Workers' Compensation and Prescription Drugs: Key 2016 Updates Explained

Quick Answer: What Changed in 2016?

In 2016 the U.S. Department of Labor and most state workers' compensation boards revised rules governing prescription drug benefits for injured workers. The updates clarified which drugs are reimbursable, introduced the use of formularies, aligned reimbursement rates with Medicaid fees, and mandated prior‑authorization for certain high‑cost medications. These changes aim to control costs while ensuring timely access to necessary treatments.

Background: Workers' Compensation and Pharmacy Benefits

Workers' compensation provides medical care, including prescription drugs, to employees injured on the job. Historically, coverage varied widely by state, and insurers often paid the full retail price, leading to rising costs.

2016 Legislative and Regulatory Highlights

Federal Guidance

The Department of Labor issued an interpretive bulletin (Bulletin No. 2016‑03) that clarified the definition of "reasonable and necessary" medical treatment, explicitly including prescription drugs that are on a state‑approved formulary.

State‑Level Reforms

Over 30 states enacted statutes or administrative rules in 2016. Common themes included:

• Adoption of Medicaid drug pricing benchmarks for reimbursements.
• Requirement for prior‑authorization for specialty drugs.
• Implementation of drug utilization review (DUR) programs.

How Reimbursement Rates Were Adjusted

Prior to 2016 many jurisdictions reimbursed pharmacies at the average wholesale price (AWP) plus a markup, a model that often exceeded actual acquisition costs. The 2016 reforms shifted most states to the Medicaid Maximum Allowable Cost (MAC) or Average Sales Price (ASP) models.

Formulary Requirements and Prior Authorization

Most states now require that prescribed drugs be on an approved formulary unless a medical exception is documented. Prior‑authorization processes were standardized, with electronic submissions becoming the norm.

Impact on Injured Workers

These changes affect workers in several ways:

• Cost Transparency: Reimbursement aligns with actual drug costs, reducing out‑of‑pocket surprises.
• Access Speed: Prior‑authorization can delay specialty drug access, but many states set 48‑hour turnaround limits.
• Choice of Pharmacy: Some states restrict fill locations to network pharmacies that accept the new rates.

Employer and Insurer Responsibilities

Employers and their self‑insured carriers must:

• Maintain up‑to‑date drug formularies.
• Implement electronic prior‑authorization systems.
• Train claims staff on Medicaid MAC calculations.

Compliance Checklist for 2016 Standards

Use this list to audit your workers' compensation pharmacy program:

• Verify that all reimbursable drugs are on the state‑approved formulary.
• Confirm reimbursement rates are calculated using Medicaid MAC or ASP.
• Ensure prior‑authorization workflows meet state‑specified timeframes.
• Document medical necessity for any non‑formulary prescriptions.
• Audit pharmacy network contracts for compliance with new pricing rules.

Looking Ahead: Post‑2016 Trends

While the 2016 reforms set a baseline, states continue to refine drug benefit rules. Emerging trends include value‑based pricing models, increased use of biosimilars, and greater integration of telepharmacy services. Stakeholders should monitor state bulletins and federal guidance for future adjustments.