By Doug McCoy
© Copyrighted 2003 by LexisNexis
Matthew Bender. All rights reserved. This article, which originally appeared in Workers'
Compensation: The Survival Guide for Business, is reprinted with permission.
Each year analysts examine workers’ compensation and the health of the insurance industry that delivers benefits for this state mandated program. There are two and sometimes three major components that make up the benefits for workers that are injured on the job. Medical benefits and indemnity or wage replacement benefits make up the lion’s share of the cost for workers’ compensation. Some states consider vocational rehabilitation to be a separate, distinct benefit to injured workers and their employers.
The split of medical and indemnity benefits is pretty even across the country with some states having higher indemnity expenditures than others as it relates to medical costs. Medical costs are made up of all the providers of the healing arts including doctors, hospitals, diagnostics, physical therapy, pharmacy, and others. The single fastest growing cost of this category is pharmacy.
Pharmacy costs in 1996 were approximately 3.8% of the medical dollar spent in workers’ compensation. That percentage was up to 5.8% in 2000 and expected to reach 10% by 2005, growing at the rate of 15% to 18% over the next five years. It is expected that pharmaceuticals will eventually climb to 25% of all medical expenditures. Approximately 15% of all bills processed for payment by workers’ compensation payers are pharmacy. The single largest number of checks that are issued by workers’ compensation payers are for the payment of outpatient pharmaceuticals.
Fifteen years ago there was no auto adjudication environment for workers’ compensation pharmacy and only five states had a pharmacy fee schedule. There was no pharmacy benefit manager (PBM) for workers’ compensation. It was not until 1989 that anyone began to consider a PBM for workers’ compensation. A typical group health pharmacy plan has three questions to consider in order to adjudicate a pharmacy bill. Is this person eligible under the plan? What is the formulary for the plan, i.e., which drugs will be covered? What is the co-payment and deductible to collect from the patient/customer?
Generally, health insurance is effective after someone is hired and a period of time elapses, usually 90 days. At that time an employee is eligible for benefits. For workers’ compensation, eligibility begins when an employee is injured, no matter what. Employment is predictable, whereas injuries are not. You know a person’s start date for employment and you hope they are never injured.
Formulary in workers’ compensation is not set before an accident; it consists of any drug that is causally related to the injury. This is not a question that can be found in a table of drugs. In fact, causal relationship many times is determined in the workers’ compensation courts. Drugs that would be excluded in a typical group health formulary may be covered if prescribed by an authorized treating physician in workers’ compensation. A good example is the drug Viagra. While group health plans would exclude this drug, workers’ compensation may well cover it if the injured employee’s impotence is related to his back injury or some other traumatic or psychological injury. The only easy part of auto adjudicating a worker’ compensation prescription bill is that there is no co-payment or deductible under the plan.
What is the climate of the pharmaceutical industry? Prescription drug spending rose 18.8%, which is over $20 Billion from 1999 to 2000. In 2002 the total retail sales for pharmacy was $182.7 Billion.
A new study released by the National Institute for Health Care Management Foundation proved that direct to customer marketing by the drug manufacturers increases sales. New drug sales typically increase by 14% but double that amount with advertising. Health consumers and workers’ compensation injured workers do not ignore these aggressive ad campaigns. What has become known as self-prescribing medication (asking your doctor if the medication is good for you) increases sales. Doctors want to please their patients and the drugs arguably do help the patients. New drugs, those that do not have a generic substitute, are more expensive. Using the example of Viagra, the manufacturer spent $89.5 million in advertising and increased sales by $192.4 million.
Drug manufacturers have many new compounds in development. Research in spinal cord regeneration gives hope to paralyzed workers. Drug research is aiding with this objective. Undoubtedly, drug compounds will help with the healing process, but at a high cost.
Group health adjudicators have an advantage over workers’ compensation claim handlers in that pharmacy has been separated from the other programs, which allows for specialization of the health care claim processors. In workers’ compensation the adjuster spends as much time adjudicating wage replacement benefits as they do all the medical providers that provide services for injured employees. Workers’ compensation claim adjusters do not have the time or expertise to become proficient of which drugs are or are not related to a specific injury, much less memorize the brand name and the generic equivalent. Is it Valium or is it Diazapam? Is it Sildenafile Citrate or Viagra? If an adjuster receives a drug bill for Ortho Tri-Cyclen, he or she may pay for it not knowing that it is birth control pills.
So what is a claims handler to do? Today there are workers’ compensation PBM’s (pharmacy benefit managers), and thirty-three states have some form of pharmacy fee schedule. Workers’ compensation pharmacy benefit managers have taken the auto adjudication systems used by group health and superimposed them over the processing of payments for prescriptions in workers’ compensation.
The process is not quite as efficient as group health. There is no national pharmacy plan; each state still dictates how much is paid and how it must be paid. The PBM can determine eligibility for compensation, but this usually occurs after the first prescription has already been filled.
The local pharmacist spends much more time with a workers’ compensation prescription, trying to determine if it will or will not be paid and demands a higher reimbursement amount. Only through a workers’ compensation PBM can this time and cost be reduced.
Ron Roma, RPh, the CEO of Healthesystems, a Georgia based workers’ compensation PBM, says, ``The key to building a successful PBM for the workers’ compensation industry is to effectively communicate with all parties involved, including the agents of the various pharmacy chains in order to effectively deliver medications to the injured workers. Effective communication means written, face-to-face and electronic communication.’’ Roma says, ``the challenge is not PBM-to-pharmacy electronic connectivity, it is Payer-to-PBM communication that is difficult. It’s a systems issue on the payers’ side. Effective electronic communication includes solving such problems as whether a claim is compensable and how to process in an environment that is not contractual but dictated by state law.’’ Roma says these challenges can be overcome.
The bad news is pharmacy costs continue to rise. The good news is that today PBMs are specializing in workers’ compensation and payers are willing to sit down and work out the issues with all parties to effectively deliver compensable medication to injured workers to assist the healing process and get them back to work as soon as possible.