WC Research

Study Says Rx Fee Schedules Don’t Fully Explain Costs

NCCI’s latest findings reinforce the assertion that there are adverse effects when Rx fee schedules are set too high.
By: | October 19, 2015

“States with similar workers’ compensation prescription drug fee schedules do not necessarily have similar prescription drug prices paid,” according to the National Council on Compensation Insurance. That is one of the key findings in a new report that reviews the impact of fee schedules on controlling medical costs.

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The data used is from NCCI’s Medical Data Call experience evaluated March 2014 for services provided between Jan. 1, 2011, and Dec. 31, 2013, in 42 states. The study looks at the impact of fee schedules on prescription drug costs, specifically, fee schedules based on average wholesale price (AWP).

“AWP-based state Rx regulation establishes a maximum AWP multiplier and a maximum dispensing fee. For a given state, multipliers and dispensing fees might vary according to the type of Rx, e.g., brand vs. generic,” the NCCI report says. “The main question this research is seeking to answer is: Do AWP based Rx fee schedules have an effect on Rx prices paid in WC?”

The study is a continuation of previous NCCI reports that have shown properly designed prescription fee schedules can help contain costs. However, the studies have also shown that fee schedules that are set too high can undermine their effectiveness. The latest study reviews differences in prescription drug prices among states to determine the effect of prescription drug fee schedules on the prices paid.

“Lower workers’ compensation state Rx fee schedules seem to correspond with lower workers’ compensation Rx prices paid,” the study says. “In low-fee-schedule states, workers’ compensation Rx prices paid are concentrated closer to the fee schedule maximums compared to states with higher fee schedules.”

The authors adjusted for such things as the mix of prescription drugs within states and found low fee schedule states have the lowest average drug price per unit — $1.63. High fee schedule states have the highest average drug price per unit — $1.78. But the price differences are smaller than the “nominal differences in fee schedule AWP multipliers,” the report explains. “For example, the average multiplier in low-fee-schedule states is approximately 30 percent lower than the average multiplier in high-fee-schedule states; however, the difference in average prices paid is slightly less than 8 percent.”

The use of pharmacy benefit managers is one of the primary reasons for the smaller differences since they generally negotiate prices for drugs on a countrywide basis.

The study also compared the average prices paid in states with high fee schedules and those with no schedules. “The average Rx price per unit is lower for states without an Rx fee schedule — $1.73 — compared with that in high-fee-schedule states — $1.78,” the report says. “This is similar to NCCI’s finding in the study of the price impact of physician fee schedules where a consequence of fee schedules set too high is higher prices paid.”

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Additional findings include:

  • Brand name prescriptions tend to be paid closer to the fee schedule maximums than generic prescriptions.
  • Physician-dispensed prescriptions are generally paid closer to the fee schedule maximums than pharmacy-dispensed prescriptions.
  • Out-of-network prescriptions tend to be paid closer to the fee schedule maximums than in-network prescriptions.

“While prescription fee schedules have an effect on Rx prices paid in WC, they do not fully explain Rx costs,” the authors said. “Therefore, having a low Rx fee schedule does not necessarily mean lower Rx costs. Similarly, having a high fee schedule or no fee schedule does not necessarily result in the highest 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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The R&I Editorial Team can be reached at [email protected]