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Observations in Workers’ Comp

ODG Drug Formulary and the NCCI StudyAs the workers’ compensation industry emerges from (learns to live with?) COVID-19, stakeholders are finding many of the same pharmaceutical issues we thought we left behind in 2019. In many states, opioids, compounds, topicals, and poorly controlled drug costs are back on the radar. Among the questions accompanying them is “to formulary or not to formulary?”

In Pennsylvania, where the Governor vetoed a formulary bill in 2018, Representative Ryan Mackenzie has filed HM 36445, re-urging a proposal for the state’s Department of Labor and Industry to adopt an evidence-based drug formulary for workers’ compensation. Rep. Mackenzie’s memo states:

Although the COVID-19 pandemic has overshadowed the opioid crisis for the last year, Pennsylvania is still a national leader in overdose deaths. The Morning Call recently reported that the commonwealth is third in overall deaths and sixth in the number of deaths per 100,000 residents. The construction industry has been hit particularly hard. A January 5 Wall Street Journal article cited a 2019 Barclays Research report that found workers in the construction industry were six times more likely to become addicted to opioids than workers in other manufacturing, industrial, and service industries.

In Illinois, the general assembly continues to ponder Representative Dan Ugaste’s HB3558. Under that bill, the Illinois Workers’ Compensation Commission would implement an evidence-based formulary. In Alaska, the Workers Compensation Board established a workgroup to assess evidence-based medicine. As these states and others consider ways to address pharmaceutical issues in workers comp, legislators, regulators, and stakeholders are asking about the potential impact of drug formularies. A recent report from the National Council on Compensation Insurance (NCCI) hints at potential answers.

Formularies are routinely used by healthcare payors of all stripes to assess the propriety of prescribed medications. In some healthcare settings, it’s predominantly about price, but in workers’ compensation, it’s a question of medical necessity and better patient outcomes. What medicines are “reasonable and necessary” and will expedite quicker recovery and return to work?

Since 2011, seven state workers’ compensation systems have adopted ODG’s closed drug formulary to identify drugs that should be pre-approved versus those warranting more scrutiny. NCCI’s recently published report, “Drug Formulary Implementations – a Look at Impacts on Workers Compensation Prescription Drug Experience,” Moss, Robert, and David Colon (December 2021), considers the impact the ODG drug formulary is having in the five most recent state adoptions – Tennessee, Arizona, Indiana, Kentucky, and Montana.

THE ODG DRUG FORMULARY

The ODG Drug Formulary includes over 350 drugs commonly used to treat work injuries. Relying on scientific medical evidence, the formulary distinguishes preferred, “front line” medications shown to correlate with positive outcomes, from secondary medications lacking such evidence or known to be of considerable risk. The former are designated as “Y-drugs.” While still subject to retrospective review for medical necessity (using the treatment guidelines), they should be approved as dispensed without a requirement for obtaining prior authorization. The latter are “N-drugs” for which ODG recommends (and ODG states require) prior authorization even for cases where they may be shown to be medically necessary.

“N-drugs” will typically be denied if the required prior authorization was not requested. However, where pre-authorization is properly requested, they will be reviewed for medical necessity using the ODG treatment guidelines and may be approved or denied based on the ODG criteria. “Y” Status does not mean Yes forever, nor does “N” mean Never. It’s simply a designation of preferred or non-preferred, with nonpreferred drugs requiring extra oversight steps – i.e. a prior authorization requirement – creating an incentive for providers to use “Y-drugs” where appropriate and available.

An “N” designation gives both the prescribing healthcare provider and the claim administrator advance notice that extra scrutiny should be given to ensure a prescribed medication is appropriate. Like evidence-based treatment guidelines generally, the goal of the formulary is to facilitate communication, reduce treatment delays, and deliver proper healthcare with better outcomes for both injured workers and employers.

THE NCCI STUDY

In their recent report published in December of 2021, actuaries Robert Moss and David Colon relied on data from NCCI’s Medical Data Call to assess, inter alia, changes in drug prices and utilization in five states that have recently adopted the ODG Drug Formulary.1 The authors focused on N-drug trends, comparing data from each of the study states to jurisdictions that have not implemented a formulary. Acknowledging that the data is still developing – particularly in Indiana, Kentucky, and Montana, all 2019 adopters – the report establishes a solid baseline for future comparison. Nonetheless, even with data reflecting only partial implementation in most cases, the emerging impact of the formulary is evident and positive.

Tennessee

At the direction of the state General Assembly (SB200, 2013), the Tennessee Bureau of Workers’ Compensation implemented the ODG medical treatment guidelines and closed formulary effective in 2016.2 The treatment guidelines were adopted in early 2016. The formulary became effective for new prescriptions on August 28, 2016, and for all prescriptions six months later.  In assessing the impact of the formulary, NCCI researchers compared the three full years following implementation, as follows:

  1. Post-Reform 1 (9/1/16 – 8/31/17) – including partial implementation for the first six months
  2. Post-Reform 2 (9/1/17 – 8/31/18) – the first year of full implementation
  3. Post-Reform 3 (9/1/18 – 8/31/19) – second year of full implementation

The data shows multiple positive shifts in Tennessee’s system after the formulary was put in place. While prices for both Y-drugs and N-drugs remained stable, overall utilization of prescription drugs decreased across the board, driven by reductions in N-drug usage. From Post-Reform 1 to Post-Reform 3, N-drug prescriptions per claim decreased by a cumulative 19%. Overall, the share of claims with one or more prescription drugs decreased three full percentage points, from 37.2% to 34.2%.

Particularly notable are the changes NCCI observed from Post-Reform 1 to Post-Reform 2, when the formulary became applicable to all claims. During that time, the use of N-Drugs in Tennessee decreased by 20%, double the decrease in N-Drug usage observed in non-formulary states.  From Post-Reform 2 to Post-Reform 3, N-drug usage decreased an additional 13%. Utilization of Y-drugs decreased as well but at a slower rate consistent with national trends.

Opioid use also decreased in Tennessee following the implementation of the formulary. While the decrease was consistent with trends in non-formulary states, it should be noted that prior to the ODG adoption, Tennessee already compared favorably with other states regarding opioid usage. WCRI’s Interstate Variations in Use of Opioids, 4th Edition (V. Thumula, D. Wang, T. Liu, 2017) reflects that for the period 2013-2015, Tennessee had the 7th lowest MEA (morphine equivalent amount) per claim with opioids out of 26 study states. Thus, post-formulary decreases came in a system that was already low for opioid utilization relative to other states.

Arizona

Arizona House Bill 2368 (2012) directed the state Industrial Commission to adopt treatment guidelines by the end of 2014. Pursuant to a working group’s recommendations, the Commission ultimately adopted the ODG treatment guidelines and closed drug formulary.3 The formulary became effective for opioids and drugs used for chronic pain management on October 1, 2016, and to all claims and treatments effective October 1, 2018.  In assessing the impact of the formulary, NCCI researchers again compared three time periods:

  1. Post-Reform 1 (10/1/16 – 9/30/17) – the first year after adoption, limited to opioids and chronic pain management medication
  2. Post-Reform 2 (10/1/17 – 9/30/18) – second year after adoption, still limited to opioids and chronic pain management medication
  3. Post-Reform 3 (10/1/18 – 9/30/19) – third year after adoption, the first year of general application

As in Tennessee, the data reflects significant positive changes accompanying the implementation of the ODG Drug Formulary. Most notable, Arizona also saw large decreases in N-drug usage. Through the first three years under the formulary, N-drug utilization decreased a total of 41% compared to a 27% decrease in non-formulary states. The change was driven by a 25% decrease in the percentage of active claims with at least one N-Drug prescription, versus a 17% decrease in non-formulary states. Y-drug usage also decreased in Arizona at a rate comparable to non-formulary states.

Opioid usage decreased substantially more in Arizona compared to non-formulary states. During the study period, opioid utilization decreased 34% in Arizona from Post-Reform 2 to Post-Reform 3, a full 10 percentage points more than the decrease observed in non-formulary states. Pre-formulary, opioids represented 29.3% of total pharmaceutical costs in Arizona. By October of 2019, that share had decreased to 16.5%. Overall, by the end of the study period, Arizona saw a decrease in total drug costs per claim one-and-a-half times the decrease seen in non-formulary states.

Indiana

In 2018, Indiana’s General Assembly passed SB369, specifying that pharmaceuticals are to be prescribed to injured workers pursuant to the ODG closed drug formulary. Unlike Tennessee and Arizona, Indiana did not adopt the ODG treatment guidelines and does not utilize any treatment guidelines in its workers’ compensation system.4 The formulary became effective for new prescriptions on January 1, 2019, and for all prescriptions one year later. To assess the initial formulary impact, NCCI compared three data periods:

  1. Baseline period (1/1/17-12/31/17) – two years prior to implementation of the formulary
  2. Pre-Reform period (1/1/18 – 12/31/18) – the year prior to implementation
  3. Post-Reform period (1/1/19 – 12/31/19) – the first partial year of the formulary, applicable to new prescriptions but not legacy claims

The Indiana data does not yet reflect the full implementation of the formulary. Nonetheless, the system is already seeing positive results. From Pre-Reform to Post-Reform, the state saw a 24% decrease in N-Drug usage compared to a 15% decrease in non-formulary states. The change was driven by a 19% decrease in the percentage of claims with at least one N-Drug prescription (almost three times the 7% decrease seen in non-formulary states during that period).

Opioid utilization has also decreased significantly post-formulary. While the decrease is similar to that seen in non-formulary states, Indiana was already at or below the median state regarding opioid usage. According to WCRI’s Interstate Variations in Use of Opioids, 4th Edition (V. Thumula, D. Wang, T. Liu, 2017), for the period 2013-2015, Indiana was the 9th lowest average MEA per claim with opioids among 26 states studied. Thus, the reduction of opioids in Indiana has occurred in a system with already lower opioid utilization relative to its sister states.

Total costs for N-Drugs in Indiana decreased 25% following implementation of the formulary, compared to a 14% decrease in non-formulary states. Overall, the share of costs attributable to N-Drugs in Indiana decreased from 27% during the baseline period to 21% post-reform. Those changes come even with a dataset that does not yet reflect the full formulary implementation in 2020.

Kentucky

HB2 (2018) directed the Kentucky Department of Workers’ Claims to adopt evidence-based medical treatment guidelines and a closed drug formulary. Following public hearings, the Department selected the ODG treatment guidelines and formulary. The formulary became effective July 1, 2019, for claims arising on or after January 1, 2019. For claims arising prior to 2019, the formulary became effective July 1, 2019, for new prescriptions and January 1, 2020, for refills of existing prescriptions.5 NCCI researchers again considered three periods to assess the formulary impact:

  1. Baseline period (7/1/18 to 12/31/18) – the final six months of 2018
  2. Pre-Reform period (1/1/19 to 6/30/19) – six months preceding formulary implementation
  3. Post-Reform period (7/1/19 to 12/31/19) – initial six months of partial formulary implementation, but prior to full implementation on 1/1/20

Even with only partial implementation, Kentucky saw a 13% decrease in total drug costs in the Post-Reform period, compared to an 8% reduction in non-formulary states. Active claims with at least one N-drug prescription fell 7% in Kentucky, compared to a 1% increase in nonformulary states. Opioid use decreased by 8%. While less than the 11% reduction seen in non-formulary states, that decrease was on the heels of a more than 50% decrease in opioid utilization during the four-year period from 2012/14 to 2016/18 resulting from prior reforms.6

Montana

Under Title 39, Chapter 71, Section 39-71-704 of the Montana Code, the Montana Department of Labor and Industry is responsible for establishing evidence-based treatment guidelines. Since 2011, the state has relied on its own treatment guidelines. Effective April 1, 2019, Montana began implementing the ODG closed drug formulary for new claims. For claims arising prior to the effective date, prior authorization for N-Drugs was not required until April 1, 2020. Prior authorization of N-drugs is not necessary in any case if the prescription is written within seven days of the work accident and is limited to a seven-day supply. To assess the impact of the formulary, NCCI researchers analyzed the following three time periods:

  1. Baseline period (4/1/17-12/31/17) – two years pre-formulary
  2. Pre-Reform period (4/1/18-12/31/18) – one-year pre-formulary
  3. Post-Reform period (4/1/19-12/31/19) – one-year post partial formulary implementation, applicable to new claims only and subject to a seven-day exception

Perhaps due to the more gradual implementation for legacy claims and the seven-day exception, the formulary’s impact was less pronounced in Montana compared to the other study states. Drug prices, utilization, and costs all decreased, but the changes were comparable to non-formulary states. The use of N-drugs actually increased slightly from the Pre-Reform to the Post-Reform period, although the overall share of claims with prescription drugs dropped.

Given that the NCCI report covered only partial implementation of the formulary, it remains to be seen what the ultimate impact will be in Montana. If Montana follows the path of Tennessee, Arizona, and other states that have adopted the ODG Drug Formulary, N-drug usage can be expected to decrease as the formulary is expanded to include legacy claims. Likewise, the shift to more proven and preferred Y-drugs is likely to be accompanied by reduced costs and better outcomes for stakeholders.

CONCLUSION

Recognizing the limited data set, NCCI emphasizes that its report is “largely observational, rather than inferential.” Certainly, the full impact of formulary adoption cannot be assessed until the full implementation has occurred and sufficient time has passed for the changes to be fully embedded in each state system. Nonetheless, the report is good news for jurisdictions adopting ODG.

At its core, the ODG Drug Formulary helps healthcare providers and claims professionals identify front-line medications proven to correlate with good outcomes, while still allowing for secondary drugs based on proper documentation and utilization review. The result is less UR friction and less time spent on bad medicine. Better medicine means faster recovery for injured workers. And faster recovery means better outcomes for all comp stakeholders.

– Patrick Fox Robinson, Vice President of Government Affairs, ODG by MCG. Published February 3, 2022.

The information contained in this article concerns the ODG guidelines (or solutions) as of the date of publication, and may not reflect revisions made to the guidelines (or solutions) or any other developments in the subject matter after the publication date of the article.

Image courtesy Shutterstock/Towfiqu ahamed barbhuiya

References:

  1. Moss, R. and Colon, D. (2021, December 14). Drug Formulary Implementations—A Look at Impacts on Workers Compensation Prescription Drug Experience. NCCI Research Brief. https://www.ncci.com/Articles/Documents/Insights-Research-Brief-Formulary-Post-Reform.pdf
  2. Tenn. Code Ann. § 50-6-124. Tennessee Code §50-6-124 directs the BWC Administrator to “adopt guidelines for the diagnosis and treatment of commonly occurring workers’ compensation injuries.”
  3. See Article 13 of the Arizona Administrative Code, §R20-5-1301.
  4. Under Indiana Code §22-3-3-4, employers are required to furnish “such services and products as the attending physician or the worker’s compensation board may deem necessary.”
  5. The ODG treatment guidelines did not become effective for Kentucky until January 1, 2021, after the NCCI study period.
  6. Thumula, V., D. Wang, T. Liu, “Interstate Variations in Use of Opioids, 4th Edition,” (WCRI, June 2017)

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