According to the REG's May 2017 Baseline Evaluation of the Utilization and Cost Patterns of Compounded Drugs, there were 20,751 compounded drug prescriptions in the workers' compensation system in 2016. Of these prescriptions, approximately 10% required preauthorization because they contained a status "N" drug. This means that approximately 18,600 compounded drug prescriptions did not require preauthorization. Under the proposed amendments, all 20,751 compounded drug prescriptions would have to be preauthorized before being dispensed.

Any compounded drug prescription that is included in the pharmacy closed formulary is currently subject to retrospective review. However, if the proposed rule is adopted, these reviews would be conducted prospectively. If prescription patterns remain unchanged, approximately 20,000 preauthorization requests for compounded drugs may be processed in the first 12 months after the rule becomes effective. A worst case cost scenario for the preauthorization of compounded drugs excluded from the pharmacy closed formulary would be 20,000 preauthorization reviews multiplied by $120 per review (a standard industry estimated average cost for preauthorization reviews is $60 - $120 per review). Thus, the fiscal impact could be as much as $2.4 million but as little as $1.2 million for 20,000 preauthorization reviews. However, changes in prescription patterns by doctors may result in a reduction in the amount of requests to use compounded drugs, which would reduce the financial impact of the proposed rule on the system. There could be additional costs for insurance carriers if pharmacological management for injured employees is not utilized or is unproductive.

Ultimately, the net costs to insurance carriers for preauthorization of these claims will be the difference between the new preauthorization costs less the existing retrospective review costs. These costs are unique to the individual business practices of each insurance carrier as each utilizes unique retrospective review procedures.

In addition, Government Code §2001.0045 requires a state agency to offset any costs associated with a proposed rule by: (1) repealing a rule imposing a total cost that is equal to or greater than that of the proposed rule; or (2) amending a rule to decrease the total cost imposed by an amount that is equal to or greater than the cost of the proposed rule. As described above, the division has determined that the proposed amendments will have a cost to insurance carriers, prescribing doctors, and pharmacies. However, Government Code §2001.0045(c)(6) states that the section does not apply to a rule that "is necessary to protect the health, safety, and welfare of the residents of this state." The division has determined that the proposed amendments are necessary to ensure compounded drugs prescribed to injured employees are medically necessary and appropriate, which will protect injured employees' health, safety, and welfare. As a result, Government Code §2001.0045 does not apply to the proposed amendments and the division is not required to offset costs.

In accordance with Government Code §2006.002(c), the division has determined that adoption of the proposed amendments may have a direct, adverse economic impact on insurance carriers, prescribing doctors, and pharmacies who qualify as small or micro-businesses, as well as rural communities who may be self-insured insurance carriers. The division's cost analysis and resulting estimated costs in the Public Benefit and Cost Note, above, is equally applicable to small and micro-businesses, and also rural communities. Because the division has determined that the proposed amendments may have an adverse economic impact on small and micro-businesses and rural communities, this proposal contains the required economic impact statement and regulatory flexibility analysis.

Based on a report run on September 22, 2017, on Texas-licensed insurance carrier's December 31, 2016 annual statements to the Texas Department of Insurance, department records show there are 10 insurance carriers writing workers' compensation and excess workers' compensation business in Texas with total national premiums (workers' compensation and other lines of business) of less than $6 million. As of September 20, 2017, Texas Comptroller of Public Accounts data found at https://fmx.cpa.state.tx.us/fmx/legis/ecoeffect/2007_oct/naicscodes.php shows that the State of Texas had 15,530 physician's offices, of which 14,724 qualify as small businesses, and 3,083 health and personal care stores (including pharmacies and drug stores), of which 2,924 qualify as small businesses. According to the United States Census Bureau, Texas has scores of municipalities with a population of less than 25,000. According to division records, there are no certified self-insured employers that would be considered small or micro businesses.

There will be no difference in the cost of compliance between a large, small, or micro-business as a result of the proposed amendments. To alleviate the adverse economic cost that the proposed amendments may have on small or micro-businesses or rural communities, the division considered: (i) not adopting the proposed amendments; (ii) implementing different requirements or standards for the affected small and micro-businesses and rural communities; and (iii) exempting small and micro-businesses and rural communities from the requirements of the proposed amendments. Under Government Code §2006.002(c-1), an agency is required to consider alternative regulatory methods only if the alternative methods are consistent with the health, safety, and environmental and economic welfare of the state. The division has determined that the proposed amendments substantially contribute to the health, safety, and welfare of the state by ensuring that injured employees are receiving care that is medically necessary and appropriate.

Under Labor Code §408.021(a), an injured employee is entitled "to all health care reasonably required by the nature of the injury as and when needed" and "to health care that cures or relieves the effects naturally resulting from the compensable injury; promotes recovery; or enhances the ability of the employee to return to or retain employment." The purpose of the proposed amendments is to ensure that compounded drugs prescribed to injured employees are medically necessary and efficacious, and any variance in the requirements would defeat that purpose. Therefore, because this rulemaking is necessary to protect the health, safety, and welfare of the residents of this state, the division has determined that there are no regulatory alternatives to its proposal which will sufficiently protect the health, safety, and environmental and economic welfare of the state.

Government Code §2001.0221 requires that a state agency prepare a government growth impact statement describing the effects that a proposed rule may have during the first five years that the rule would be in effect. The proposed amendments will not create or eliminate a government program and will not require the creation or elimination of existing employee positions. The proposed amendments will not require an increase or decrease in future legislative appropriations to the division and will not result in an increase or decrease in fees paid to the division.

The proposed amendments do not create a new regulation because the existing closed formulary rules include preauthorization requirements for drugs excluded from the closed formulary. The new amendments build on existing regulation and require that all drugs created through compounding be preauthorized before they are dispensed. Currently, only compounded drugs that contain an N-drug require preauthorization. Therefore, the proposed amendments expand an existing regulation.

The proposed amendments increase the number of individuals subject to the rule's applicability. The division anticipates that the proposed amendments will positively affect the state's economy by ensuring that only medically necessary compounded drugs are prescribed and dispensed to injured employees. This increased certainty that a prescribed compounded drug will serve its intended purpose should result in increased resolution of work-related injuries and, therefore, improved return-to-work outcomes.

The division has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. Therefore, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

If you would like to submit written comments on this proposal, please submit your comments by 5:00 p.m. CST on February 20, 2018. Send written comments by email to rulecomments@tdi.texas.gov or by mail to Maria Jimenez, Texas Department of Insurance, Division of Workers' Compensation, Office of the General Counsel, MS-4D, 7551 Metro Center Drive, Suite 100, Austin, Texas 78744-1645

The division will conduct a public hearing on this rulemaking on Thursday, February 15, 2018, in the Tippy Foster Room of the Texas Department of Insurance, Division of Workers' Compensation, 7551 Metro Center Drive, Suite 100, Austin, Texas 78744. The public hearing will begin at 10:00 a.m. The division will consider written comments and public testimony presented at the hearing. The division provides reasonable accommodations for persons attending meetings, hearings, or educational events, as required by the Americans with Disabilities Act. If you require accommodations in order to attend the hearing please contact Maria Jimenez at (512) 804-4703 at least two business days prior to the hearing date. The hearing will also be audio streamed; to listen to the audio stream, access the DWC Calendar at www.tdi.texas.gov/wc/events/index.html.

Amended §§134.500, 134.530, and 134.540 are proposed under the authority of Labor Code §402.00111, Relationship Between Commissioner of Insurance and Commissioner of Workers' Compensation; Separation of Authority; Rulemaking; Labor Code §402.00116, Chief Executive; Labor Code §402.00128, General Powers and Duties of Commissioner; Labor Code §402.061, Adoption of Rules; Labor Code §408.021, Entitlement to Medical Benefits; Labor Code §408.028, Pharmaceutical Services; Labor Code §413.011, Reimbursement Policies and Guidelines; Treatment Guidelines and Protocols; Labor Code §413.013, Programs; Labor Code §413.014, Preauthorization Requirements; Concurrent Review and Certification of Health Care; Labor Code §413.053, Standards of Reporting and Billing; Insurance Code, Chapter 1305, Workers' Compensation Health Care Networks; Insurance Code §4201.054, Workers' Compensation Benefits; and Occupations Code §551.003, Definitions.

Labor Code §402.00111 states that the commissioner of workers' compensation shall exercise all executive authority, including rulemaking authority, under the Texas Workers' Compensation Act.

Labor Code §402.00116 states that the commissioner of workers' compensation is the division's chief executive and administrative officer and shall administer and enforce the Texas Workers' Compensation Act, other workers' compensation laws of this state, and other laws granting jurisdiction to or applicable to the division or the commissioner of workers' compensation.

Labor Code §402.00128 states that the commissioner of workers' compensation shall conduct the daily operations of the division and otherwise implement division policy and, among other functions, may delegate; assess and enforce penalties; and enter appropriate orders.

Labor Code §402.061 states that the commissioner shall adopt rules as necessary for the implementation and enforcement of the Texas Workers' Compensation Act.

Labor Code §408.021 states that an employee who sustains a compensable injury is entitled to all health care reasonably required by the nature of the injury as and when needed.

Labor Code §408.028 states that the commissioner of workers' compensation by rule shall adopt a closed formulary under §413.011 and that rules adopted by the commissioner of workers' compensation shall allow an appeals process for claims in which a treating doctor determines and documents that a drug not included in the formulary is necessary to treat an injured employee's compensable injury. In addition, this section states that the commissioner of workers' compensation shall by rule require the use of generic pharmaceutical mediations and clinically appropriate over-the-counter alternatives to prescription medications unless otherwise specified by the prescribing doctor, in accordance with applicable state law.

Labor Code §413.011 requires the commissioner of workers' compensation to adopt by rule treatment guidelines and return-to-work guidelines and medical policies designed to ensure the quality of medical care and to achieve effective medical cost control.

Labor Code §413.013 requires the commissioner to establish by rule a program for prospective, concurrent, and retrospective review and resolution of a dispute regarding health care treatments and services, and its monitoring.

Labor Code §413.014 states that the commissioner of workers' compensation by rule shall specify which health care treatments and services require express preauthorization or concurrent review by the insurance carrier. If a specified health care treatment or service is preauthorized as provided by this section, that treatment or services is not subject to retrospective review of the medical necessity of the treatment or service.

Labor Code §413.053 states that the commissioner by rule shall establish standards of reporting and billing governing both form and content.

Insurance Code, Chapter 1305 is the Workers' Compensation Health Care Network Act and contains treatment guidelines and authorization requirements applicable to certified networks.

Insurance Code §4201.054 states that the commissioner of workers' compensation shall regulate as provided by Chapter 4201 a person who performs utilization review of a medical benefit provided under Title 5, Labor Code, and that the commissioner of workers' compensation may adopt rules as necessary to implement section 4201.054.

Occupations Code §551.003 provides the definitions for "compounding" and "substitution."