The Department of Labor (DOL) Office of Workers’ Compensation Program (OWCP) administers the Federal Employees’ Compensation Act for the Postal Service and the federal government, including costs for medical treatment and prescriptions. The Postal Service then reimburses the DOL for the benefits paid out for a chargeback year (CBY), starting from July of the preceding year to June of the current year. The Postal Service pays about 39% of the federal government’s total workers’ compensation administrative expenses.
OWCP allows charges for compound drugs, which are created when licensed pharmacists, physicians, or others acting under the supervision of licensed pharmacists combine, mix, or alter ingredients of drugs to tailor them to individual patients. Compound drugs are not monitored or approved by the Food and Drug Administration (FDA). The Office of Inspector General (OIG) recently published a report, assessing the Postal Service’s workers’ compensation compound drug costs.
What the OIG Found
The Postal Service’s workers’ compensation compound drug costs were $98.7 million for CBY 2015, a significant increase from CBY 2014. For the first six months of CBY 2016, the Postal Service has incurred $85.7 million in compound drug costs, with a forecasted $71 million to be added throughout the year.
Additionally, the number of employees who were receiving multiple compound drug prescriptions grew rapidly in CBY 2015, roughly 600 employees as compared to fewer than 100 employees in CBY 2011 through 2014.
In CBY 2011, about eight percent of all prescriptions were for compound drugs. That number increased to thirty-four percent by CBY 2015 (see below table).
Response by Others
In response to the large increase in compound drug costs nationwide, several government agencies and private entities began to examine costs and implement best practices for managing them. TRICARE and private entities have implemented restrictions such as:
- Reimbursement caps on prescriptions;
- Fee schedules for compound drugs;
- Mandatory use of pharmacy benefits managers;
- Formularies; and
- Pre-authorizations for payment.
The DOL, however, was not an agency that implemented best practices to manage any compound drugs costs. According to the OIG, it is estimated that if the DOL does not implement best practices to control compound drug costs, these costs and the related administrative fees could accumulate to over $1.2 billion and over $60.3 million, respectively, over the next three years.
Response by USPS
The Postal Service has asked the DOL since January 2015 why medical costs continue to escalate so quickly. DOL management responded that the increase was “simply the law of averages catching up.” The Postal Service is so concerned about these rising costs and the DOL’s inaction that it requested an adjustment and withheld the $68.6 million payment for this year’s chargeback bill. The DOL later denied that request and the Postal Service did make the payment, but asking it to be considered as an adjustment to the 2016 annual chargeback bill.
OIG Recommendations
After reviewing the evidence, the OIG recommends that the chief human resources officer and executive vice president continue to work with the DOL to identify and implement best practices for controlling compound drug costs and authorizing payments for only FDA-approved drugs. In addition, the OIG recommends that Human Resources, in concert with Government Relations, informs and educates Congress on the impact of DOL’s failure to address escalating compound drug costs on the Postal Service.