Non-Formulary Drugs

Closed Formulary Could Decrease Use of ‘N’ Drugs

The recent success of the closed pharmacy formulary in the Texas workers’ comp system shows promise for other states, especially in regions where non-formulary drugs are prevalent.
By: | July 8, 2014

The recent success of the closed pharmacy formulary in the Texas workers’ comp system has caught the attention of practitioners in other states. A new report from the Workers Compensation Research Institute concludes that, all things being equal, other states could see similar results.

Texas was the first multi-payor state to adopt a formulary that requires pre-authorization for certain medications deemed as investigational, experimental, and those with “N” drug status under the Official Disability Guidelines, including many opioids. A study by the Texas Department of Insurance last year showed the formulary resulted in a decrease of about 80 percent in payments made for non-formulary drug prescriptions.

“If other states are able to successfully implement a Texas-like formulary, there is a huge potential for decreasing the utilization of the drugs designated as non-formulary drugs by Texas,” the report says, “which may in turn lead to substantial prescription cost savings in all states, particularly New York.”

The study looked at 23 states in terms of how a closed formulary might affect the prevalence and costs of drugs. Non-formulary drugs — those requiring pre-authorization in the Texas system — were most prevalent in New York.

The Texas study found physicians reduced prescriptions for non-formulary drugs by 70 percent and infrequently substituted formulary drugs for non-formulary drugs in response to the closed formulary. In assessing the potential impact of a closed formulary in the other states, the authors considered various alternative assumptions about how physician prescribing practices might change.

In the scenario where the response of physicians in other states is similar to that of their Texas counterparts, total prescription costs could be reduced by 14-29 percent among the study states with New York on the higher end. “Other states that could realize potential prescription cost savings of 20 percent and higher are New Jersey, Virginia, Massachusetts, Pennsylvania, Connecticut, and Maryland,” the report said. “Even at the lower end, states like California and Missouri might reduce their prescription drug spending by 14 percent.”

Some states may instead see physicians substitute with formulary drugs more frequently than Texas physicians did. “States may realize sizable but lower cost savings if all non-formulary drugs are substituted with other drugs,” the report states. “We estimated that within-class substitution of all non-formulary drugs with formulary drugs may reduce prescription costs by 4 to 16 percent in other study states.”

Cost savings could be greater in states where brand name medications are common. Even if physicians substituted all non-formulary drugs with cheaper generic alternatives, there could be substantial cost savings.

The researchers noted that the formulary is only one aspect of the Texas workers’ comp system that may differ from those in other states. States that do not have a “well-defined” utilization review process might see less cost savings due to the increased litigation.

Nonetheless, the authors said non-formulary drugs were prevalent in the 23 states studied, which could result in at least some cost savings. “States with higher prevalence [of non-formulary drugs] like New York, and Louisiana, have a larger scope for reducing the use of non-formulary drugs. In these states, workers’ compensation payors have an opportunity for more active management of prescribing patterns.”

Nancy Grover is the president of NMG Consulting and the Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at [email protected]

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