The Impact of a Closed Formulary on Prescribing Patterns in the Treatment of Injured Workers
Prescription drug spending accounts for nearly twenty percent of workers' compensation (WC) health care costs, while prescription drug overdose is a leading cause of death in the United States. To guide physicians to prescribe safer and more cost-effective drugs, Texas WC implemented one of the first formularies tailored specifically for the treatment of work-related injuries by establishing a list of non-preferred drugs that require preauthorization before they can be prescribed. Despite the fact that many WC programs are implementing or considering implementing closed formularies, little is known about WC formularies’ ability to reduce the use of non-preferred drugs or about the effect of limiting certain drugs on spending on other drugs or on medical care.
The goal of this study is to examine the impact of a closed formulary on pharmacy and medical care received by injured workers several months after their initial injuries in Texas, which was one of the first states to implement a formulary for WC claims. In addition to examining the effects of the formulary on non-preferred drugs, I also seek to test for possible spillover effects on preferred drugs and on non-pharmacy medical care. I focus on effects several months after initial injuries because part of the rationale for the formulary is to decrease the use of addictive drugs.
I implement a regression discontinuity design that takes advantage of the staggered implementation of the formulary that resulted in two sets of workers being on different formulary regimes at the same time. To implement the strategy, I draw on administrative data on WC medical and pharmacy bills from January 2013 to August 2013 for claims that began in March 2011 to February 2012. I compare bills for people who were injured just prior to the cutoff date of August 1, 2011, to those who were injured immediately after the cutoff date. Comparing injured workers on different formulary regimes over the same time period ensures that unobservable changes—such as the introduction of new drugs or unobserved WC policy changes—are not responsible for differences between people on and off the formulary.
Several months after the initial injury, claimants on the closed formulary are half as likely to receive a non-preferred drug and have 40 to 52 percent lower non-preferred drug costs. Despite these large impacts of the formulary on prescriptions of non-preferred drugs, I find no evidence that prescriptions for preferred drugs or spending on non-pharmacy medical care increases.
The findings from this paper have two main policy implications. First, these results provide evidence that a closed formulary can lower pharmacy costs for the treatment of occupational injuries and diseases. Second, the results show that decreasing spending on certain drugs will not necessarily lead to increased expenditures on other types of care.