Prescription Drugs

Drug Formularies Reduce Costs, Gain in Popularity

November 16, 2015

Pills approved by a prescription drug formulary on a prescription pad, one of many new health industry trends.

Workers’ compensation drug formularies are not a new idea, but only a few states currently have such mandated formularies in place, according to an article in Claims Journal. Only Washington, Texas, Ohio and Oklahoma have previously existing state-regulated drug formularies. California is the most recent state to make the change. In early October, Governor Jerry Brown signed a bill into law that will create a closed workers’ compensation drug formulary by 2017.

[California Assembly Bill] 1124 will reduce unnecessary costs within the workers’ compensation system, while specifically protecting an injured worker’s right to any medically necessary prescription drugs,” said Mitch Seaman of the California Labor Federation in an article on “In addition, the bill guarantees timely formulary updates as new drugs become available and a phased implementation for workers injured prior to the bill’s effective date.”

State-mandated formularies are gaining momentum. Seven additional states – North Carolina, South Carolina, Nebraska, Tennessee, Maine, Montana and Louisiana – are now considering developing mandated drug formularies for their workers’ compensation systems.

Substantial cost savings

Prescription drugs make up nearly 20 percent of workers’ compensation medical costs, and those costs have been rising. Workers’ comp payers reported an increase of 6.4 percent in drug spending in 2014, according to CompPharma’s 12th Annual Survey of Prescription Drug Management.

Closed drug formularies are designed to stem spending and encourage more careful prescribing. Formularies limit the medications covered for workers’ comp claims by providing a list of approved drugs that do not require preauthorization and are preferred for use. Formularies also can limit price variability for certain classes of drugs and typically exclude experimental drugs, which are not recommended for use. In addition, a formulary will require more steps from a provider to prove medical necessity for any drugs requiring preauthorization, encouraging prescribers to consider other options. In this way, closed drug formularies result in reduced workers’ comp medical costs – which can add up to potentially substantial savings.

According to an October 2014 study by the California Workers’ Compensation Institute, adopting a mandatory formulary could reduce California’s workers compensation drug costs by $124 million to $420 million a year. Actual savings could be even greater, related to possible reduced need for drug testing and reduced medical dispute resolution expenses.

Improved patient outcomes

The largest cost-reduction effect associated with workers’ compensation drug formularies is a reduction in controversial opioid and brand name drug payments. These changes in prescribing behavior, with providers being encouraged to select drugs where the benefit outweighs potential harm, will also result in improved patient outcomes.

“In group health, you have formularies that are somewhat indifferent to where you are, what line of business you’re in — the list of medications covered is very broad,” said Rey Quinones, vice president of product development for Helios, a company specializing in workers’ compensation and pharmacy benefits for no-fault auto insurers, in the online journal Risk & Insurance. “In workers’ compensation, the medications you cover are really more focused, and more individualized because each claim is unique.”

A limited list requires prescribers to be more accountable for the kind and dosage of drugs they choose, specifically pain-management medications. According to the National Safety Council, prescription painkillers not only drive up workers’ compensation costs, they also impact workplace safety and productivity and can harm employees by leading to addiction and overdose.

“The ultimate goal of a mandated formulary is to strike a better balance between cost containment and positive patient outcomes,” said Lousine Alpern, MD, VP of Clinical Services at Advanced Medical Reviews.

Drug Formularies Reduce Costs, Gain in Popularity