The Texas Workers' Compensation Commission (the commission) adopts new §134.500, §§134.502-134.504, and §134.506 with changes to the proposed text published in the August 31, 2001 issue of the Texas Register (26 TexReg 6584). In addition, the commission simultaneously withdraws §134.505.

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order that includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals.

Changes made to the proposed rule are in response to public comment received in writing and at a public hearing held on October 2, 2001, and are described in the summary of comments and responses section of this preamble. Other changes were made for consistency or to correct typographical or grammatical errors.

These new rules are adopted to comply with statutory mandates in the Texas Labor Code. Prior to the 77th Legislative Session, 2001, §408.028 required a health care practitioner providing care to an injured employee to prescribe any necessary prescription drugs in accordance with applicable state law. It also stated that an insurance carrier may not require an employee to use pharmaceutical services designated by the carrier.

House Bill 2600 (HB-2600), adopted during the 2001 Texas Legislative Session, amended §408.028. In addition to previous requirements, the revised statute requires that physicians and doctors order over-the-counter alternatives to prescription medications when clinically appropriate and applicable, in accordance with state law. Amended §408.028 requires the commission by rule to develop an open formulary under §413.011 that requires the use of generic pharmaceutical medications as clinically appropriate and over-the-counter alternatives to prescription medications as clinically appropriate and applicable in accordance with state law. Finally, amended §408.028 requires the commission to adopt rules to allow an injured employee to obtain reimbursement for over-the-counter medications prescribed or ordered, and purchased by the employee.

A May, 2000 study by the Research and Oversight Council on Workers' Compensation (the ROC) examined state agency workers' compensation pharmaceutical data and concluded that pharmaceutical costs have risen an average of 50 percent from 1997 to 1999. During the period of 1995 through 1998, the frequency of state employee workers' compensation filings decreased 20 percent. Rising utilization coupled with the fact that injured employees in Texas have a choice between brand name and generic drugs created major cost increases to the system. HB-2600 requires the use of generic medications. This requirement, stated throughout new §134.500, and §§134.502-504, and §134.506, is anticipated to create a system-wide savings.

Before the 77th Session of the Texas Legislature convened in January 2001, the commission identified problems in the delivery of pharmaceutical benefits to injured employees. The problems identified include, but are not limited to, the following:

1. Rapidly increasing cost for prescription medicines;

2. Injured employees who were unable to get prescriptions filled or refilled;

3. Injured employees not being reimbursed for out-of-pocket expenses for medicines related to a compensable injury;

4. Pharmacies not being reimbursed for prescriptions due to a lack of information concerning the medical necessity of a prescription;

5. Inconsistent information from prescribing doctors concerning the medical necessity of prescriptions; and,

6. Doctors prescribing prescription medications in lieu of over-the-counter alternatives to prescription medications in order to prevent out-of-pocket expense by the injured employee.

A commission work group composed of commission staff members and external stakeholders was working toward solutions for pharmacy problems when the Texas Legislature proposed HB-2600. HB-2600 contains two sections concerning the delivery of pharmaceutical benefits to injured employees. HB-2600 identified and addressed some, but not all, of the problems that were being addressed by the commission. HB-2600 gave legislative direction in certain areas. The adopted pharmacy rules contain requirements that are the result of both legislative mandate and commission initiative.

The commission's medical billing database does not contain information concerning outpatient pharmacy benefits. Therefore, data was not readily available to the rule development team. The National Council on Compensation Insurance, Inc. (NCCI) was contacted to assist the team in locating and assessing reliable information. NCCI assisted the commission in locating a recent study conducted by the California Workers' Compensation Institute tilted "Study of the Cost of Pharmaceuticals in Workers' Compensation." Pharmaceutical benefit delivery in the California Workers' Compensation system is similar to the pharmaceutical benefit delivery in the Texas Workers' Compensation System. California is experiencing many of the same problems as Texas. The California study and the data used in the study proved to be a useful and appropriate resource in the development of the pharmacy rules.

NCCI was also requested to analyze the conversion factors originally proposed in §134.503 and to calculate the conversion factor that would achieve cost savings in the Texas Workers' Compensation System and meet the legislative intent of HB-2600. NCCI used data from the recent California study concerning workers' compensation pharmacy cost. The California reimbursement formula is very close to the Texas formula. The NCCI analysis indicated that the proposed reimbursement formula would result in a 0.1% increase in cost because of the increased conversion factor that was proposed for brand name drugs. In addition, NCCI was asked to calculate the conversion factor for both generic and brand name pharmaceuticals that would be cost neutral for Texas utilization with a constant dispensing fee of $4.00, using the dispensing ratio of generics to brand name drugs, and the ratio of the cost of a brand name drug relative to a generic drug derived from the California study. NCCI determined that 1.24 would be cost neutral. This would negate the legislative intent to generate savings from requiring use of generic drugs.

NCCI was also asked to evaluate the impact of the following reimbursement formula for the conversion factor only:

Brand name: AWP x 1.09 = MAR (current)

Generic: AWP x 1.25 = MAR (proposed)

The actuarial assessment by NCCI indicated that with no change in the brand name/generic mix; the savings would be approximately 4.9%. The adopted rules require the use of generic medications unless brand name is medically necessary. If this requirement results in 50% of the current dispensed brand name prescriptions being filled with a generic equivalent in the future, the results would be a cost savings of approximately 5.8%. Changing the dispensing fee from $7.50 to $4.00 for generic medications and retaining the current $4.00 dispensing fee for brand name medicines will result in additional cost savings. The savings generated with the reimbursement formula in the adopted rule meets the legislative intent to create cost savings while ensuring pharmacists will participate in the workers' compensation system and continue to provide access to quality health care.

Adopted new §134.500, §§134.502-504, and §134.506 provide much needed structure and clarification of pharmaceutical benefits. Section 134.501 and §134.505 are reserved for future use. In the absence of pharmacy data, it is difficult to quantify the problems and costs relating to pharmacy issues. However, based on the anecdotal personal experiences from employees, prescribing doctors, pharmacists, and carriers involved in pharmaceutical delivery, it is believed that the new rules will address many of the problems in the system. The Medical Advisory Committee (MAC) provided advice and input for adopted §134.500, §§134.502-504, and §134.506 through a subcommittee. The commission's Medical Advisor also provided consultation and recommendations for these rules.

§134.500. Definitions.

New §134.500 provides definitions for terms used throughout this subchapter. Adding a section of definitions clarifies the meaning of the rules. The following terms are defined: compounding, statement of medical necessity, nonprescription drug or over-the-counter medication, open formulary, prescribing doctor, prescription, and prescription drug.

Based on comments, changes were made to subsections (a)(1), (a)(2), (a)(3), (a)(4), (a)(6), (a)(7)(B), (a)(7)(C), and (b). The definition of " compounding" was clarified by removing the term " devise" and clarifying that combining drugs by mixing with water does not constitute "compounding". The definition of a "statement of medical necessity" was expanded to include requirements that were in the body of the rule as proposed. The term "device" was removed from subsections (a)(1), (a)(2), (a)(3), (a)(6), (a)(7)(B), and (a)(7)(C). The example of nutritional supplements was removed from subsection (a)(4). Section 134.500(b) was revised to clarify that the new rules are applicable to medications prescribed or filled after the effective date of the rule, and that §134.201 does not apply to prescriptions filled on or after the effective date of this rule.

§134.502. Pharmaceutical Services.

New §134.502 relates to the prescribing, billing and dispensing of medications. This section requires doctors to prescribe generics and over-the-counter alternatives when appropriate and to comply with §134.506, the Outpatient Drug Formulary. Previous rules did not put any limitations on brand name prescriptions and did not address the prescription of over-the-counter medications. Texas Labor Code §408.028 states that the commission must require the use of generic medications and clinically appropriate over-the-counter alternatives to prescription drugs, in accordance with applicable state law, and this rule does both. The rule as adopted does not allow an employee to refuse a generic prescription and opt for a brand name drug by agreeing that the employee will pay additional cost or a co-payment, as allowed in some other health care systems.

This rule also requires a doctor to provide a statement of medical necessity when requested. This tool, already informally used, will assist multiple system participants in the reimbursing of medications. A statement of medical necessity will assist pharmacists in the resolution of medical necessity disputes. The statement will also assist injured employees when seeking reimbursement for out-of-pocket expenses for medications. Section 134.502 formalizes the statement of medical necessity for prescriptions.

Changes were made to §134.502 to clarify instructions and ensure consistency of terminology. Based on comments received, §134.502(c) increases the amount of prescription drugs that can be dispensed at one time from a 30-day supply to a 90-day supply. Section 134.502(e) was changed to require an insurance carrier to request a statement of medical necessity from the prescribing doctor before denying reimbursement for a prescription or over-the-counter medication. The carrier is required to send a copy of the request for a statement of medical necessity to the pharmacist and the injured employee. Subsection (f) allows the employee or the pharmacist to request statement of medical necessity from the prescribing doctor. Section 134.502(h) was added which also requires the carrier to send the prescribing doctor and injured employee a copy of the explanation of benefits when reimbursement is denied. This increases the communication among the system participants regarding prescription reimbursement.

§134.503. Reimbursement Methodology.

New §134.503 provides the reimbursement methodology for pharmaceutical services. The general reimbursement methodology from the 1996 Medical Fee Guideline (MFG) was carried over in part.

The 1996 MFG had a dispensing fee of $7.50 for generic medications and a dispensing fee of $4.00 for brand name medications. The higher fee for generic medications was designed to encourage the dispensing of generic medications and the resultant cost savings. The statute and §134.502 now require the use of generics in most instances; therefore, it is not necessary to provide a financial incentive to dispense generic medications, and the dispensing fee is set at $4.00 for both brand name and generic drugs. The 1996 Medical Fee Guideline required use of two monthly publications of Medispan, while the new rule authorizes use of any nationally recognized pharmaceutical reimbursement system.

New §134.503 instructs the pharmacist to dispense the generic when prescribed or when a prescription does not require the use of a brand name drug. The rule as adopted does not allow an employee to refuse a generic prescription and opt for a brand name drug by agreeing that the employee will pay additional cost or a co-payment, as allowed in some other health care systems.

The new rule sets reimbursement for over-the-counter drug as the price of the lowest package quantity reasonably available that will fill the prescription, and excepts inpatient and parenteral drugs from its requirements.

Based on comments received, separate conversion factors were set for generic drugs and brand name drugs in §134.503 (a)(2). The reimbursement for generic drugs is [(AWP) x (number of units) x 1.25] + $4.00 dispensing fee = MAR. The reimbursement for brand name drugs is [(AWP) x (number of units) x 1.09] + $4.00 dispensing fee = MAR. The compounding fee in §134.503 (a)(2)(B) was reduced to $15.00 per compound. Language was added to §134.503(c) to clarify reimbursement for over-the-counter drugs at the retail price of the lowest package quantity reasonably available that will fill the prescription. The first sentence of §134.503(e) stating: " insurance carriers shall update drug and supply pricing data at least every 30 days" was removed to eliminate confusion with the requirement to use the AWP in effect on the day the prescription is dispensed.

§134.504. Pharmaceutical Expenses Incurred by the Injured Employee.

New §134.504 provides a process for the injured employee to obtain reimbursement for medications that have been purchased out-of-pocket. Previous rules did not address injured employee reimbursement for pharmaceutical expenses, nor did they require a carrier to consider an injured employee's request for reimbursement. Under previous rules, injured employees submitted requests to carriers seeking reimbursement in a variety of ways. New §134.504 establishes a standardized method for employees to seek and receive reimbursement for monies paid out-of-pocket for prescriptions. Minor language changes were made for accuracy, consistency, and clarity.

§134.505. Chronic Pain Prescriptions.

The Commission recognizes that the issues surrounding chronic pain are important and may need to be addressed by rule; however, after reviewing the comments on proposed §134.505, the Commission has decided to delete this section from the proposal pending further examination of the issues.

§134.506. Outpatient Drug Formulary

New §134.506 adopts the outpatient open drug formulary as required by the statute and defined in §134.500(a)(4).

Based on public comment, §134.506(a)(2), (b), (c), (d), and (e) were removed.

The following groups submitted comments generally supporting §134.500 and §§134.502-134.506: American Insurance Association; Healthwatch, Inc.; Insurance Council of Texas; Liberty Mutual Insurance Group; Pharmaceutical Research and Manufacturers of America, PMSI; State Office of Risk Management; and Texas Association of Businesses and Chambers of Commerce.

The following groups submitted comments generally opposing §134.500 and §§134.502-134.506: Center for Pain Control; Greater North Texas Pain Society; Injured Workers' Assistance Center; Neurocare Network; Patient Advocates of Texas; Pharmacy Management Corporation; Texas Orthopaedic Association; and Texas Pain Society.

The following groups submitted comments making recommendations, and/or supporting portions and opposing portions of §134.500 and §§134.502-134.506: Coalition of Nurses in Advanced Practice; EzRx Pharmacy Services; Flahive, Ogden, and Latson; HEB; Medtronic Neurological; Midwest Employers Casualty Company; National Association of Chain Drug Stores; STAT 2000; Texas Back Institute; Texas Federation of Drug Stores; Texas Medical Association; Texas Mutual Insurance Company; Texas Pharmacy Association; Work Scripts; and Zenith Insurance Company.

Summaries of the comments and commission responses are as follows:

Preamble / General

COMMENT: Commenters generally supported the proposed new rules that, consistent with HB-2600, require that doctors prescribe generic prescription drugs when available and clinically appropriate, and require the doctor to prescribe over the counter medications when appropriate. Commenters believed that the use of generic prescriptions and over-the-counter medications has the potential to result in sizable savings in overall workers' compensation medical costs and commend the commission for its ongoing efforts to improve the Texas workers' compensation system through the effective utilization of the rulemaking process.

RESPONSE: The commission agrees.

COMMENT: Commenters believed that the proposed rules are extremely bad and they must be discarded to avoid the major damage they will produce to the workers' compensation system. Based on Texas Labor Code, HB-2600, the Medical Practice Act, and Texas statutes, commenter objected to the entire proposed preamble.

RESPONSE: The commission disagrees. Sections 408.028 and 413.011 of the Labor Code provide the statutory requirements and authority and direction for the establishment of fee guidelines and a formulary. New §134.500, §§134.502-134.504, and §134.506 meet the statutory requirements and fall within the statutory authority granted to the commission to establish medical policies.

COMMENT: Commenters pointed out that the preamble to §134.500 and §§134.502-506 states: "However, based on the anecdotal personal experiences from employees." The preamble acknowledges an "absence of pharmacy data." Commenters believed that the proposed rules need major revisions to achieve HB-2600's objective regarding standardization and uniformity with other health care delivery systems. Commenter opposed §134.500 and §§134.502-134.506 and expressed the belief that the proposed rules exceed statutory authority and go beyond the intent of HB-2600.