The Commissioner of Workers' Compensation (commissioner), Texas Department of Insurance, Division of Workers' Compensation (division) adopts amendments to 28 Texas Administrative Code (TAC) §134.500, Definitions; and adopts conforming amendments to 28 TAC §134.530, Requirements for Use of the Closed Formulary for Claims Not Subject to Certified Networks; and 28 TAC §134.540, Requirements for Use of the Closed Formulary for Claims Subject to Certified Networks. The changes amend the definition of the closed formulary to exclude any prescription drug created through compounding, and to require preauthorization for all prescription drugs created through compounding.

The amendments are adopted without changes to the proposed text published in the January 19, 2018, issue of the Texas Register (43 TexReg 319). In accordance with Government Code §2001.033, the division's reasoned justification for these amended sections is set out in this order, which includes the preamble and the rules. The preamble contains a summary of the factual basis for the rules, a summary of comments received from interested parties, names of the entities that commented and whether they were in support of, or in opposition to, the adoption of the rules, and the reasons why the division agrees or disagrees with the comments and recommendations.

The public comment period ended on February 20, 2018. The commissioner conducted a public hearing on February 15, 2018.

House Bill 7 (HB 7), enacted by the 79th Texas Legislature, Regular Session, amended Labor Code §408.028, Pharmaceutical Services, to require that the commissioner of workers' compensation adopt a closed formulary. After extensive collaboration with system participants, including health care providers and insurance carriers, the commissioner adopted a series of rules to implement the closed formulary and transition injured employees' claims to the closed formulary. As adopted, the closed formulary applies to network and non-network claims, regardless of the injured employee's date of injury.

Implementation of the closed formulary has had a significant effect on the use of pharmaceuticals in the Texas workers' compensation system. The use of opioids and other potentially addictive drugs by injured employees has decreased dramatically. Likewise, the cost for pharmaceuticals has decreased significantly since the initial applicability of the closed formulary. These changes have been monitored through a series of reports issued by the Texas Department of Insurance Workers' Compensation Research and Evaluation Group (REG).

From 2010 to 2015, total payments for all prescriptions decreased by 38%. In contrast, total payments for compounded drugs increased by 98% over the same time period.

Pharmacy services for new claims (by injury year):

Between Fiscal Injury Year (FIY) 2011 (pre-formulary) and FIY 2012 (post-formulary), the number of injured employees receiving N-drugs (drugs identified with a status of "N" in the current edition of the Official Disability Guidelines Treatment in Workers' Comp (ODG) / Appendix A, ODG Workers' Compensation Drug Formulary, and any updates) decreased by 67%.

N-drug costs decreased by 78%, and N-drug costs as a percentage of all drug costs decreased by 74% (from 20% of total to 5% of total).

The average number of N-drug prescriptions per claim decreased by 32%.

The number of N-drug prescriptions decreased by more than 70% across all drug groups.

Pharmacy services for all claims (new and legacy claims by service year):

Between Fiscal Service Year (FSY) 2011 (pre-formulary) and FSY 2014 (post-formulary for legacy claims), the number of injured employees receiving N-drugs decreased by 83%.

The number of N-drug prescriptions decreased by 85%.

N-drug costs decreased by 80%. The number of N-drug prescriptions decreased by more than 80% in all drug groups. Costs decreased by more than 70% in all drug groups.

As a result of concerns expressed by system participants and the division's obligation to monitor the closed formulary, generally, analysis of compounded drug activity was undertaken based on pharmacy data collected by the division. The following observations, presented by the division to the Texas House of Representatives Business and Industry Committee, are noteworthy.

Compounded drug payments increased from $5.87 million (4% of total prescription reimbursement) in calendar year (CY) 2010 to $11.6 million (12% of total prescription reimbursement) in CY 2015.

Pharmacy medical billing data indicates a 14% increase in the number of compounded drugs paid from CY 2010 to CY 2014.

Reimbursement per compounded drug increased 141% from CY 2010 to CY 2015 ($316 to $760).

From FY 2010 to FY 2014, ingredient costs for a selected group of ten commonly compounded drugs increased between 82% and 1,474%.

Per the division's analysis, as the use of compounded drugs for work-related injuries has increased over the last five years, the cost of compounded drugs as a percentage of total pharmacy costs has more than doubled.

In response to these findings, the division initiated a plan-based audit of several doctors prescribing compounded drugs in the system. The audit was conducted by the division's Office of the Medical Advisor.

Under Labor Code §408.021, Entitlement to Medical Benefits, an injured employee who sustains a compensable injury is entitled to all health care reasonably required by the nature of the injury as and when needed. More specifically, an injured employee is entitled 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.

While entitlement to health care does extend to, and include, compounded drugs, compounded drugs are not recommended as a first-line therapy by the current edition of the division's adopted treatment guidelines, the Official Disability Guidelines-Treatment in Workers' Comp (ODG), and the medical necessity and efficacy of compounded drugs is not well-established per evidence-based medicine standards.

The purpose of the Compound Medications Plan-Based Audit was to promote the delivery of quality health care in a cost-effective manner, including protection of injured employee safety; to ensure that doctors adhere to the ODG / Appendix A, ODG Workers' Compensation Drug Formulary and medically-accepted standards of care for prescribing compounded drugs; and to determine the appropriateness of medical decision-making related to the prescription of compounded drugs by doctors or those acting under their supervision. The division found that prescribing doctors selected for the audit generally did not demonstrate or document the efficacy or medical necessity of the prescribed compounded drugs dispensed to injured employees.

The adopted amendments are necessary to ensure that compounded drugs are prescribed to injured employees only when reasonably required and medically necessary to treat the injured employee's injury. Preauthorization of compounded drug prescriptions assures that the prescription comports with the commissioner's adopted treatment guidelines or the network's treatment guidelines and other treatment standards outlined in the Insurance Code and Texas Administrative Code. Preauthorization may also apply downward pressure on compounded drug system costs because only compounded drugs determined to be medically necessary will be dispensed to injured employees. Of considerable importance, these rule amendments clarify for stakeholders the division's requirements regarding compounded drugs in the closed formulary.

Until now, §134.530, Requirements for Use of the Closed Formulary for Claims Not Subject to Certified Networks, and §134.540, Requirements for Use of the Closed Formulary for Claims Subject to Certified Networks, required preauthorization for "any compound that contains a drug identified with a status of "N" in the current edition of the ODG Treatment in Workers' Comp (ODG) / Appendix A, ODG Workers' Compensation Drug Formulary, and any updates." The division did not require preauthorization for compounded drugs that did not contain an "N" drug. The adopted rule amendments require preauthorization for all compounded drugs prior to being dispensed, including compounded drugs that do not contain an "N" drug.

The most efficient means for requiring preauthorization is to amend the definition of closed formulary contained in §134.500, Definitions, to exclude not only compounded drugs that contain N-status drugs, but all compounded drugs. By making conforming changes to §134.530 and §134.540, all compounded drugs require preauthorization prior to dispensing.

Therefore, the division adopts amendments to §134.500 to exclude from the closed formulary "any prescription drug created through compounding." The division uses the phrase "any prescription drug created through compounding" rather than "compound drug" or "compound" because "compounding" is a defined term. In §134.500, "compounding" is defined as the preparation, mixing, assembling, packaging, or labeling of a drug or device under a number of specified circumstances. By contrast, "compound drug" and "compound" are not defined terms in the Texas Workers' Compensation Act or division rules and using them could produce more confusion than clarity within the regulated community. The phrase "compounded drug" as used in this preamble is shorthand for "any prescription drug created through compounding" and is the term used in the REG's most recent study on the topic.

Section 134.530(b)(1) and §134.540(b) require preauthorization for drugs excluded from the closed formulary. Therefore, the effect of amending the definition of the closed formulary to exclude any prescription drug created through compounding is to require preauthorization of these drugs before they are dispensed. This change does not prohibit the use of compounded drugs for injured employees when medically necessary; however, it does require that the medical necessity be determined prior to dispensing these drugs.

Prescriptions for compounded drugs not requiring preauthorization that are written before July 1, 2018, and refills for those prescriptions, will not be impacted by this rule change. However, any prescription drug created through compounding will require preauthorization when both prescribed and dispensed on or after July 1, 2018. The delayed applicability date should allow sufficient time for the prescribing doctor, injured employee, and insurance carrier to revisit and review an injured employee's need for specific prescription compounded drugs. As compounded drugs are transitioned into the preauthorization process, the likelihood of unreasonable risk of medical emergency resulting from an adverse determination is low. However, an unreasonable risk of medical emergency triggered by an adverse determination of a preauthorization request for a previously prescribed and dispensed compounded drug can be addressed promptly through the process outlined in §134.550, Medical Interlocutory Order.

SUMMARY OF COMMENTS AND AGENCY RESPONSE

General: Commenters expressed support for the proposal. Commenters stated that preauthorization of compounded drugs will protect injured employees by ensuring that such medications are medically necessary, reasonably required and appropriate prior to being dispensed. Commenters stated that the adopted amendments are consistent with the Labor Code's requirement that the closed formulary be evidence-based. A commenter stated that the adopted amendments ensure that a prescription for compounded drugs comports with the division's adopted treatment guidelines or network guidelines and other treatment standards outlined in the Insurance Code and Texas Administrative Code. Commenters stated that the cost and use of compounded drugs has increased over the past several years but that these adopted amendments should reduce compounded drug system costs and compounded drug utilization. Commenters stated that the adopted amendments will clarify for stakeholders the division's requirements regarding compounded drugs and reduce litigation costs created under the division's current rule.

Agency Response: The division appreciates the support and agrees that the adopted rules comport with the division's adopted evidence-based treatment guidelines and that injured employees continue to have access to medically-necessary and efficacious compounded drugs after approval through the preauthorization process. The division agrees that compounded drugs costs have increased and preauthorization should lead to some downward pressure to reduce costs. Further, clarity in administrative processes may reduce the instances of disputes and their related costs.

General: Commenters stated that preauthorization of compounded drugs is not required for initial pharmaceutical coverage, in emergency medical care situations, and for inpatient medical care.

Agency Response: The division agrees that preauthorization is not required for initial pharmaceutical coverage as outlined in 28 TAC §134.501, Initial Pharmaceutical Coverage, nor is preauthorization required for emergency medical care situations. Compounded drugs filled under these circumstances are, however, subject to retrospective review for medical necessity. The division notes that the closed formulary does not apply to inpatient medical care.

General: Commenters stated that other state and federal workers' compensation jurisdictions require that compounded drugs be preauthorized.

Agency Response: The division recognizes that other state and federal workers' compensation jurisdictions may require that compounded drugs be preauthorized. The division notes that each jurisdiction may have unique rationale for those decisions. The division has determined that preauthorization of compounded drugs assures that Texas' injured employees have access to medically necessary and efficacious compounded drugs.

General: A commenter stated that the adopted amendments ensure that injured employees receive the health care guaranteed by Labor Code §408.021.

Agency Response: The division agrees that injured employees are entitled to medical benefits as outlined in §408.021. While entitlement to health care does extend to, and include, compounded drugs when proven medically necessary, compounded drugs are not recommended as a first-line therapy by the current edition of the ODG, the division's adopted treatment guidelines, nor is the medical necessity and efficacy of compounded drugs well-established per evidence-based medicine standards. Therefore, all compounded drugs are available to an injured employee after medical necessity is determined using the preauthorization process.

General: A commenter stated that the division's proposal addresses the difficulty of verifying the "N" drug status for powder-form ingredients by requiring all compounded drugs to be preauthorized.

Agency Response: The division notes that requiring preauthorization for all compounded drugs will provide clarity for system participants.

General: A commenter stated that if preauthorization is denied, the injured employee, treating doctor or pharmacy can request an independent review of the disputed prescription under division rule 133.308.

Agency Response: The division agrees that a requestor has access to the medical dispute resolution process under 28 TAC §133.308, MDR of Medical Necessity Disputes. The division clarifies that a requestor may pursue an independent review only after reconsideration of an adverse determination made during the preauthorization process.

General: Several commenters stated that since most compounded medications dispensed in the worker's compensation system are non FDA-approved for patient safety and efficacy, compounded medications are investigational and experimental drugs in most cases.

Agency Response: As stated in Labor Code §408.021, an injured employee is entitled to all health care reasonably required by the nature of the injury as and when needed. The threshold question in this concept is the medical necessity of the treatment or service as opposed to the classification of experimental or investigational nature of the proposed health care. In the case of these adopted amendments concerning compounded drugs, preauthorization directly addresses the medical necessity issues, rendering experimental or investigational determinations moot.

General: A commenter stated that compound medications are expensive and that injured workers do not benefit from them. The commenter also stated that when a compound medication prescription is retrospectively reviewed, the medication is never found to be reasonable or necessary per the ODG.

Agency Response: The division acknowledges the comment, but clarifies that the adoption of the amended rules will ensure that the medical necessity of compounded drugs received by injured employees will be reviewed prior to dispensing. This prospective review should protect injured employees and ensure their health and safety. Although compounded drugs are not recommended as a first line option in the division's adopted treatment guidelines, the utilization review process will consider and evaluate evidence and rationale submitted with the preauthorization request. Requirements for submission of a preauthorization request are included in §134.600 of this title, regarding Preauthorization, Concurrent Utilization Review, and Voluntary Certification of Health Care. Detailed information related to overcoming the division's adopted treatment guidelines is included in Appendix D of the ODG. Appendix D provides a process to assist doctors in justifying their request to provide services not recommended by the ODG treatment guidelines.

General: A commenter opposes the division's proposal, as published, because it "is in essence a ban on compounded medications for injured workers due to payers' concern for their bottom lines."

Agency Response: The division disagrees. Under the Texas Workers' Compensation Act, an injured employee who sustains a compensable injury is entitled to "all health care reasonably required by the nature of the injury as and when needed." More specifically, an injured employee is entitled 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."

While entitlement to health care does extend to, and include, compounded drugs when proven medically necessary, compounded drugs are not recommended as a first-line therapy by the current edition of the ODG, the division's adopted treatment guidelines, nor is the medical necessity and efficacy of compounded drugs well-established per evidence-based medicine standards. Therefore, all compounded drugs are available to an injured employee after medical necessity is determined using the preauthorization process.