AB 1124: Workers' comp drug formulary

This year's California legislative session produced a new law aimed at ensuring that workers' compensation drug prescriptions are evidenced-based and appropriate to properly treat injured workers.

Assembly Bill 1124 - signed into law Oct. 6, 2015 - requires the administrative director of the Division of Workers' Compensation to include in the medical treatment utilization schedule a drug formulary that uses evidence-based medicine.

A formulary is a list of drugs that are approved for treating medical conditions. In California today, private pharmacy benefit networks, which are retained by workers' compensation insurers to administer the delivery of pharmaceuticals, rely on formularies. These formularies do not have an official regulatory status and thus are subject to challenge in workers' compensation proceedings. AB 1124 mandates the adoption of a state drug formulary, which will be included in the medical treatment utilization schedule. As an element of the schedule, the formulary will be presumed to be correct in regard to the extent and scope of medical treatment. Drugs not included in the formulary will not be reimbursable unless a variance is granted.

AB 1124 requires the administrative director to adopt the drug formulary by July 1, 2017. Prior to that adoption, the director must consult regarding the establishment of the formulary with employers, insurers, employee representatives, treating physicians, pharmacists, attorneys and other workers' compensation stakeholders. Once the formulary is adopted, the director must update it at least quarterly. AB 1124 provides for the creation of an independent committee charged with reviewing available medical evidence used in updating the formulary. A key feature in the new law is that changes to the list of drugs in the formulary are exempt from the Administrative Procedure Act's rulemaking provisions. The formulary therefore will be based on the latest medical evidence without regulatory delays.

The primary focus of AB 1124 is to establish an evidence-based workers' compensation drug formulary that will assure that prescribed medications are appropriate to cure and relive the effects of work-related injuries and illnesses. The new law should help to change inappropriate prescribing behavior. In California, opioids account for a major share of workers' compensation prescriptions. In its 2014 study of how the drug formularies of Texas and Washington state would impact California, the California Workers' Compensation Institute (CWCI) concluded that the formularies would exclude a high percentage of the opioids being prescribed in California. Therefore, adoption of the formulary should eliminate unnecessary and harmful prescription drugs.

In addition to improving drug treatment outcomes for workers, AB 1124 has the potential for lowering workers' compensation prescription costs and improving administrative efficiency.

Prescription drug payments are one of the fastest growing medical benefits in California's workers' compensation system. In 2013, they accounted for one out of every eight medical benefit dollars paid on a claim. The CWCI study showed that formularies currently in use in Texas and Washington could reduce total pharmaceutical payments in the California workers' compensation system by an estimated 12 to 42 percent ($124-$420 million).

A large percentage of workers' compensation utilization reviews are for pharmaceutical requests. The adoption of AB 1124's drug formulary will provide administrative clarity that will reduce these disputes and eliminate delays in treatment.

AB 1124 sets forth important policy objectives. But the new law wisely leaves it to the expertise of the administrative director to develop and adopt the drug formulary. This significant workers' compensation reform will be in operation no later than July 1, 2017.

Samuel Sorich is a Sacramento-based of counsel to Hinshaw & Culbertson LLP. He served from 2002 to 2010 as president of the Association of California Insurance Companies.