This report estimates the potential impacts of a California Workers' Compensation formulary in terms of changes in prescription drug use and spending and discusses the potential broader impacts of these changes on the California economy. This report is the second of three related reports.

Modeling the Economic Impact of a California Workers' Compensation Formulary

Andrew W. Mulcahy, Simon Hollands, Erin Lindsey Duffy, Aaron Strong, Barbara O. Wynn

ResearchPublished Jul 17, 2017

California Assembly Bill 1124 required the state's Division of Workers' Compensation (DWC) in the Department of Industrial Relations to establish a drug formulary for all workers' compensation (WC) payers in the state. Formularies in workers' compensation serve to reinforce safe and effective prescribing patterns for practitioners and payers. The objective of this report is to estimate the potential impacts of a California Workers' Compensation formulary in terms of changes in prescription drug use and spending and to discuss the potential broader impacts of these changes on the California economy. This report is the second of three related reports. The first reviewed existing formularies that DWC might consider, summarized their relative strengths and weaknesses, reviewed the options for the related policies that are needed to implement and update the formulary, and made recommendations for the formulary implementation policies and updating process. The third report will describe a monitoring framework for tracking the actual impacts of implementing the drug formulary.

Key Findings

Prescription Drug Use Decreases by 7.1 Percent (381,000 Fills) Because Prescribers Write Fewer Prescriptions for Drugs Subject to PR

  • Prescription drug spending decreases by 10.4 percent (or $45.4 million) because of the overall reduction in prescribing as well as lower prices for pharmacy-dispensed drugs and generic drugs compared with physician-dispensed and brand-name drugs.
  • Different sets of assumptions resulted in lower- and upper-bound estimates of $25.6 million and $76.5 million, respectively.
  • Physician dispensing of drugs — which is common in the California Workers' Compensation system — will be less common after the implementation of the formulary because, in many cases, physician-dispensed drugs will be subject to review by payers. This change will reduce provider net income by an estimated $18.3 million.
  • In total, the net increase in California gross state product is $2.4 million. The net expected change in employment is an increase of ten jobs.

4.6 Percent of Prescription Bill Lines and 12.1 Percent of Total Spending on Brand and Generic Drugs in 2014 Were for Brand-Name Drugs When an Approved Generic Substitute Was Available

  • These results suggest that new prospective review (PR) requirements may lead to changes in prescribing patterns toward generic drugs in specific classes where brand-name prescribing is relatively common (such as psychotherapeutic agents, anticonvulsants, and opioid analgesics).
  • Thirty-six percent of prescription bill lines and 34 percent of prescription spending (excluding compounded drugs) were for physician-dispensed drugs in 2014.
  • Only a small share of total prescriptions would be exempted from PR based on the special and perioperative fill provisions.

Recommendations

  • Ongoing analysis of WCIS data is needed to monitor the magnitude of anticipated changes in CA WC prescription utilization and spending as the formulary is implemented, and to monitor unexpected effects of the policy.
  • Evaluation and monitoring efforts should focus on changes in effects over time as prescriber behavior changes in response to growing familiarity with the formulary and PR process.
  • Evaluation and monitoring efforts should also focus on rapid growth in prescribing rates or spending for specific categories of drugs that could signal a behavioral response on the part of prescribers.
  • Monitoring should look for spillover effects where changes in prescribing in one drug class (for example, opioid analgesics) affect utilization in a related class (for example, simultaneous changes in utilization of drugs to treat common gastrointestinal side effects of analgesics).
  • Monitoring should examine whether there are changes in nondrug services related to prescribing or specific formulary provisions.

Topics

Document Details

  • Copyright: State of California Department of Industrial Relations
  • Publisher: RAND Corporation
  • Availability: Web-Only
  • Year: 2017
  • Pages: 76
  • DOI: https://doi.org/10.7249/RR1971
  • Document Number: RR-1971-DIR

Citation

RAND Style Manual
Mulcahy, Andrew W., Simon Hollands, Erin Lindsey Duffy, Aaron Strong, and Barbara O. Wynn, Modeling the Economic Impact of a California Workers' Compensation Formulary, RAND Corporation, RR-1971-DIR, 2017. As of September 20, 2024: https://www.rand.org/pubs/research_reports/RR1971.html
Chicago Manual of Style
Mulcahy, Andrew W., Simon Hollands, Erin Lindsey Duffy, Aaron Strong, and Barbara O. Wynn, Modeling the Economic Impact of a California Workers' Compensation Formulary. Santa Monica, CA: RAND Corporation, 2017. https://www.rand.org/pubs/research_reports/RR1971.html.
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