The cost of brand-name prescription drugs used to treat workers' compensation injuries are being inflated in many states because of a reliance on a flawed and inconsistent benchmark.
There are, of course, a number of elements that drive medication costs, including unnecessary, improper and expensive branded drug use-factors that can be controlled by a pharmacy benefit manager.
But one factor considerably driving up the numbers is significant inflation of one particularly critical benchmark--the Average Wholesale Price--used in a majority of states for determining workers' comp standard reimbursement rates.
The inflation rate of AWP has been well documented in the American Association of Retired Persons "Watchdog Report," which monitors pharmaceutical pricing. However, these increases represent the cost of medications commonly used by group health organizations, including treatments for high cholesterol, depression and high-blood pressure.
In contrast, the top-five medication classes in workers' comp include narcotic analgesics, anticonvulsants, anti-inflammatory drugs (NSAIDs), muscle relaxants and antidepressants.
Since workers' comp reimbursement relies heavily on the AWP as a benchmark for reimbursement, the AWP inflation rate for the typical medications for the injured worker requires further review.
There are important drawbacks with using AWP as a standard.
o Each source of published AWPs (Redbook, Medispan, First Data Bank) uses their own methodology to determine the AWP. As a result, the AWPs are not always consistent.
o AWP is not necessarily related to the acquisition costs and contracted rates at the pharmacy level. The availability of discounts below the state mandated workers' comp rates are not available to the payer. Therefore, the AWP inflation rate is much more critical in the workers' comp industry.
To measure the impact of AWP inflation in the workers' comp industry, the top brand name and generic medications by dosage strength were reviewed for changes to the AWP between Jan. 1, 2006 and Jan. 1, 2007. The source of the AWP prices was Medispan.
Of the top 651 generic products, only 10 products experienced a change in price. Four had AWP increases ranging from 8.3 percent to 83 percent, and six had AWP decreases ranging from 0.2 percent to 18.4 percent.
Because these transactions only account for 1 percent of the 2.2 million transactions for generic medications, it can be reasonably stated that the AWP for generic medications did not increase in 2006.
AARP reports that the price of generic medications decreased 2 percent during the 2006 calendar year. Similarly, Caremark reported an average decrease of 1.2 percent for generic medications. Therefore, there is no change in the average cost per prescription for generic medications dispensed under workers' comp rates.
Of the top 307 brand-name medications, 265 had an increase in the AWP. There were no brand-name drugs that had a decrease in the AWP price.
The average brand-name increase was 10.8 percent, with a range of 2 percent to 134 percent. AARP reports that the price of brand-name medications increased by 6.2 percent during the 2006 calendar year. Similarly, Caremark reported a 7.9 percent increase in the brand-name AWP in 2006.
Therefore, the inflation rate of 10.8 percent for brand-name drugs was substantially higher than both the standard inflation index and the AARP-predicted inflation rate, resulting in higher costs per prescription even when utilization is stable.
Utilization or total number of prescriptions is often cited as one of the major drivers of workers' comp medication costs. However, selection of the actual medication used (brand versus generic, formulary versus nonformulary) is also a significant driver in total costs.
For example, an injured worker could feasibly receive nearly two generic prescriptions for the same cost as one brand-name medication. Such a worker would have a higher utilization based on number of prescriptions but a lower total cost.
The impact of these AWP increases to the workers' comp industry is that patients receiving only brand-name medications will incur a significant increase in total costs even when there is no increase in utilization.
The 10.8 percent increase in the AWP for brand-name medications in workers' comp was higher than both the general inflation rate of 3.7 percent and the AARP-calculated inflation rate of 6.2 percent.
The stable AWP for generic medications in workers' comp was also higher than both the AARP-calculated rate of negative-0.7 percent and the Caremark rate of negative-1.2 percent.
So the focus on reducing total costs should not only be on decreasing utilization but also on driving medication use toward generic medications over brand-name medications.
Since AWP-based pricing results in higher inflation rates for medications, the workers' comp industry needs to move toward a base model that is more reliable and cost conscious, such as state Medicaid rates. At this time, medication costs in workers' comp continue to rise without an appropriate standard in place.
The opportunity to control costs remains in controlling the amount and type of medications used by injured workers through effective patient-specific clinical analysis and by heavily pushing the use of generic medications--when available.
The transition of injured workers from a retail pharmacy program to a mail-order program will also yield considerable cost savings. A strong PBM will focus on all of these cost-containment elements to offset the inflation rate of AWP and effectively manage all aspects of medication utilization.
Finally, a better understanding of the driving factors in prescription costs, utilization and trends will ultimately drive down costs of individual workers' comp claims and have a significant positive impact on the industry as a whole.
