Study: Compound Drugs, Co-Packs Increase Calif. Workers’ Comp Costs

August 31, 2010

The use of compound drugs, medical foods, and so-called convenience packs that combine prescription drugs and medical foods, increased dramatically in the second quarter of 2007 — driving up costs in the state’s workers’ compensation system, according to a new study.

The California Workers’ Compensation Institute recently studied the use of the state’s workers’ compensation prescriptions. According to CWCI, the Food and Drug Administration (FDA) has become increasingly concerned about potential health and safety issues associated with compound drugs, and has ratcheted up its monitoring and enforcement efforts. Regardless, compound drugs, co-packs and medical foods have been promoted to workers’ compensation physicians and injured workers as an alternative to FDA-approved pain management pharmaceuticals, and like repackaged drugs, anecdotal reports suggest that these therapies are often used as a means to supplement physician revenue.

To estimate changes in the volume and cost of these prescriptions, CWCI examined data on California workers’ compensation prescriptions filled between 2006 and the first quarter of 2009 – a sample that encompassed more than 3 million prescriptions identified by specific National Drug Codes (NDCs) or product billing codes. After calculating quarterly distributions for the various prescriptions, the Institute analyzed the growth in the use of bulk and component drugs used in compound medications, co-packs and medical foods across the 40-month study period. The results show that the percentage of California workers’ compensation prescription codes linked to compound drugs, co-packs and medical foods nearly quadrupled from 1.2 percent in the first quarter of 2006 to 4.7 percent in the first quarter of 2009; with the biggest surge coinciding with the regulatory elimination of differential pricing for repackaged drugs in March 2007.

A closer look revealed that the sudden increase in the volume of these prescriptions in the second quarter of 2007 was initially fueled by the expanded use of co-packs and medical foods, though within a year, the use of compound drugs was up sharply as well. The growth in the billed and paid amounts for these products showed a similar pattern, as compound drugs, co-packs and medical foods climbed from 2.2 percent to 11.8 percent of the total amount billed for California workers’ compensation prescriptions between 2006 and 2009, and from 2.3 percent to 12 percent of the total dollars paid for injured worker prescriptions. Again, the percentage of prescription dollars billed and paid for compound drugs, medical foods and co-packs registered a striking increase in the second quarter of 2007 – just as the state was eliminating the differential pricing for repackaged drugs, an issue covered in an earlier CWCI study. Although that percentage has moderated and leveled off recently, as of the first quarter of 2009, these products – with the exception of medical foods sold independently of co-packs — continued to consume a much bigger share of the workers’ compensation prescription payment dollar than they did prior to the adoption of the repackaged drug regulations, with bulk drugs, co-packs and medical foods accounting for one out of every eight dollars paid for injured worker prescriptions in California.

Calculating the average amounts paid by quarter for compound drugs, co-packs and medical foods, the Institute found that the average payments for these products increased at different rates and at different times within the study period. For example, the average amount paid for compound drugs fell from $468 in the first quarter of 2006 to $387 in the second quarter of 2007, but as compound drugs became more prevalent in workers’ compensation after the repackaged drug regulations took effect, the average reimbursement began to increase, eventually hitting a high of $590 in the first quarter of 2008.

Co-packs were rarely used prior to 2007, but as the volume of these prescriptions began to increase, the average amount paid for these products increased by 51 percent from $279 in the second quarter of 2007 to $420 in the first quarter of 2009. In contrast, the average amount paid for a medical food fluctuated within a more narrow range ($160 to $184) between the first quarter of 2006 and the third quarter of 2008, then increased to $228 in the fourth quarter of 2008 and to $233 in the first quarter of 2009.

The Institute study shows that that even though reforms such as modified fee schedules and non-differential pricings for repackaged drugs have curbed some of the excesses in California workers’ compensation, compound drugs, co-packs and medical foods have emerged as a significant pharmaceutical cost driver in the system. This trend is likely to continue until state policymakers enact specific statutory controls and administrative oversight in order to determine the true efficacy and the appropriate use and reimbursement of these products, CWCI said.

The report is posted online in the Research section of the Institute’s Web site at www.cwci.org.

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