By Julius Young
Boxer & Gerson

Compound drugs will be a hot California legislative and regulatory item in 2011.

At the Jan. 5 Commission on Health and Safety and Workers' Compensation meeting, Barbara O. Wynn of the Rand Institute for Civil Justice and Rand Health presented a study in process on compound drugs in California' workers' compensation system.

As noted in a recent article by Los Angeles Times reporter Marc Lifsher, an "unusual coalition" is forming to push legislative controls on compound drug prescriptions. California Senator Mark DeSaulnier, D-Concord, and Assemblyman Jose Solorio D-Santa Ana, are said to be backing proposed legislative controls.

This would not be the first time.

Several years ago the California Division of Workers' Compensation had considered a limit or ban on compound drugs under treatment guidelines, but that was never adopted. The Medical Treatment Utilization Schedule guidelines ultimately adopted did not ban compounded drugs.

MTUS guidelines relied heavily on the Official Disability Guidelines from the Work Loss Data Institute, which did not forbid compounding.

But the issue of compounding drug usage and pricing has continued to build. Some doctors are providing "nutriceuticals".

In August 2010, the California Workers' Compensation Institute published a study by John Ireland and Alex Swedlow, titled "The Cost and Utilization of Compound Drugs, Convenience Packs and Medical Foods in California Workers' Compensation".

Here's the Executive Summary of that study by the CWCI:

"In 2002, California lawmakers enacted AB 749, the first of several workers’ compensation reforms that included provisions to modify the delivery of pharmacy benefits and contain the rapidly escalating cost of prescription drugs used to treat injured workers.

In response, state regulators held public hearings and by January 2004 adopted a workers’ compensation pharmacy fee schedule. That schedule capped maximum reimbursements for pharmacy services and drugs at 100% of the Medi-Cal rates, which at the time, were at least 10% below the average wholesale price (AWP) for prescription drugs, plus a dispensing fee. However, for medications not covered by Medi-Cal – such as repackaged drugs dispensed from a physician’s office – maximum reasonable fees were still governed by the Official Medical Fee Schedule that had been in effect in 2003. That schedule set maximum fees at 140% of the AWP for generic drugs, and 110% of the AWP for brand drugs, plus a dispensing fee.

This differential pricing system allowed physicians who dispensed repackaged drugs directly from their offices to be paid significantly more than pharmacies for the same medications. A recent Institute study1 found that in 2006, workers’ compensation reimbursements for repackaged drugs often exceeded the amounts paid for equivalent pharmacy-based prescription by 500% or more. Given that incentive, some companies began heavily marketing repackaged drug programs to workers’ compensation medical providers as a means of enhancing their revenue.

As a result, by 2006, repackaged drugs dispensed by doctors accounted for more than half of all workers’ compensation prescriptions dispensed in California, and nearly 60% of all workers’ compensation prescription dollars.

In 2007, the Division of Workers’ Compensation responded by revising the pharmacy fee schedule which, as of March of that year, largely eliminated the differential pricing. The effect was immediate, as both the volume of repackaged drugs and the amounts paid for these medications plummeted, declining more than 90 percent by 2008.

After the repackaged drug regulations took effect in March 2007, some companies began promoting compound drugs and convenience packs (“co-packs”) comprised of prescription medications and “medical foods” to California workers’ compensation medical providers. Even though there are ongoing disputes over whether the use of these substances is appropriate and what the proper reimbursement should be, anecdotal reports from workers’ compensation payors suggest their use has increased significantly in recent years. This study examines the issue using prescription data compiled from several regional and national workers’ compensation insurance companies to estimate recent changes in the volume and reimbursement of compound drugs, convenience packs and medical foods in California workers’ compensation."

You can access the complete study here:
http://www.cwci.org/research.html

The bottom line is that payments for compound drugs and medical foods has grown to a figure as high as 12% of pharmaceutical expenses in the system in 2009. That's a whopping increase, up from 2.3%.

While there may be some situations that require compounded medications, use on this scale is highly questionable.

Recognizing the problem, CHSWC was asked by the legislature to prepare a background analysis.

In her powerpoint presentation, Rand's Wynn noted that more data is being gathered, so an actual report has not yet been rendered. But a few points key points emerged:

• The FDA does not regulate compound drugs, but there are some "red flags" for enforcement action
• Most compound drugs prescribed are topical creams and lotions
• MTUS guidelines do address topical analgesics to some extent
• Financial incentives may be driving compound drug usage rather than medical need in many instances
• The DWC rules for repackaged drugs don't address all the pricing issues with compound drugs, many of which have ingredients not in the Medi-Cal database
• Payers and employers already have some tools to address compound drug issues
  

Wynn noted that possible regulatory and legislative policy initiatives could include:

• Updating and expanding the MTUS to address compound drugs as a product class
• Explicitly addressing compounding drugs in fee schedule regulations
• Legislation to specify compound drug coverage, but noting that this could "constrain flexibility to address evolving issues" and could have "unintended consequences"
• Steps to reduce the financial incentives for use of medical foods and compound drugs

When the Rand study is released it may provide additional ammunition for reforms.

In 2010, Solorio sponsored AB 2779, which would have effected some price controls over compound drugs. But AB 2779 did not make it to the governor's desk.

Labor and the the influential employer-side California Coalition on Workers' Comp are said to be backing the effort this time.

<i>Julius Young is an applicants' attorney for the Boxer & Gerson law firm in Oakland. This column was reprinted with his permission from his blog, http://www.workerscompzone.com</i>