Should Medicaid Be the Basis for Work Comp Drug Fee Schedules?

Thursday, July 29, 2010 | 0

By Joe Paduda
Health Strategy Associates

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 Average Wholesale Price.

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 pharmacy benefit manager, 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 California). In point of fact, drug costs per claim are up 72% despite a fee schedule reduction that cut prices 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 California Workers' Compensation Institute'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 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.

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.

<i>Joe Paduda is co-owner of CompPharma, a pharmacy benefit manager consortium, and owner of Health Strategy Associates, an employer consulting firm in Connecticut. This column was reprinted with his permission from his blog, http://www.joepaduda.com</i>