DRUG COSTS HIT COMP HARD

Rough Notes, Nov 2005 by Zinkewicz, Phil

Importation may not alleviate the problem

The cost of prescription drugs has risen dramatically in recent years. Many segments of the economy, as well as legislators and regulators, are wrestling with ways to control those costs, while continuing to provide the public access to those drugs. For example, Congress has been considering and debating including coverage for prescription drugs in the Medicare program for senior citizens, as drug cost increases create hardships for those on fixed incomes. In fact, despite a deceleration in national spending for prescription drugs from 14% in 2002 to 10.7% in 2003, prescription drug sales continue to be a major contributor to the overall annual increases in national health expenditures.

One area of the economy that is beginning to be hit hard by rising costs of prescription drugs is the workers compensation system. In 2003, the National Council on Compensation Insurance (NCCI) released a study titled Prescription Drugs: Comparison of Drug Costs and Patterns of Use in Workers Compensation and Group Health Plans. Authored by Barry Llewellyn and Jim Stevens, the study showed: that prescription drugs' share of total medical costs increased substantially from 1997 to 2001; that utilization had a greater impact on workers compensation drug costs than price; and that since workers compensation was already doing a good job prescribing generic equivalents when available, there was little opportunity for savings UOm increasing the use of generic equivalents.

Last year, however, the NCCI updated the study, using more mature data on these issues and examining the nature of the states' efforts to control prescription drug reimbursement levels in workers compensation. Key findings of the 2004 update are:

* Payment patterns by accident year show continued growth in workers compensation prescription drugs' share of total medical costs, the estimated ultimate share rising from 10.1% in 1997 to 12.1% in 2002.

* Drug price increases had a slightly greater impact on workers compensation drug costs than utilization increases for 2002 over 2001.

* Twenty-eight states were identified as having prescription drug fee schedules; all use average wholesale price (AWP) as a mechanism for reimbursement.

* Although creating Pharmacy Benefit Managers (PBMs) initially looked promising as a cost containment strategy, other factors also will need to be accessed and addressed.

The report goes on to say that, for the first time, drug price slightly outpaced the utilization impact in drug costs from 2001 to 2002. "Notwithstanding the recent result, most knowledgeable observers agree that utilization is the more important driver of medical costs," say Llewellyn and Stevens. "Any success achieved from efforts to control costs through price reduction alone will be diluted or eliminated if utilization is not effectively controlled. One of the factors contributing to this year's cost change may be that companies are focusing more attention on drug utilization due to continued reports of the rise in prescription drugs' share of total medical costs. It will be interesting to see if this change is just a one-time occurrence or the beginning of a new trend," the authors say.

Nevertheless, as prescription drug costs continue to rise and represent an increasingly larger share of medical cost in workers compensation, states are continuing to search for ways to control these costs. The study shows that there are currently 28 states that have some type of workers compensa-tion prescription drug reimbursement schedule to contain prescription drugs costs. Although, all 28 states use AWP as a mechanism for reimbursement, 11 states differentiate in some way between generic and brand for reimbursement. The other 17 states use the same formula in calculating brand and generic reimbursements. Nines states reimburse up to a level above AWP (range from 4% to 40%), 11 states reimburse up to AWP and eight states reimburse up to a level that is below AWP (range from -5% to -15%).

Many states that do not already have fee schedules for prescription drugs are considering establishing them, according to the NCCI study, and some of those states that do have fee schedules are reviewing them to determine the appropriateness of the current levels of reimbursement.

Say the authors: "It should be noted that, as with any change to the workers compensation system, there is always concern for the effect of changes on access to care for injured workers. Lawmakers face a constant struggle to strike a balance between lowering costs as much as possible while maintaining adequate access to care."

However, as drug costs continue to represent a rising share of workers compensation medical costs, policymakers are looking for new ways to save money-including the idea of allowing importation of drugs from Canada and elsewhere, says the NCCI. The NCCI offers a synopsis of research findings from other organizations and articles relating to the issue of drug importation and its potential relevance to rising workers compensation costs.