Skip to Content
Claims Management

The Effects of Drug Formularies on Workers’ Compensation Prescriptions

The usage of drug formularies has increased as more states look for opportunities to manage prescription drugs in their workers’ compensation systems. Recent data from state implementations could provide more insight into the associated benefits.

March 28, 2022

Drug formularies can be a useful guide to medical providers in determining the most appropriate and cost-effective medication for an injured worker. And as more states grapple with high prescription drug costs and a heightened awareness of the opioid crisis, regulation of prices and usage has become a key focus of legislation in workers’ compensation.

“Drug formularies are a key component to improving an injured worker’s safety when multiple drugs and dosages may be prescribed, but also aid in drastically decreasing workers’ compensation costs related to prescription medication,” said Ashlie Ott, Medical Cost Manager at Safety National. “Formularies have been enacted to provide payers with guidelines to ensure the proper medications are dispensed, in the right quantities, at the correct time in the lifecycle of a claim. They have also been extremely helpful in decreasing the excessive medical spend associated with compound and physician-dispensed medications.”

Key findings from the National Council on Compensation Insurance (NCCI)’s briefing on drug formulary implementations examines changes in price and utilization in various states that have recently adopted mandatory use of the Official Disability Guidelines (ODG) Formulary.

Background on the ODG Formulary

The ODG Formulary is a detailed list of prescription drugs that are frequently used in the treatment of injured workers. Within this list, there is a status indicator that identifies whether each drug requires prior authorization. N-drugs require prior authorization by the employer or workers’ compensation insurer, while Y-drugs do not require prior authorization.

The ODG Formulary is often accompanied by evidence-based treatment guidelines to be used by the physician in treating injured workers. Its use is intended to complement the formulary in guiding prescribing physicians.

Initial Implementation Effects in Indiana, Kentucky and Montana

  • Decreased utilization of drugs contributed to overall cost declines in each of the three states in the period immediately after formulary implementation.
  • Post-reform decreases in drug costs for each state were comparable to decreases in overall drug costs observed in non-formulary states for the same periods.

Continued Implementation Effects in Arizona and Tennessee

  • Overall drug costs decreased in each of the subsequent post-reform periods for both states. Overall cost declines were driven by decreased utilization of drugs, with a more significant decline in the utilization of drugs requiring prior authorization (N-drugs) relative to those that do not require prior authorization (Y-drugs).
  • ​Opioid utilization declined by more than 20% in each post-reform period for both states; however, similar declines in opioid utilization were observed in non-formulary states for the same periods.
  • Utilization of topicals continued to decrease in Tennessee in the post-formulary periods, while the share of topicals increased in Arizona.

Statistics compiled from the National Council on Compensation Insurance (NCCI).