It's Utilization!

Saturday, July 14, 2007 | 0

By Joe Paduda

From the big big world of national health care reform, we're heading to the tiny niche of drugs in workers comp, where some pretty interesting things are happening.

Well, interesting to the six or eight people who are remotely interested in WC drug management.

NCCI published their annual review of drugs in comp a bit ago, and I finally got around to reviewing it in detail last night. There's some really good work here, although it can be a bit confusing.

Take cost containment. In one of their slides, labeled "WC Prescription Drug Cost Containment Options" all of the options are price-related (except one mention of PBMs and one of formularies).

Controlling price does NOT control cost. The formula is Cost = Price x Utilization, with utilization driven by the types of drugs prescribed and the volume of each type prescribed. (as an aside, note that drug costs in California have gone up dramatically, despite a fee schedule that is the lowest in the nation)

But the next slide gets into utilization, noting "utilization is the significant driving force behind total cost." That's dead on. And it gets better. Further on, NCCI notes that utilization has a much greater impact on total cost, by comparison price is almost inconsequential.

There are also some useful benchmarks and statistics WC execs should look to when evaluating their drug programs. For example:

Generics were prescribed 87% of the time when a brand or generic option was available. Now that's not to say you should be satisfied with an 87% generic fill rate, but it does give you a floor from which to work.

The older the claim is, the more dollars spent on drugs - 22% of medical expenses for claims in their fifth year are for drugs and that number goes to 36% for twelve year old claims. Implication? the more importance of addressing utilization as early in a claim as possible. If they are getting the wrong drugs early, chances are good they will be getting the wrong drugs for years.

The net is this. Price is not important. Do not select a PBM based on price. Pick the PBM that understands utilization is the issue, understands how to manage utilization, and has programs in place that are clinically-based.

And watch out for those old dog claims!

Joseph Paduda's Weblog, managedcarematters.com, on managed care for group health, workers compensation and auto insurance, covering health care cost containment, health policy, health research, and medical news for insurers, employers, and healthcare providers. Paduda is the principal of Health Strategy Associates.

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