A major cost component of all employer health plans is the priceof prescription drugs. Most health plans include formularies withtiers for generic and name-brand drugs, and the plans also includeoptions for compounded drugs, defined by the Professional Compounding Centers ofAmericaas medications made based on a practitioner’sprescription in which individual ingredients are mixed together inthe exact strength and dosage form required by the patient. Thecost of compounded medications is also driving up workers’compensation costs across the country.

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In the state of Texas, for example, a House committee asked theDivision of Workers’ Compensation (DWC) to look at compounded drugprescriptions for injured employees. The division examined its dataon pharmacy billing and an ongoing audit of doctors’ practices, andit found that the cost of compounded drugs doubled from 2010 to2014, and the average cost per prescription had risen to $829 in2016.

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According to DWC, the numbers were concerning because compoundeddrugs aren’t recommended as first-line medications in treatmentguidelines for injured employees. After reviewing DWC’s report,members of the House Committee on Business & Industry asked DWCtoaddress the issues through a new rule. In response, DWC recentlyannounced an informal draft rule to require that compounded drugsbe preauthorized.

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“We’re looking to DWC to develop a rule that maintains access tothese drugs but helps prevent fraud and unnecessary use,” saidChairman Rene Oliveira. “And we’re encouraging DWC to get inputfrom carriers, doctors, patients, pharmacists and otherstakeholders throughout that process.”

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Drug safety concerns

A complicating factor for most health plans is that compoundeddrugs generally are not approved by the U.S. Food and DrugAdministration (FDA), and the FDA does not verifytheir safety, effectiveness or quality. The FDA has found that thelabeling of compounded drugs often omits important information andthat poor compounding practices can result in serious drug qualityproblems, such as contamination or medications that do not possessthe strength, quality, and purity they are supposed to have.Additionally, the FDA has reported its concern that somecompounders produce drugs for patients even though an FDA-approveddrug may have been medically appropriate for them. Recognizing thatsome patients do need compound drugs for valid medical reasons,such as allergies, state pharmacy boards regulate compoundingpharmacies in each state.

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Given the safety concerns, Workers’ Compensation CommissionerRyan Brannan said the preauthorization process strikes a sensiblebalance.

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“We want to make sure the use of these drugs is being reviewedand that physicians are considering efficacy and appropriateness ofalternatives while still ensuring that patients who need compoundeddrugs will still be able to get them,” Brannan said.

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Concerns about compounded drugs aren’t unique to the Texasworkers’ compensation system. In 2014, the Employee RetirementSystem of Texas began requiring preauthorization for all compoundeddrugs costing $300 or more. The change reduced ERS expenditures onthose drugs from $35.7 million in Fiscal Year 2014 to $1.2 millionin Fiscal Year 2015. In January, ERS tightened the requirementseven more, requiring preauthorization for compounded drugs costingmore than $50.

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Brannan said there will be multiple opportunities for public andstakeholders to have input on the rule. He also noted that DWC willeducate providers on the steps for preauthorization before anychange takes effect. The agency is accepting comments onthe informal rule through July 7.

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Compound drugs by the numbers

A May report by DWC’s Research andRegulation group found that:

  • The number of compounded drugs increased from 18,020prescriptions in 2010 to 26,380 in 2014.
  • The total cost of compounded drugs increased from $6 million in2010 to $12 million in 2014.
  • The average cost per compounded drug prescription increasedfrom $356 in 2010 to $829 in 2016.
  • Almost a third of compounded drug prescriptions were to treatback injuries.

For more information visit the TexasDivision of Workers’ Compensation website.

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Rosalie Donlon

Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].