Study of Texas Closed Formulary Offers Hope that Prescription Costs Can Be Controlled

Texas Saw Reductions in Both “Non-Preferred” Drug Prescriptions and Overall Prescription Costs

In recent years, a host of workers’ compensation (WC) experts have touted the specialized drug formularies utilized in several states operate as two-edged swords, capable of reducing both (a) the number of inappropriate opioid prescriptions written each year for injured workers, and (b) the overall level of prescription drug costs for WC claims. A recent study published in Economics Letters [See Dillender, Marcus, Ph.D., et al., “The impact of a closed formulary on prescribing patterns in the treatment of injured workers,” Economic Letters, Vol. 145, Aug. 2016, pp. 88–91; doi:10.1016/j.econlet.2016.06.001], suggests that this may actually be the case. The study, which draws on WC administrative data from Texas—which employs a type of closed drug formulary in WC cases—suggests that use of the closed formulary results in almost a 50 percent reduction in prescriptions for “non-preferred” drugs, such as OxyContin and Opana, and a reduction in expenditures for non-preferred drugs of between 40 to 52 percent. Just as important, the study also shows that spending on “preferred” drugs or non-pharmacy medical care does not increase for those same injured workers. The result, the study author argues, is a net savings for the Texas WC system.

Different Types of Formularies

In order to appreciate the implications of the Dillender study, one must first understand a bit about formularies. Generally speaking, there are three types utilized within the WC system:

• • •   Open: This type is a list of all FDA-approved prescription drugs. No drug has a “status,” as such.
  • •   Preferred Drug List: This type of formulary lists prescription drugs that are preferred in WC treatment. Drugs on this list must be used before any prescription is allowed for a drug not so listed.
  • •   Closed: This type of formulary lists all FDA-approved prescription drugs, typically with a “preferred” or “non-preferred” status for each drug.

North Dakota, Texas, and Washington were the first states to adopt WC formularies. Delaware, Oklahoma, Ohio, and Tennessee have recently adopted them and California has passed enabling legislation. The Texas formulary studied by Dillender is closed. It allows the use of all available FDA-approved prescription and nonprescription drugs prescribed and dispensed for outpatient use without preauthorization, except:

• • •   Drugs identified with a status of “N” in the current edition of the Official Disability Guidelines Treatment in WC (there are approximately 150 such “N” drugs). Drugs are generally labeled “N” if (a) persons taking them are likely to become addicted to or abuse the drugs or (b) they are expensive and cheaper alternatives are available.
  • •   Any compound that contains a drug identified with a status of “N” in the current edition of the Official Disability Guidelines Treatment in WC.
  • •   Any investigational or experimental drug for which there is early, developing scientific or clinical evidence demonstrating the potential efficacy of the treatment, but which is not yet broadly accepted as the prevailing standard of care as defined in Texas Labor Code § 413.014)a).

Under the Texas formulary rules, non-preferred drugs may only be prescribed after physicians obtain preauthorization from WC insurers.

The Study’s Methodology

According to Dr. Dillender, the staggered implementation of the Texas closed formulary system presented an important statistical advantage, allowing him to filter unobservable changes from his study results. Accordingly, the study reviewed pharmacy bills from January 2013 to August 2013 for WC claims that began between March 2011 (before the formulary became mandatory) and August 2013 (after that mandatory date).

Study’s Findings

As noted above, the study determined that workers subject to Texas’ closed formulary were approximately 50 percent less likely to receive a non-preferred drug than those workers whose claims were not required to adhere to the closed formulary rules. That decrease in the number of prescriptions of non-preferred drugs resulted in a per-claim savings on spending on non-preferred drugs of between 40 to 52 percent. Dr. Dillender noted that the average percent decrease in spending on non-preferred drugs was only 2.3 to 3.1 percent per person. Dillender said the percentage of decrease per person was so small because the closed formulary rules did not affect the majority of WC claims. For a claim that was affected, however, the decrease in costs was substantial.

While most medical experts would applaud any decrease in the use of non-preferred drugs, such as OxyContin, the WC insurance bean counters would be less than totally enthusiastic if the closed formulary merely prompted physicians to switch their prescriptions from non-preferred drugs to equally expensive drugs on the preferred list. Dillender discovered, however, that this did not occur. In spite of the significant impact of the formulary on prescriptions of non-preferred drugs, there was no observed increase in number of prescriptions for preferred drugs.

Dillender explained that the lack of substitution might be the result of a number of factors:

• • •   Non-preferred drugs might be redundant with preferred drugs
  • •   Non-preferred drugs might serve a unique purpose
  • •   Treating work-related injuries is a complex process within which physicians might opt for a variety of forms of treatment, with non-preferred drugs being just one such approach

Implications of the Study

Dillender indicated his study had two primary implications:

• • •   That a closed formulary, such as that utilized in Texas, could result in lower pharmacy costs for the treatment of work-related injuries and disease conditions, and
  • •   That decreasing the amounts spent within the WC system on some drugs did not necessarily result in an increase in expenditures on other types of medical care.

While Dillender did not specifically mention it, there appears to be a third implication: that careful management by insurers and administrators can calm the explosion in the number of inappropriate opioid prescriptions.

This third implication seems to be borne out by another recent study, “Longer-Term Use of Opioids, 3rd Ed.,” released June 21, 2016, by the Workers Compensation Research Institute. That study, which drew data from more than 300,000 nonsurgical WC claims with more than seven days of lost time over the study period, observed a decrease in longer-term use of opioids among injured workers in 25 states, most of which do not utilize closed formularies like Texas.

Study’s Limitations

As with any study, one must recognize that the data analysis could not answer every relevant question. For example, Dillender allowed that the data, of course, allowed for monetary calculations only. Armed with that data, Dillender was able to compute the number of prescriptions received by the injured workers and the costs associated with those prescriptions. He could not, of course, make any assessment as to the overall well being of the injured workers whose claims were studied. For example, for some injured workers, the savings to the insurance carrier in not being able to receive prescriptions for non-preferred drugs might have been purchased with levels of increased pain. That the insurer was better off financially did not necessarily mean the injured worker enjoyed a true level of better health.

Moreover, since the data contained information related only to prescriptions paid for by WC insurers (and self-insurers) and tracked through the Texas WC system, Dillender acknowledged that there was always the possibility that a claimant secured a supply of non-preferred drugs from another source. Dillender also noted the potential for some statistical bias in his study, that the estimates he presented were the effect of the closed formulary, apart from the announcement of the guidelines themselves. That announcement likely would have had some effect on spend for non-preferred drugs as well.

Additional Study is Necessary

Closed formularies and preferred drug lists are but one type of tool that states have begun to utilize to reduce the number of potentially harmful prescriptions given to injured workers and also to decrease drug costs [for an excellent overview of formularies, including state snapshots, see a report released April 18, 2016, by the IAIABC Medical Issues Committee entitled, “A Discussion on the Use of a Formulary in Workers’ Compensation”]. WC experts expect the list of states utilizing formularies to continue to grow. For example, on February 1, 2016, Tennessee’s closed formulary, which is similar to the Texas model, became effective. It will take some time to accumulate data from the Volunteer state, but at some point, it will be important to determine if the lessons learned in Texas are being translated to other states.

WC experts will likely continue to say that when it comes to reducing the number of problematic prescriptions for injured workers, as well as the associated costs of those prescriptions, states need not resort to a one-size-fits-all approach. If the WCRI study mentioned above shows anything, it is that with or without closed formularies, physicians’ attitudes are changing when it comes to longer-term opioid use. As observed in a recent report by CNBC, more than 80 percent of the global opioid supply is consumed in the United States in spite of the fact that we represent only five percent of the global population. According to the Centers for Disease Control and Prevention, more than 14,000 deaths annually are linked to prescription opioids. We didn’t dig this hole overnight; it may take some time for us to find our way out.

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