Research Brief on Drug Fee Schedules and Workers Compensation

Posted Date: January 09, 2017
    

Industry InformationResearch

This technical paper uses an econometric model to quantify the impact of Average Wholesale Price-based prescription drug fee schedules on workers compensation (WC) drug costs.

Most states have prescription drug fee schedules that limit the prices that must be paid to service providers, absent some specific agreements between providers and payers (e.g., WC insurers and self-insureds). Typically, prescription drug fee schedules are based on the Average Wholesale Price (AWP). The AWP is generally set by the drug manufacturer and does not necessarily reflect the actual average market wholesale price paid by most drug purchasers, such as pharmacy chains. For most states with prescription drug fee schedules, the maximum amount reimbursable (MAR) to a prescription drug vendor is in general specified as a multiplier times AWP times the quantity of drugs dispensed, plus a dispensing fee.

This research estimates an econometric model that quantifies the impact of AWP-based prescription drug fee schedules on the price paid for WC drugs, controlling explicitly for observed characteristics of the drugs dispensed (e.g., whether the drug is dispensed within a network or not; whether the drug is a brand-name drug or a generic drug) that simultaneously affect actual prices paid. Using this model, we perform a legislative analysis to estimate percentage changes in the predicted total paid amount (the cost impact of a change in fee schedules) across four types of prescription drug fee schedule regime.

The article concludes that average prices paid for WC drugs in low-fee schedule states are significantly lower than prices paid for WC drugs in states without a fee schedule, and average prices paid for WC drugs in high-fee schedule states are significantly higher than prices paid for WC drugs in states without a fee schedule. However, the average difference in price paid per unit for WC drugs between medium-fee schedule states and no-fee schedule states is statistically insignificant.

Abstract: This technical paper uses an econometric model to quantify the impact of Average Wholesale Price-based prescription drug fee schedules on workers compensation (WC) drug costs.