RAND Issues Report on Proposed California Workers’ Compensation Drug Formulary

How might the proposed drug formulary impact California?

Assembly Bill (hereafter “AB”) 1124 required the California Division of Workers’ Compensation (DWC) in California to implement a drug formulary no later than July 1, 2017. The stated impetus for the bill was in response to several concerns. First, there is the well-publicized opioid epidemic. A large segment of the population are addicted to opioids. Second, there is the belief that there are more effective modalities available that are not only cheaper but also don’t lead to either drug dependence or the numerous consequential/societal costs associated with addiction. Third, the utilization review/independent medical review (UR/IMR) process, including the various appeals, takes a large administrative toll and expense. Therefore, the formulary was developed to avoid unnecessary costs to the system which the review system otherwise often entails. Finally, of course, there is an interest in making sure that medically appropriate treatment is provided to those in need.

Anyone familiar with policy discussions in the public arena has likely learned that underlying the policy debate, the advocates are often dealing with their own set of self interests. These interests may or may not play an explicit part of the policy debate. But, the advocates are often motivated by them nonetheless. They often have more to do with how the system operates and the role of the various “shareholders” interested in preserving status quo, than in the supposed policy issues being debated.

Those “shareholders” involved with California workers’ compensation litigation and administration have several underlying interests. Among them, first, there is the perceived, and often genuine, realization that some are in the system to “game” it. Any honest observer must acknowledge the presence of providers who have entered the system looking at it as merely a means to obtain a profit. Their goal is to determine which treatment modalities and/or diagnostic procedures are most likely to get authorized and then to provide them on a mass and often careless matter without discretion. In fact, it was such behavior that has led to much of the calls for reform that have taken place over the last few decades in California workers’ compensation.

Of course, there is also the interest of the injured workers themselves. Their interest is really in obtaining appropriate treatment. When UR first began to be operative and workers were denied necessary treatment, the response of the DWC was that the system works well but the problem was that the providers were ignorant of the protocols to utilize it properly. In other words, if the system were learned properly, injured workers would receive the appropriate treatment. Sometimes it seems as though among the various players involved, this interest is not placed first and foremost, which it should be.

The practice of medicine has also changed dramatically in the last decade. As stated above, the country faces an opioid crisis. There is an understanding that the drug solution is not working. The pendulum has swung from drug oriented therapies to a search for more effective methodologies for dealing with pain. In this mix arose the current infatuation with “evidence based medicine”, which was supposed to provide reliable data for treatment decisions. Indeed, the statistics are quite disturbing in analyzing the efficacy of surgeries as compared to cognitive training. Also, anatomic diagnostic findings by themselves are not always accurate predictors of the need for surgery or treatment outcomes. All of this argues for a more careful analysis as to the best ways of dealing with pain and injury.

Finally, there is at least one more interest which does needs to be considered. That is, that the system remains viable. In the pursuit of cracking down on fraud and or looking for innovative, more effective treatments, the danger is that the most competent providers will flee the system. By providing too much micro management and regulation of costs while minimizing allowable treatment, many of the most competent providers see the system as a less appealing venue for their practices. Profit is not a bad word. Capitalist economies depend on an incentive system. Without appropriate incentives, quality goes down.

With these underlying interests in mind, the latest RAND report entitled “Modeling The Economic Impact of a California Workers' Compensation Formulary” becomes more understandable.

RAND initially issued the first report which studied the efficacy of the “Official Disability Guidelines” (hereafter “ODG”) and their place in utilization review. (See Lexis analysis published in national workers’ compensation newsletter.) That report followed a much earlier and more comprehensive review of various medical guidelines that was written in 2004. The newer and latest report provided mixed conclusions as to the strength and weaknesses of the ODG system which was the sole focus of the analysis. Be that as it may, the “Medical Treatment Utilization Schedule/the “MTUS” in California (which serves as the basis for UR reviews) is being updated this year with American College of Occupational and Environmental Medicine/“ACOEM” (and not ODG) treatment guidelines.

This second in a series by the RAND Corporation attempts to study how the proposed California workers’ compensation formulary would affect California economically. They make several conclusions and provide equally important caveats to their conclusions. Most importantly, they determined that the formulary will reduce prescription drug spending by some 10.4%, translating into $45.4 million. Next, they see a reduction in physician dispensed drugs in large part because of review by payers after the implementation of the formulary. This is projected to produce additional cost additional cost savings. The study also focused on brand versus generic drugs. 4.6% of prescription bill lines and 12.1% of total spending on brand and generic drugs in 2014 were for brand name drugs when an approved generic substitute was available. The figures for non generics are much higher when looking at physician prescribed medications. The new prospective review requirements anticipated changes in prescribing patterns towards generic drugs in specific classes where brand-name prescribing is relatively common.

RAND is extremely careful to note that there is range of possible outcomes that varies from their predictions.) Also, after making their various findings and projections, RAND is also quite careful to express significant caution. “We stress that the estimates in this report are based on multiple overlapping assumptions and are therefore subject to considerable uncertainty.…There is little in the literature to guide our assumptions regarding the impact of implementing an entirely new formulary in the Worker’s Compensation context.” Their attempts to extrapolate data from the Texas experience to the California workers’ compensation context was complicated by the independent variables of changes in treatment guidelines and differences in formulary design.

Finally, returning to specific recommendations made by RAND in this study, it is important to keep in mind the various interests of the “shareholders” highlighted above. RAND recommends the necessity of “monitoring unexpected effects of the policy.” They express concern about prescriber behavior changes in “response to growing familiarity with the formulary and PR (prospective review) process.” They believe that monitoring should be focused on rapid growth in prescribing, noting spending for specific categories of drugs that could “signal a behavioral response on the part of prescribers.”

All of this is relevant to the unstated concern of providers learning to “game” the system. Essentially, they are stating that they are afraid providers may learn ways to manipulate the system to serve their own ends. However, on the other hand, it is crucial to realize that the ultimate goal is in fact to utilize whatever system exists properly. Remember the response to the UR complaints of the applicant bar, that the goal in fact was to actually learn how to use the system properly? If providers learn to prove to manipulate the system within the rules allowed, this is not necessarily a bad thing nor is RAND necessarily saying it is. Assuming that the system is trying to promote appropriate treatment, the goal should in fact be for providers to learn how to utilize the system for the workers’ benefits. Yet, one needs to balance that with the history of unsavory providers attempting to manipulate things, which has resulted in the need for reform altogether.

Finally, RAND also recommends monitoring “changes in nondrug services”. Here, we have some hint at the evolution of how medicine will be provided in the future. The goal is not simply to cut expenses, but to keep the worker in mind by providing the most efficacious modalities presently known. In other words, “monitoring” is not synonymous with making a policy decision that necessary evolutions in medicine are against the public interest.

We now await the third report which will describe the monitoring framework for tracking the actual impacts of implementing the drug formulary. Stay tuned.

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