Analysis: North Carolina Studying Drug Formularies in Workers’ Comp Claims

By Gemma Saluta and Jonathan Reich | November 19, 2015

During the 2015 legislative session, the North Carolina General Assembly authorized and funded a study regarding prescription drug formularies in workers’ compensation claims brought by state employees. While this statute does not create a formulary, it certainly shows that the General Assembly is considering the issue and likely to take the issue up for review in 2016.

A drug formulary is, very simply, a preferred list of prescription drugs. This list can include both generic and brand name drugs, and is composed to identify drugs that are: (1) appropriate to treat the compensable injuries and (2) offer good value. The drugs included on a formulary are considered to be medically-appropriate and also cost-effective when prescribed for certain medical conditions. It is not uncommon for health care payors (private insurance companies and Medicare Part D) to maintain lists of pre-identified and pre-approved drugs. Formularies are widely considered an appropriate tool to encourage the safe and affordable use of prescription medicines.

Normally, a workers compensation-related formulary will be designed to cover prescription drugs which are typically related to certain workplace injuries, but will exclude (or require additional substantiation) drugs which are not work-related or may have increased risk. Supporters of formularies cite cost savings to payors and better utilization. By requiring additional approval for certain drugs, such as certain narcotics or opioids, formularies can direct prescribers to select less dangerous or potentially-addictive treatment options. For instance, in the 2014 Fiscal Report for the Ohio Bureau of Workers Compensation, the adoption of a formulary has resulted in large declines in the prescription rates of opioids.

Pursuant to the North Carolina directive, the designated agency, the North Carolina Industrial Commission – the administrative court which hears worker’s compensation claims – “shall study the implementation of a drug formulary in workers’ compensation claims filed by State employees” (Session Law 2015-241, Section 15.13A). The statute goes on to explain that the study should specifically address four factors:

  • “The pharmacy-related expenses incurred by North Carolina on an annual basis in workers’ compensation claims;
  • The savings, if any, that would result from the use of a drug formulary in workers’ compensation claims;
  • Whether the use of a drug formulary would result in the more efficient delivery of medications, provide workers with reasonable and necessary care, and provide a disincentive for health care providers to utilize costly name brand drugs and habit-forming opioids and narcotics; and
  • The adoption of an appeals process that would allow health care providers and injured workers to seek approval for the use of drugs that are not on the formulary’s approved list”

Additionally, the study “may consider any other issues relevant” to implementation of a drug formulary. The results of this study are supposed to be ready for reporting to the North Carolina General Assembly by April 1, 2016.

It is relatively clear from the language used by the General Assembly that it is seeking ways to control costs related to state employee workers’ compensation claims. In addition, it shows that there are already stated factors to consider regarding specific drug classes like generics, opioids, and narcotics.

This new task represents a broader directive by the Industrial Commission to reduce system costs. Recently, the North Carolina Industrial Commission revised its medical fee schedule, which sets the maximum reimbursement rates for medical providers unless the insurers and providers have a separate agreement. According to the 2015 Industrial Commission Annual Report, the Industrial Commission has concluded that the fee schedule changes will save the workers compensation system $27 million annually.

Further, the Industrial Commission has also implemented a faster decision process for disputes regarding medical treatment for accepted cases. This “fast track” procedure for medical disputes helps injured workers get disputed treatment sooner. If a prescription formulary is adopted, a similar fast track procedure could also be implemented regarding prescription drugs.

A prescription formulary will likely have an impact on workers’ compensation rates for North Carolina in the future. Using national data compiled by the Oregon Department of Consumer and Business Services in their biennial reports, trends can be observed. Over the last 7 years, North Carolina workers compensation rates have steadily declined, but remain “average” when compared to other states rates. The data showed that North Carolina’s worker’s compensation rates declined from $2.43 per $100 of payroll in 2008 to $1.85 per $100 of payroll in 2014.

However, this reduction may reflect broader softening in workers compensation rates nationally; over the same period of time North Carolina’s premiums remained to be ranked roughly at 25th in the nation compared to other states. This may change in 2016, as the North Carolina Rate Bureau has recommended for approval the average loss costs rates or pure premium in North Carolina be reduced by around 10 percent.

Thus far, neither the General Assembly nor the Industrial Commission have reported how a formulary would be created and applied to state employees. One option would be to hire a group to establish a formulary; alternatively, a group could be appointed by the Industrial Commission to further study the issue and develop a formulary. Either way, this group would probably be comprised of primary care physicians, pharmacists, and certain medical specialists who regularly treat workers who were injured while on the job. The committee may also include other health care professionals, nurse case managers, or individuals with health care management expertise.

In composing the list of drugs to include in the formulary, the reviewers typically consult with medical journals and clinical studies, information provided by the Food and Drug Administration, interviews or studies of actual prescriber activity in North Carolina, and their own experience as health care professionals. Since the directive was to review the system for state employees, the hope is that it would also be able to look for actual prescribing trends within the state system. If multiple medications seem equally effective in clinical usage, then the committee would examine economic factors such as cost, availability, and delivery method to select which drug to include on the formulary.

Likely, the formulary would set out a specific list of prescription drugs which are included and thus preauthorized. There will probably be an explanation of how or why certain drugs were included on the formulary. There may be an appeal process included so that specific medications can be included in a case-by-case basis for certain patients.

Similarly, there may be broad swathes of prescription drugs excluded from the formulary. In other states, this has included narcotic medications, compounded medications, and experimental drugs which are still in clinical trial phases.

North Carolina has enacted sweeping changes to its workers’ compensation system over the past few years. While drug formularies have been discussed in other states, only a handful of states (California, Ohio, Oklahoma, Texas, and Washington) actually have state-regulated drug formularies in place. Given the climate in North Carolina regarding workers’ compensation reform, North Carolina stands a good chance of potentially enacting this new measure.


Gemma Saluta is a litigator at Womble Carlyle Sandridge & Rice, LLP. She is experienced in bad faith claims, insurance coverage, business torts, labor and employment matters, and workers’ compensation. She practices in Winston-Salem, N.C.

Jonathan Reich is a litigator at Womble Carlyle Sandridge & Rice, LLP, focused on insurance coverage, insurance procurement, captive insurance matters, insurance regulatory issues, errors and omission cases, and catastrophic personal injury. He also practices in Winston-Salem.

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