Injured Worker’s Guide to Drug Formularies in Workers’ Compensation

Understand what formularies are, which states have them and examples of prescription drugs that are regulated when it comes to work injury claims

“Formularies” have long been used by Medicare, Medicaid, and private health insurance companies to dispense prescription medication. But now, more states are exploring implementing drug formularies as a cost-savings measure in the administration of workers’ compensation claims.

Formularies are used to provide information to physicians, pharmacists, and patients regarding drugs that are automatically covered by a paying entity. However, the danger of formularies is that they are often used as a substitution for a treating physician’s experiences and recommendations based on each patient’s unique needs.

An injured worker should receive the least expensive, effective medication for his or her condition. A prescription drug formulary can be a useful guide to medical providers in determining the appropriate medication for an injured worker, including cost-effectiveness. The processes established to implement a formulary should recognize that each person, and therefore each claim, is different and that the treating medical provider is generally in the best position to determine the most effective treatment for his or her patient.

Supporters of evidence-based formularies seek to change prescribing patterns of treating physicians when it comes to treating pain. They allege that formularies provide guidelines at the prescribing level about which drugs are “appropriate” for the workers’ compensation system.

However, the development and implementation of formularies can vary widely among different payor sources. The Medicare formulary is developed and administered by the federal government. Most health insurance companies have their own proprietary formularies.

For example, the ODG (more on this below) is a commercial product that is marketed by the Work Loss Data Institute (WLDI) for those states and private payers who are looking into implementing a formulary without going through the process of developing a formulary of its own. The American College of Occupational and Environmental Medicine (ACOEM) publishes another “off the shelf” formulary similar to the ODG.

If you live in North or South Carolina and have questions about drug formularies and how they might impact your workers’ compensation claim, we invite you to reach out to knowledgeable attorneys at the Wilder Pantazis Law Group.

In the meantime, continue reading to learn more about formularies—starting with some basic definitions.

What is a drug formulary?

Other drug formulary definitions and glossary

• Compounding. When a provider or pharmacist alters a drug to better meet the individual needs of a single patient, typically a single or small-batch compound; a compound cannot be marketed as a product and cannot be sold beyond the single patient. Compounds are not on formularies.
• Closed formulary. A list of FDA-approved drugs covered by a health plan with or without pre-approval. Closed formularies are comprised of Y drugs and N drugs. If it’s a Y drug, then no pre-approval is necessary. If it’s an N drug (or a Y drug for off-label use), then it will require review by a paying entity before it will be covered.
• Evidence-based medicine (EMB). An approach to the practice of medicine intended to optimize decision-making by physicians by emphasizing the use of empirical studies and research. EMB is often intended to substitute clinical guidelines for the experience and judgment of a treating physician.
• “N” drug. A drug that requires pre-approval from a payor.
• Official disability guidelines (ODG). A medical treatment and return to work guideline used by health insurance carriers, TPAs, and workers’ compensation carriers. Despite the “official” sounding name, the ODG is published by a commercial entity supported by the insurance industry and is not affiliated with any governmental agency.
• Open formulary. A system whereby a health plan may cover the cost of all eligible prescription drugs. Most workers’ compensation systems are open formularies where the drug is approved if prescribed by the treating physician.
• “Y’ drug. A drug that may be dispensed without pre-authorization or prior approval, but may be subject to later review.
• Work loss data institute. Publisher of the ODG whose mission statement is to “apply evidence-based medicine to improve healthcare outcomes.”

Which states have workers’ compensation drug formularies?

A growing number of states have implemented ODG, ACOEM or state-specific drug formularies in workers’ compensation. These states include:

Many other states including North Carolina, Illinois, Massachusetts and Pennsylvania have considered or are currently considering developing formularies.

After reviewing the WCRI policy papers and North Carolina Industrial Commission recommendations to the NC General Assembly, here’s our analysis of a handful of those states.

Texas, Oklahoma, North Dakota and Arizona use the ODG formulary

The Texas model has been implemented the longest and studied the most.

In Texas, once the formulary was enacted, the prescription costs for non-formulary drugs dropped 70% with a 0% non-formulary substitution. This resulted in an 83% cost reduction in non-formulary drugs. The WCRI study praises this outcome as a major cost saver.

Aside from the creation of the formulary, this cost savings could be because doctors in Texas didn’t want to go through the hassle of pre-authorization, so people are going without their prescriptions instead of a generic or formulary substitute.

What’s more, the Texas Workers’ Compensation Board said that this did not result in an increase in complaints nor many appeals (only 118 appeals, of which only 62 were successful since implementing formulary). The Texas Department of Insurance assumed that the reduction in the use of non-formulary drugs was an improvement in patient care.

Texas officials say that so few appeals is an indicator of success and effectiveness of formulary—or it could be because there are relatively few workers’ compensation lawyers in Texas

Ohio and Washington

Ohio and Washington administer single-payer systems and have created their own formularies.

In Ohio, once a formulary was adopted, opioid prescriptions reduced by 25% and muscle relaxers by 74%. However, Ohio did not necessarily endorse formularies and evidence-based medicine going hand in hand.

In Washington state, only 8% of all prescriptions were for brand names. Washington endorses the implementation of evidence-based treatment guidelines along with a formulary.

North Carolina

North Carolina studied the concept of a formulary, with the North Carolina Industrial Commission issuing a report to the General Assembly. However, North Carolina did not adopt a workers’ compensation formulary.

Instead, the state implemented Opioid Utilization Rules. These rules, which became effective on May 1, 2018, were created by a task force chaired by the North Carolina Industrial Commission and comprised of stakeholders from the medical community, plaintiff’s bar and defense bar.

This approach could be a model for other states who are combatting the use of the ODG or ACOEM formulary.

California

California adopted a workers’ compensation drug formulary, which became effective on January 1, 2018.

The regulations establish an evidence-based drug formulary, consistent with California’s Medical Treatment Utilization Schedule (MTUS).

Nebraska

On January 22, 2019, Nebraska introduced L.B. 487, which would require the adoption of an evidence-based formulary for controlled substances. If the drug is listed on the formulary, then no prior authorization by workers’ compensation payers would be required. But prior authorization would be required before controlled substances that are not included on the formulary could be prescribed to injured workers.

Opponents of the bill pointed out that Nebraska had taken steps such as physician education, photo ID requirements and other measures to curtail opioid abuse, rendering a formulary unnecessary. The measure was indefinitely postponed in August 2020.

Massachusetts

Massachusetts created its own Opioid/Controlled Substance Protocol, which was adopted on October 8, 2015.

New York

The state of New York released the first edition of its “Non-Acute Pain Medical Treatment Guidelines” on May 27, 2014.

Indiana

In the 2018 session, Indiana adopted Senate Bill 369, implementing a workers’ compensation and occupational disease compensation drug formulary based on the WLDI’s Official Disability Guidelines (ODG). The law went into effect for new claims on January 1, 2019, and for legacy claims on January 1, 2020.

Formularies, opioids and brand name drugs

Proponents of formularies cite the rising cost of brand-named drugs and the over-prescription of opioid medication to treat chronic pain as primary reasons for the need for drug formularies in workers’ compensation.

Types of drugs/costs

The ODG separates drugs into “Y” drugs and “N” drugs. If it’s an “N” drug, then pre-authorization is necessary. If it is a “Y” drug, then pre-authorization is not necessary.

Examples of “N drugs” include:

In addition, all brand-named drugs with a generic equivalent are included as “N” drugs. Common examples include:

However, MS-Contin is the only long-acting Schedule II drug list as a “Y” drug on the formulary.

According to the WCRI analysis entitled “Impact of a Texas-Like Formulary in Other States” (published in June 2014), 15 drugs accounted for 75% of all non-formulary spending, of which Lidoderm (lidocaine patches) was the most costly, followed by OxyContin, Nucynta, fentanyl patches and Opana.

The most common non-formulary drug prescribed was Voltaren, followed by Lidoderm and OxyContin. The top 3 non-formulary cost drivers were opioids, topical analgesics and brand names. The study also concluded that brand-named drugs cost 80-85% more than generic drugs.

Practically speaking, only a few drugs (OxyContin, Voltaren, Lidoderm, Opana and fentanyl patches) seem to account for most of the prescribed drugs and costs. One conclusion from this analysis is that rather than a strict, closed formulary, the best solution to high drug costs in workers’ compensation claims is to deal with the opioid issue from a holistic medical perspective that treats pain with alternative treatments.

Policy considerations

Formularies discourage the prescription of addiction-forming opioids with a first-line treatment of acetaminophen or NSAID. If the NSAID does not work, then an opioid might be approved. In Texas, the following drugs are NOT recommended for first-line therapy:

The Texas formulary discourages opioid prescriptions at the initial diagnosis of low back pain.

The use of formularies is also meant to discourage doctor-dispensed drugs. Some states such as Massachusetts, New York and Texas prohibit physicians from dispensing drugs at all. The WCRI report estimates a 15-20% drop in prescription drug costs if physician dispensing was discouraged.

Drug formularies and compounds

As defined in the glossary section, “compounding” is when a provider alters a drug that better meets the individual needs of a single patient and cannot be sold beyond the single patient. Manufacturing, on the other hand, is made with industrial equipment and marketed to a large scale population.

Sometimes the health needs of a patient cannot be met by FDA-approved drugs, so a compound is necessary. For example, perhaps a drug needs to be converted to a liquid for a patient who can’t swallow, or a patient is allergic to a specific element of a drug. Or perhaps drugs from a manufacturer may be “on back-order,” so a physician needs to make it.

Even if a provider uses FDA-approved elements, the compound itself is not FDA-approved and is therefore not listed on an open formulary. Compounds are not tested for efficacy or safety, and pharmacies are not required to report adverse effects to a compound to the FDA, as they are with manufactured drugs.

Critics of compounds cite safety concerns when a drug is approved for oral use but not topical use. Other concerns may be if dosages are not appropriate or safe, or if the elements in compounds may be duplicative and thus the drug has an effective higher dosage. Overall, drug interactions can be unknown in compounds

In addition, there are high costs associated with compounds because most pharmacists or physicians who dispense compounds use high-cost ingredients. Supporters of drug formularies allege that pharmacists and physicians may specifically use higher-cost ingredients to maximize reimbursements.

Formulary proponents also cite a need for cost containment and a reduction in physician-dispensed compounds as another reason to adopt a formulary for prescription drugs.

But there are legitimate needs for compound drugs in some instances, and those uses should be permitted under a state’s workers’ compensation system.

Proposals regarding use of formularies in workers’ compensation claims

A prescription drug formulary should act as a guide to medical providers in determining the appropriate medication for an injured worker. The goal should be to provide an injured worker with the least expensive, effective medication for his or her condition.

In our view, the following principles should be applied when it comes to drug formularies:

• The formulary should be regularly updated to reflect currently available medications.
• Updates to the formulary should not be subject to administrative rulemaking.
• There should be automated, immediate approval of prescriptions by authorized treating providers for medications that are on the formulary and are prescribed for “on-label” use for an accepted condition.
• In circumstances where the authorized treating provider prescribes a medication for an accepted condition that is not on the formulary, or a medication that is on the formulary but for “off-label” use, then the carrier/TPA should approve a 7-day supply of the medication.
• When a carrier/TPA believes that a prescription is for a condition that is not accepted, the carrier/TPA should approve a 7-day supply of the medication.
• When a carrier/TPA wishes to deny further prescriptions after approving an initial 7-day supply, it should immediately notify the state workers’ compensation board (or a third-party decision-maker) and the injured worker of its intent to do so.
• Upon receipt of notification from a carrier/TPA that it intends to deny subsequent prescriptions, the state workers’ compensation board should consider the matter and issue a decision within a reasonable number of working days. If the state workers’ compensation board determines that the prescription should be approved, then the carrier/TPA should be able to appeal the determination for a full evidentiary hearing, but shall timely approve subsequent prescriptions in the interim.
• Workers should not be required to pay a “copay” for medications provided pursuant to their state’s workers’ compensation laws.
• Workers who have been receiving a prescription prior to the adoption of a formulary should be allowed to remain on that medication if prescribed by their authorized medical provider unless, in the judgment of the medical provider, it would be medically beneficial to transition the worker to a formulary medication.
• The formulary should not apply to emergency or inpatient settings.

Report of Findings and Recommendations of the North Carolina Industrial Commission Regarding the Implementation of a Drug Formulary in Workers’ Compensation Claims (April 1, 2016); https://www.ic.nc.gov/NCICDrugFormularyStudyReport.pdf

https://www.ic.nc.gov/OpioidRulesResourcePage.html

Texas-Like Formulary for North Carolina State Employees; Workers Compensation Research Institute (March 2016)

Thumula, V., and T. Liu. 2014. Impact of a Texas-like formulary in other states. Cambridge, MA: Workers Compensation Research Institute.

Ohio Bureau of Workers’ Compensation. 2015. Fiscal year 2014 report. Columbus, OH.

Goldberg, Stephanie, Trend Toward Closed Drug Formularies Continues, Business Insurance (February 18, 2016); www.businessinsurance.com

Riordan, Kate, Drug Formularies Continue to Expand in Workers’ Comp Systems, Verisk (August 14, 2018) https://www.verisk.com/blog/drug-formularies-continue-to-expand-in-workers-comp-systems/