Prescription for Inflation

Survey finds surge in drug use for work-related injuries tied to huge claims overpayments by employers. Why is this problem out of control and what needs to be done?

Monday, August 1, 2005
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A new study finds that employers are overpaying millions of dollars for drugs in workers' comp cases. The reason they are doing so is due to the shocking number of errors in filling prescriptions. How did such a system spin so far out of control and what needs to be done?

A team of analysts reports that claims payers overpay tens of millions of dollars for prescription drugs in workers' compensation claims. The data, drawn from one large insurer and four other claims firms, suggest that a significant number of prescriptions are for drugs unrelated to the workers' comp injury. The error rate for filling workers' comp prescriptions exceeded 20 percent, the study found. One of five prescriptions includes at least one payment error.

Some patterns of drug purchases suggest illicit use, the researchers report. A professional team in Ohio reported these findings after analyzing more than 2 million prescriptions approved by pharmacy benefit management firms and their clients, the large insurer and four other workers' compensation claims firms.

Philip Parsons, a Cleveland-area pharmacist, performed much of the interpretation of the data which Archestral, a health-care data analysis firm in Copley, Ohio, assembled and analyzed.

Parsons' curiosity was piqued five years ago when he learned a woman customer with a work injury managed to get her workers' compensation insurers to pay 100 percent of her hormone-replacement drugs. He says that, as a pharmacist, he "was shocked that controls could be so loose."

Drug usage and medical costs for work-related injuries have surged in recent years, far outpacing the decline in work-related injuries. The study results are serious enough to prompt the question: Who is checking up on workers' compensation prescriptions? Are both employers and their pharmacy advisers unable to assert quality controls?

The National Council on Compensation Insurance reports that prescription drugs accounted for 12.1 percent of total medical costs in 2002, its most recently analyzed year. Claims payers have been experiencing annual growth rates for the cost of drugs in excess of 10 percent.

Pharmacy management for work injuries is emerging from a larval stage of development just this year. Controlling drug use continues to pose a complex challenge of logistics and claims strategy. It calls upon domains of expertise largely foreign to workers' compensation professionals.

Employers, of course, depend on PBMs to manage not just their drug costs from work injuries, but also in their much larger health-care benefit programs.

Employers would do well to demand from their PBMs more insightful analyses of error rates and patterns of questionable drug prescription and use.

Some customers of PBMs, in both workers comp and health-benefits arenas, cite weakness in analytical resources within the entire PBM field. The quality of analysis of health-care related spending typically improves when employers launch their own audits, on their own terms.

Call for More Audits

Few claims payers audit their PBM's performance, either as a special review or as part of a conventional claims audit. Stephen Beigbeder, who directs Deloitte Consulting's workers' compensation claims auditing services in Hartford, Conn., says that only in the last 18 months has the enormity of pharmacy-management issues been recognized among claims payers.

Health Strategy Associates, a Madison, Conn.-based consulting firm that closely follows workers' comp insurer practices with drugs, reported in 2004 that pharmacy benefit management firms had deeply penetrated the claims-payer community. But this spring, the firm cited in a report on its Web site "a noticeable lack of sophistication" among claims payers on drug issues. It expects claims payers will "become much more demanding of their PBMs over the next year."

The Ohio team's access to paid prescription data was initially lucky. The Ohio Bureau of Workers' Compensation, or BWC, is the exclusive provider of workers' compensation insurance in the state. A chiropractic group used a Freedom of Information Act request to obtain an initial set of prescriptions payments made between July 2002 and June 2003. Archestral and Parsons obtained this information.


In February 2004, Parsons and Michael Willy from Archestral met with about 10 executives of BWC. Also present was James Palmer, a well-known Ohio-based workers' compensation professional. The three suggested the bureau was paying for many prescriptions with no logical relationship to the work injury. Drug-to-injury matching can be tricky due to incomplete diagnostic data. BWC had reportedly already been planning a prior approval protocol, which it introduced shortly after this meeting.

In February 2005, the team completed a second, more thorough study, using prescriptions that four other claims payers and BWC paid for between late 2003 and late 2004 in Ohio, Michigan and Pennsylvania. This analysis of 2 million paid prescriptions found millions of dollars in payments Parsons considers questionable.


BWC recently renewed a contract to Affiliated Computer Services, or ACS, which is primarily an outsourcing firm, but has been processing pharmacy payments as a PBM for BWC since 2002.


Joel Donchess, in charge of BWC's medical programs, says he was unaware of the team's analyses. However, he says, more than 99 percent of all pharmacy purchases are electronically pre-audited while the injured worker waits for his or her order at the pharmacy site.

Total payments for all 2 million prescriptions analyzed in February 2005 were about $179 million, of which about $25 million the Ohio team asserts were questionable. In all, 20 percent of prescription payments contained at least one error:

* 8 percent to 15 percent of drug purchases conflicted with the compensable diagnosis.

* 7 percent to 10 percent of prescriptions were for brand names when generic substitutes were available.

* As many as 11 percent of prescriptions were incorrectly priced.


All told, about 9 percent of prescriptions, or $16 million of total paid prescriptions, had no evident relationship to the work injury. For example, payments were made for Lotrel, used to reduce high blood pressure, which would rarely be appropriate for treating a work-related injury.


A second major type of error was failure to price the drug at the lowest available price.


In all, about $4 million, or about 2 percent of total payment, was due to incorrect pricing.

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Brand vs. Generic


Parsons reserves his greatest concern for the third type of error--paying for brand-name drugs rather than less expensive generic substitutes. Paying for brand names added $11 million, or 6 percent of total payments.

Parsons found the ratio of brand to generic purchases was significantly higher for the more powerful pain medications, such as Oxycontin, with street value as an illicit narcotic. The higher rate, Parsons reasons, may be a signal claimants might be illicitly reselling (or "diverting") brand-name painkillers.


For all cases with both brand and generic alternatives, 8.6 percent of generic opportunities were missed, according to Parsons. For pain medications, 12 percent of generic opportunities were missed.

For the federal Drug Enforcement Administration's "schedule II" pain drugs -- those with the highest known abuse -- more than 20 percent were brand instead of generic.

Examples of numerous questionable cases include:

* $12,000 for annual Oxycontin use for a 1990 workers' compensation claim of neurotic depression.

* $13,000 for annual Oxycontin use for a 1986 claim of carpal tunnel syndrome.


Some $400,000 was reportedly spent on Percocet, a powerful pain medicine, when the generic substitute would have cost $40,000

Painful Problem

Parsons estimates about 10 percent of prescriptions, accounting for about 20 percent of drug costs, were for "hard narcotics" such as Oxycontin. Other pain drugs accounted for another 10 percent of drug costs. Thus, 30 percent of drug costs were pain related.


Parsons observes that "the people paying these bills, mostly for long-term treatment, really ought to have a chronic pain strategy that does not depend so much on painkillers, especially narcotics."

Indeed, it appears the biggest payoff from pharmacy management--improved treatment for chronic pain--is yet to be realized.


In early 2005, NCCI and the Ohio team reported independently high concentrations of use of Oxycontin and similar high-potency drugs among long-lasting claims. The American College of Occupational and Environmental Medicine views pain medications as impeding recovery of function.


The Ohio team's findings, especially in context with reports from NCCI, imply that pharmacy management in workers' compensation is at an immature stage, and faces unique challenges compared with health plans. The claimant's experience at the pharmacy is more difficult to manage, for "first fill" and subsequent visits. Powerful pain medications impose problems far greater than high medication costs: They pose a problem with treatment efficacy, including the frequent lack of treatment alternatives where drug use is considered excessively prescribed.

The year 2005 is proving to be a turning point in pharmacy management. By now, most insurers and third-party administrators have retained PBMs. But drug costs continue to rise by double digits, with no end in sight.

This may be the year in which a uniquely workers' compensation-based model of pharmacy management, distinct from health-plan practices, emerges, with innovation being driven more by claims executives than by PBMs.

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