How a New York Bill Could Increase Workers' Comp Costs

Tuesday, June 26, 2012 | 0

My first contribution to this site was on pharmaceutical economics in the country of Greece. This time, I’m writing about something closer to home – a workers’ compensation prescription drug bill from the State Senator from Greece, New York.

State Senator Joe Robach (R) has a bill, S. 3749C, that is intended to give individuals covered by workers’ compensation more choice in the pharmacies that will fill their prescriptions. The bill, however, would likely bring with it increased costs for New York businesses. I wrote an opinion piece about the bill for the Rochester Democrat and Chronicle, “Robach, Legislature must abandon costly pharmacy bill,” June 15, 2012,  in which I explain that the bill would increase the cost of prescription drugs under the New York Workers’ Compensation program by 17%.

Let’s take a closer look at how the bill could increase costs for New York businesses.  In 2007, New York enacted a series of cost-saving reforms to its workers’ compensation system. Among these reforms was one that created a vast pharmacy network that includes more than 90% of New York’s pharmacies. The participating pharmacies agreed to fill Workers’ Compensation prescriptions at no more than scheduled reimbursement rates. One part of the New York law implementing the 2007 reforms says that if an employer or workers’ compensation carrier has contracted with a pharmacy to provide medicine, then the employer or carrier can require claimants to obtain all prescribed medicines from the pharmacy with which it has contracted – except in the case of a medical emergency. Senator Robach’s bill would add a major exception saying an employer or carrier is prohibited from refusing to allow a claimant to use a pharmacy of his or her choice as long as the pharmacy’s charges comply with the published prices.

It’s important to focus on the bill’s requirement that the pharmacy chosen by a claimant must comply with the “published prices.” As the regulations implementing the New York Workers’ Compensation reforms make clear, the published fee schedules are only the maximum reimbursements allowed, and nothing in the law “shall bar a carrier or self-insured employer from providing a lower reimbursement rate or dispensing fee pursuant to a written agreement with any pharmacy or group of pharmacies.” So, even though an employer or carrier may have negotiated discounted rates with participating pharmacies, the Robach bill would allow non-participating pharmacies to get reimbursed at the higher published fee schedule prices, thus increasing costs for employers and carriers whenever someone goes outside the network.

But the effect of the Robach bill goes beyond that, because it could increase workers’ compensation costs across the board. The bill is a version of the “any willing provider” laws often advanced by the pharmacy industry. An excellent analysis on this website by Professors Jonathan Klick and Joshua D. Wright, “The Anti-Competitive Effects of ‘Any Willing Provider’ Laws,” explains how the ability of non-participating pharmacies to nonetheless get reimbursed undercuts the incentives of participating pharmacies to provide the lowest possible bids. As Klick and Wright explain: