re-negotiating contracts and policy terms.

2) Payers can just pay above the fee schedule.

Again, highly unlikely.

Most payers can and/or will NOT pay above fee schedule. Many third-party administrators and insurers are precluded from doing so in their contracts with employers, and most would have to reprogram IT, reporting and bill review systems. Plus, many employers just flat-out refuse to pay above fee schedule.

Now there’s a new formulary in the offing, one that will demand even more from PBMs. There remains much uncertainty around implementation details while the implementation date draws ever closer.

Setting aside the very real problems inherent in unbundling clinical and program management services, there’s no way PBMs, payers and pharmacies could plan for and execute all the things they’d need to do to implement an unbundled or above-fee-schedule pricing methodology by Jan. 1.

The bigger issue is this: California employers’ drug costs have declined for several years, opioid and compound usage is down significantly, and the drastic cuts to the fee schedule plus increased costs to implement and manage the formulary are going to make it harder for all parties to implement the formulary, and make pharmacy management a huge money-loser. 

I don’t understand the logic here.

PBMs have been instrumental in cutting opioid usage in California every year for the last five years, investing huge sums in work that dramatically increases patient safety and reduces employers’ costs, but actually reduces PBM revenues and profits. 

Now, regulators want to further cut PBM revenues while adding a lot more work to pharmacy management.

That’s not to say the formulary in and of itself isn’t a potential positive.

From Alex Swedlow, president of the California Workers' Compensation Institute: 

"This formulary is an important step forward. The legislative intent was to increase quality of care, and lower the high cost of drugs and the huge frictional costs associated with managing those drugs.

"The formulary and regs that link prescriptions to the standard of care (Medical Treatment Utilization Schedule) will raise quality of care. The exempt, special fill and perioperative drug lists will reduce some of the dispute resolution costs. (Utilization review) is supposed to be for low-frequency, high-cost treatment like inpatient services, less so for high-frequency, low-cost care such as pharmacy. That said, those who seek to exploit the new rules and regulations have the incentive and creativity to do so."

Solution: Delay the implementation of the formulary and related changes for at least six months after the rules and regs are finalized, and significantly increase the drug fee schedule.

What does this mean for you?

Adding a lot of complexity to the drug approval and delivery process while continuing to slash reimbursement will lead to unintended and potentially adverse consequences.

Note: The fee schedule changes and the like have no financial impact on CompPharma or me personally.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers. This column is republished with his permission from his Managed Care Matters blog.


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