Pharmacy Management

Closed Formulary Warrants Careful Consideration

California lawmakers are being cautioned to proceed carefully before instituting a closed pharmaceutical formulary.
By: | March 23, 2015

California’s workers’ comp system could save as much as $420 million per year by instituting a closed pharmaceutical formulary, according to estimates. However, state lawmakers are being cautioned to proceed carefully before implementing such a change.

The estimate from the California Workers’ Compensation Institute last year did lend support for adopting a system where only certain medications are allowed for injured workers without pre-authorization. With a bill introduced in California this year, at least one pharmacy benefit manager is urging the legislature to carefully explore the option.

California Assembly Member Henry T. Perea, D-Fresno, introduced Assembly Bill 1124 last month, following the successful implementation of a similar law in Texas.

“We acknowledge the documented success of the Texas closed formulary in reducing the frequency and cost of the restricted drugs, or ‘N’ drugs, in their system. However, it should also be acknowledged that the legislation has resulted in some unintended consequences,” wrote Brian Allen, president of government affairs for Helios, in a posting on the company’s website. “Data shows that unrelated medications, medications outside of treatment guidelines, and expensive compounded medications are processing within the confines of the Texas closed formulary, thus adding unnecessary cost, and potentially risk, to the system.”

Texas’ closed formulary took effect in 2011 for new injuries and 2013 for all injuries. The Texas Department of Insurance has said the number of new claims with nonformulary drugs requiring pre-authorization decreased by 67 percent after the change was implemented.

The California legislation would “require the administrative director to establish a formulary for the purposes of prescribing prescription medications.” Allen said Helios supports the effort to allow the Division of Workers’ Compensation to “explore a closed formulary solution while giving them the flexibility” to look at the best ways to meet the needs of injured workers and employers.

“Allowing this flexibility will provide a forum for discussion on the various closed formulary models currently in place, while also advancing potential innovations or other enhancements that could help reduce the incidence of prescribing opioids and other problematic medications in the workers’ compensation system in California,” Allen wrote. “A thoughtful development process is not only prudent; it will also allow stakeholders and the DWC to evaluate best practices for managing all medications in a closed formulary environment.”

Allen encourages stakeholders to engage in the discussion but says they should also consider the role PBMs can play. “A closed formulary that fully integrates the tools of a PBM will help ensure the right medications are provided to an injured worker at the right time, while minimizing potential risk or unnecessary medication costs.”

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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