Regulatory Course Correction
On June 16, 2017, the Texas Department of Insurance, Division of Workers’ Compensation proposed a new rule which would require all compound drugs to be subject to the Closed Formulary’s preauthorization requirements. The result of the proposed changes would be that all compounded medications, as opposed to exclusively those including an “N” ingredient, would require preauthorization. The proposed rule changes Rule §134.500(3)(B) are to read:
(3) Closed formulary–All available Food and Drug Administration (FDA) approved prescription and nonprescription drugs prescribed and dispensed for outpatient use, but excludes:
(B) any prescription drug created through compounding any compound that contains a drug identified with a status of “N” in the current edition of the ODG Treatment in Workers’ Comp (ODG) / Appendix A, ODG Workers’ Compensation Drug Formulary, and any updates; and
The proposed rule also amends the language in Rule §134.530(3)(B) & Rule §§134.540(3)(B) to be consistent in the new definition of which compounds are included in the Formulary.
A copy of the Proposed Rules and the Notice of Rule Making have been made available to the public via the Texas Department of Insurance, Department of Workers’ Compensation website.
Why the rule change?
Since the full adoption of the Closed Formulary in 2013, Texas has seen a dramatic decrease in drug costs and utilization. According to the Texas Department of Workers’ Compensation since the implementation of the formulary:
- Total drug costs fell 15%.
- Costs for drugs that are not recommended, so called N drugs, fell by 80%.
- Prescriptions for opioids on the N-drug list dropped 81%, and the use of other opioids fell by 8%.
However, during that same period, one class of drugs, Compound Drugs, has increased significantly in both cost and utilization.
The reasoning for why overall drug spend and utilization decreased, while spend and utilization for compounding increased is likely due to the original language of the Closed Formulary itself. Rule §134.500(3)(B) defines which drugs are subject to the formulary:
All available Food and Drug Administration (FDA) approved prescription and nonprescription drugs prescribed and dispensed for outpatient use, but excludes: … any compound that contains a drug identified with a status of “N” in the current edition of the ODG Treatment in Workers’ Comp (ODG) / Appendix A, ODG Workers’ Compensation Drug Formulary…
Under this definition, only compound drugs that contain an ingredient categorized as “N” is subject to preauthorization.
Prior to the implementation of the formulary, only about 38% of compunded medications contained one or more “N” drugs. As you might expect the result of the passing of the closed formulary lead to further reliance on this loophole circumventing preauthorization. In 2016 only 10% of compounded medications contained an “N” drug and thus subject to preauthorization requirements, while generally utilization of compounded medications and the cost per fill both increased.
- The number of compounded drugs increased from 18,020 prescriptions in 2010 (1.6 percent of total pharmacy prescriptions) to 26,380 in 2014 (3.2 percent of total). Since 2014, it decreased steadily to 20,751 in 2016 while their share of the total pharmacy prescriptions remained at 3.2 percent.
- In 2010, the total cost of compounded drugs was $6 million (4 percent of the total pharmacy cost of $152 million), which increased to $12 million in 2014 (12.5 percent of the total $112 million). In 2016, the total cost decreased to $11 million (11 percent of the total $98 million).
- The average cost of compounded drug prescription was $356 in 2010, which increased to $829 in 2016 (a 133 percent increase).
What to Expect
Payers should look for these rule changes to be finalized within the next 60 days and should think about preparing their book of business for the differing requirements that compound medications will have for preauthorization. Should your organization have any interest in discussing how these changes might impact your book of claims, PRIUM’s Litigation Support team would look forward to having that conversation. Contact us here: firstname.lastname@example.org