A new California Workers’ Compensation Institute study shows that adopting a state-mandated workers’ comp prescription drug formulary such as those used in Texas and Washington State could reduce California workers’ compensation pharmacy payments by an estimated $124 million to $420 million a year while simultaneously raising the quality of care and reducing frictional costs in the system.

Drug formularies, which are widely used in group health, Medicare, and other federal health care programs are lists of approved drugs that define the scope, and in some cases, limit the variability in prices for certain types of drugs. Unlike California, states such as Texas, Washington and Ohio have mandatory formularies that apply uniform standards and drug lists for all injured workers in those jurisdictions.

To measure the potential effect of using a state-mandated formulary in California, the authors created a dataset of 1.6 million California workers’ compensation prescriptions filled between January 1, 2012 and June 30, 2013 and applied the Texas and Washington State formularies to these prescriptions. The results showed that applying the Texas formulary in the California workers’ compensation system would exclude 17 percent of the prescriptions and 29 percent of the payments, while Washington State’s more exclusive formulary would exclude 39 percent of the prescriptions and 70 percent of the payments. The study also estimated that using the Texas and Washington formularies in California would reduce brand-name drug payments between 42 and 95 percent, and reduce the use of controversial Schedule II opioid painkillers by 36 to 45 percent, reducing the associated payments for these drugs by 65 to 78 percent.

The study notes applying either formulary in California would sharply reduce workers’ comp prescription drug payments from current levels. When compared to current prescription drug utilization patterns and costs, the study estimated that the additional controls provided by a formulary could reduce total pharmaceutical payments in the system by 12 percent to 42 percent, which translates to a potential savings of $124 million to $420 million a year. The use of a state mandated formulary also would clarify the rules for drug selection, reduce the volume of ancillary services such as drug testing, and reduce administrative expenses for utilization review and independent medical review.

The Institute has published the full study in a CWCI Report to the Industry, Are Formularies a Viable Solution For Controlling Prescription Drug Utilization and Cost in California Workers’ Compensation? The report is available in the Research section of the Institute’s website http://www.cwci.org/.