Employers Advised to Conduct Regular Prescription Usage Reviews, Negotiate Lower Prices

Business Insurance

By Sheena Harrison

Tracking workers comp drug costs helps mid-market employers reduce spending

Employers advised to conduct regular prescription usage reviews, negotiate lower prices

October 6, 2013 - 6:00am

While it can be tricky for employers of all sizes to control pharmaceutical costs for workers compensation claims, experts say mid-market employers should be especially diligent about tracking their drug costs to help reduce unnecessary spending.

Sources have differing opinions on whether smaller employers pay higher costs than their larger counterparts for workers comp prescriptions. While pharmacy benefit managers have negotiated deals with drug manufacturers to provide drug discounts for all employers, some experts say that mid-market firms pay higher costs for having lower volumes of prescription claims than jumbo employers.

Mid-market firms also tend to outsource their medical and pharmacy claims management, whereas large employers have in-house risk management staff or claims adjusters who can review pharmaceutical spending, sources say.

The difference in claims supervision, along with potential for higher up-front costs, means mid-market firms should ask service providers to prove that they're providing effective pharmacy management, said Mark Pew, senior vice president of product development for Duluth, Ga.-based Prium.

“If you've got more resources, you can ... have more of an effect and make sure (service providers are) doing the right thing, whereas mid-market to smaller companies may not have those resources,” Mr. Pew said. “So they're really completely reliant on their vendors.”

Increasing pharmacy costs are a concern for many employers, according to reports released this year by pharmacy benefit managers.

Narcotic costs averaged $127.53 per workers comp prescription in 2012, up 15 cents from 2011, according to a report released in April by St. Louis-based Express Scripts Inc. That study was based on more than 300,000 work comp claims paid by Express Scripts clients nationwide.

Meanwhile, Westerville, Ohio-based Progressive Medical Inc. said in April that it saw prescription drug inflation of 5.5% in 2012. That was based on nearly 200,000 workers comp claims made by its clients.

Both reports said that reduced utilization of opioid painkillers last year helped to keep some workers comp prescription costs in check.

Mid-market firms tend to receive similar prescription pricing to larger companies, even though they have smaller volumes, said Artemis Emslie, president of Tampa, Fla.-based work comp pharmacy benefit manager MyMatrixx L.L.C. and Jim Andrews, executive vice president of pharmacy services for Atlanta-based pharmacy benefit manager Healthcare Solutions Inc.

“Pricing has gotten as competitive as it can, so it really comes to the negotiation of those contracts more so than the size,” said Ms. Emslie, who said mid-market firms have seen the most competitive pricing within the past five to 10 years.

Jamie Harer, Orange, Calif.-based product manager for pharmacy at Sedgwick Claims Management Services Inc., agreed that company size does not factor largely into work comp drug costs. She said aspects such as a company's industry and region, or whether its employers are unionized, have a greater influence on the pharmacy costs that an employer pays.

However, Keith Rosenblum, senior risk consultant with Lockton Cos. L.L.C. in Kansas City, Mo., said mid-market firms see higher prescription costs for having fewer claims. In addition to lower volume, he said they don't have internal staff who manage claims and bargain for better deals on prescriptions.

“They don't know that pharmacy can be negotiated,” Mr. Rosenblum said.

Prium's Mr. Pew said mid-market firms tend to gravitate toward using insurers, third-party administrators and pharmacy benefit management firms that provide bundled services for work comp claims, such as independent medical reviews or claims adjustment. That's because mid-market companies have fewer internal staff who can perform claim management functions, he said, leaving employers to rely on companies that bundle such services.

While a bundled approach can be a time-saver for mid-market employers, such consolidation can make it difficult to break out pharmacy costs for workers comp claims and evaluate which costs can be reduced, experts say.

“I have never ever seen any of the carriers or TPAs get down to quoting what the costs of their prescription drugs are,” Lockton's Mr. Rosenblum said. “It's usually quoted as an average wholesale price minus "x' discount plus a fill fee.”

The key to preventing rising workers comp pharmacy costs, experts say, is holding insurers and service providers accountable for tracking drug spending and identifying areas for improvement.

Prium's Mr. Pew and Lockton's Mr. Rosenblum said employers should ask for regular reports from pharmacy vendors, insurers and TPAs that show details of a company's workers comp prescription spending.

“It's really incumbent upon them to ask the hard questions,” Mr. Pew said. “Show me the data. Show me our penetration rate, which means how many of the scripts we're paying for are going through the PBM, and therefore are getting pharmacist oversight and the PBM discount.”

Joseph Paduda, principal of Madison, Conn.-based consulting firm Health Strategy Associates L.L.C., said employers should confirm that their workers comp insurer or TPA is working with a pharmacy benefit manager to manage workers comp prescriptions in the first place.

If so, Mr. Paduda said supervisors and managers should be aware of how to report workers comp claims as soon as possible to the manager so that all comp-related prescriptions can be channeled through the negotiated cost structure and drug utilization tracking.

“The PBM will make sure that the drugs that they're being prescribed are appropriate ... for the worker's condition, and they'll monitor it to make sure there's not early use of opioids or other potentially problematic drugs,” Mr. Paduda said.

Dr. Teresa Bartlett, Troy, Mich.-based medical director for Sedgwick, said it can be helpful for employers to work with pharmacy benefit managers to create a customized workers comp prescription formulary that provides medications relevant to an employer's industry.

For instance, a transportation-related company might ban heavy narcotics that would be dangerous for drivers, but a health care firm might provide specific antibiotics for employees that deal with hazards such as needle-stick injuries.

Companies can ask pharmacy benefit managers to set up warning systems to provide medical intervention for prescriptions that are dangerous for workers and generate high costs, Dr. Bartlett said. For example, a worker who receives large doses of opioid prescriptions could be flagged to receive assistance.

Ms. Emslie and Mr. Pew said companies might consider unbundling their workers comp claims services, including pharmacy management, in order to negotiate the best deals on such services.

Pharmacy “programs can be tricky to measure your results and how your program is performing in the different program aspects,” Ms. Emslie said.