Getting A Grip On Rising WC Drug Costs

Brand-names over generics, big-time marketing programs boostexpenses

Ask most anyone in workers' compensation claims or managed carewhat aspect of medical expense is the most problematic, and theyare likely to start ranting about prescription drugs.

They'll mention headaches brought on by third-party billers,demand for brand-name drugs created by direct-to-consumeradvertising, dynamic pricing levels driven by “average wholesaleprice,” and overuse and off-label use of narcotics and opiates. Andthat's before they get really wound up.

Like it or not–and no one much likes it–we are at the earlystages of prescription drug management in workers' comp. Untilrecently, drug costs were not a significant contributor to overallmedical expense in workers' comp as they accounted for less than 6percent as recently as 10 years ago. Now, drugs account for wellover 12 percent of workers' comp medical expense.

That number gets even more frightening when one considers thatas of 2002, overall workers' comp medical expenses have beengrowing by 12 percent per year. In fact, as of 2003, drug costswere accelerating at an annual rate of 17.8 percent.

These numbers have forced workers' comp payers to focussignificant resources on understanding, and beginning to manage,the use of prescription drugs in treating occupational injuries andillnesses. Some of the early movers are making significantprogress, while most are only just getting started with basicmanagement efforts. Regardless of their status, all are facing thesame set of challenges.

Unfortunately, most payers have yet to recognize and effectivelyaddress key factors driving drug costs, and almost no one hasacknowledged that one class of drugs (the COX-2 inhibitors) maywell lead to significant liability for the industry.

Paying The Price

Payers would be well-served to pay very little attention toper-unit pricing. It is not that price is not a significantdriver–rather that per-unit price is both nebulous due to theAverage Wholesale Price standard and an artifact of other factorsthat should be addressed directly.

AWP is analogous to, but even more vague than, reasonable andcustomary pricing in health care. AWP is the price that drugmanufacturers say their customers paid for specific drugs, beforeaccounting for discounts, rebates, and other accounting, marketingand pricing gimmicks.

Updated on a monthly basis, AWP is the basis for the 28 statesthat have fee schedules for drugs. Thus, AWP–and, by extension, theWorkers' Compensation Fee Schedule–is a moving target, merelyreflecting a per-unit cost, not representing the “real” cost of thedrug, and is therefore a highly questionable basis for assessingprice.

Unfortunately, as bad as it is, AWP is the only basis thatexists for pricing analysis.

Use It Or Lose It

Utilization is the quantity of drugs paid for by the payer for aclaimant. It is distinct from frequency, which refers to the numberof claims for which drugs are paid, as well as the number ofprescriptions per claim. While there is no solid public data ondrug utilization or frequency in workers' comp, there is quite abit of information on type.

Seventy-two percent of scripts are for drugs that are clearlyrelated to musculoskeletal injuries–the most common type ofworkers' comp claim. The surprising statistic is that the thirdmost common drug group is anti-depressants–perhaps equallysurprising is that the ninth most frequently prescribed drug isAmbien (a sleep aid), accounting for over 2 percent of allprescription drug expenditures.

While it is understandable that an occasional claimant may needoccasional help getting to sleep or dealing with injury-inducedanxiety or depression, it is much harder to understand why theindustry chooses to spend several hundred million dollars a year onanti-depressants.

Keep It Generic

Generics are chemically identical to brand drugs whose patenthas expired. As a rule of thumb, increasing the percentage ofgenerics dispensed by one point decreases total prescription costsby one point. Generally speaking, the industry has done a good jobof substituting generics where possible, as generics wereprescribed in 86 percent of the cases where they were analternative in 2002.

According to the National Council on Compensation Insurance inBoca Raton, Fla., 53 percent of workers' comp prescription costswere for drugs that did not have a generic equivalent.

However, that statistic is misleading, as some drugs areprescribed that, although there is no specific generic version,there are other drugs that provide the same benefit. To understandwhy, we'll examine the impact of one of the drug industry's moresuccessful marketing campaigns–COX-2s.

It will likely come as no surprise that two of the top threedrugs for workers' comp are the COX-2 inhibitors Celebrex andVioxx, which together accounted for 13.2 percent of all workers'comp prescription dollars in the study period. Although a marketand profit success, due in part to the huge marketing effort behindthem (Merck alone spent $161 million to market Vioxx in a singleyear), there are two problems with these drugs.

First, a well-documented study in the Jan. 24 “Archives ofInternal Medicine” indicates that only 2 percent of patientsreceiving COX-2s–intended for patients at “high risk” forgastrointestinal side effects–should have taken COX-2 inhibitors.While COX-2s would clearly provide a needed benefit for thesehigh-risk patients, the vast majority of those taking COX-2s wouldhave done just as well with other, much cheaper, generics such asibuprofen.

The implication is striking. If prescribing physicians hadprescribed these drugs appropriately–that is, for patients at riskof gastrointestinal problems–payers would have saved well over $250million.

While the waste of hundreds of millions of dollars is horrificenough, that may be the proverbial tip of the iceberg. Recentstudies have identified an increased risk of cardiovascularproblems for some patients taking COX-2s.

It is highly likely that some workers' comp claimants treatedwith these drugs will develop cardiovascular problems and will lookto the comp insurer to remedy their problem. While lawyers willundoubtedly help assess responsibility, at the end of the day,industry costs will go nowhere but up.

Tackling The Problem

Our research indicates that there has been a marked increase inthe level of understanding among payers regarding prescription drugmanagement. While many workers' comp payers are in the earlystages, others are making significant progress and deliveringstrong results, using tools such as advanced formulary management,physician peer review and data-driven retrospective drugutilization review.

Regardless of where a payer might be on the learning curve, thegreater the level of understanding, the more power they will haveto control drug costs.

Joseph Paduda, a principal of Health Strategy Associates, is anindependent consultant focused in the managed care and workers'compensation markets. He may be reached at 203-314-2632, [email protected].

Infographic: one of the big numbers graphics

Flag: By The Numbers

Got A Headache?

Not all drugs are created equal when it comes to workers' compcosts, with three major types accounting for 87 percent of totalexpenditures.

o 54%–Painkillers

o 18%–Muscle Relaxants

o 15%–Anti-Depressants

“Almost no one has acknowledged that one class of drugs–theCOX-2 inhibitors–may well lead to significant liability for theindustry.”

Joseph Paduda