Welcome to our latest Rx Rundown, designed to help claims professionals better understand medications commonly prescribed in workers’ compensation claims. We periodically spotlight a different medication or therapeutic class, breaking down what it is, why it’s prescribed, potential concerns, and its place in workers’ compensation treatment.
In a Nutshell: What Are Dermatological Medications?
Dermatological medications are topical preparations applied directly to the skin to treat various conditions — from wound care, antifungals, and topical steroids to pain-relieving formulations. In workers’ compensation, the most clinically and financially significant dermatologicals are topical analgesics, which include products containing active ingredients such as lidocaine and diclofenac sodium, available as creams, gels, patches, and ointments.
For a deeper look at topical analgesics specifically — including compounded formulations, cost drivers, and prescribing concerns — see our companion article, Topical Analgesics in Workers’ Compensation: Balancing Cost and Care.
Why Are Dermatologicals Prescribed?
In workers’ compensation, dermatological medications are commonly prescribed for:
- Pain management: particularly as alternatives to oral opioids
- Localized musculoskeletal pain: delivering medication directly to the site of injury
- Post-injury inflammation and neuropathic pain
- Occupational skin conditions: contact dermatitis, chemical burns, and other work-related skin injuries where these medications treat the underlying condition, not just associated pain — a meaningful distinction from their role as topical analgesics
According to the Workers’ Compensation Research Institute (WCRI), dermatological agents accounted for 22% of total prescription drug payments across 28 states in 2023 — the largest payment share of any drug group nationally. In some states, that share reached 44–55% of all prescription dollars. Topical costs per workers’ compensation claim grew 96% from 2012 to 2023, closely tracking the industry-wide decline in opioid prescribing.¹
What Are the Concerns?
Cost
Dermatologicals now represent the largest share of prescription drug payments in workers’ compensation nationally. According to WCRI’s 28-state study, dermatologicals accounted for 22% of total prescription payments in Q1 2023 — more than any other drug group, including opioids.¹ In some states, that share reached 44–55% of all prescription dollars. To illustrate the per-unit cost: in California, the average payment for lidocaine — the top drug by prescription spend — was $159 ($216 for brand name; $151 for generic).
Higher cost does not necessarily correlate with improved clinical effectiveness — particularly for compounded formulations, where both absorption and therapeutic benefit may be uncertain.
Compounding and Absorption
Not all active ingredients used in compounding have demonstrated the ability to penetrate the skin at therapeutic levels, meaning clinical benefit cannot be assumed simply because a topical agent has been applied. Multi-drug compounded formulations have little evidence to support efficacy, and evidence supporting compounded topicals generally is variable — absorption can be inconsistent compared to FDA-approved products.
Compounded products may be clinically appropriate when a patient is unable to use a commercially available equivalent due to an allergy to an inactive ingredient, or when a required strength or form is not commercially available. In these cases, documented medical necessity should be required.
Physician Dispensing
When dermatologicals are dispensed directly from a physician’s office rather than through a pharmacy, markups can be substantial and standard formulary oversight may not apply. This practice is a notable cost driver that warrants close attention during claim review.
Other Clinical Considerations
- Systemic absorption: while typically less than oral medications, some topicals can be absorbed systemically, especially over large surface areas or extended durations
- Skin irritation or allergic reactions: some patients may develop local reactions
- Drug interactions: potential for interactions exists, particularly with other concurrent medications
Is There a Place for Dermatologicals in Workers’ Compensation?
Dermatologicals do have an important place in workers’ compensation treatment plans, particularly as part of a comprehensive pain management approach:
- Targeted therapy: localized treatment directly at the site of injury or pain
- Opioid alternatives: dermatologicals have grown in utilization as opioid use has declined, offering potentially safer pain management options
- Multimodal approach: can be effective as part of a comprehensive plan that includes physical therapy and other modalities
- Cost management: given their significant share of drug spend, careful attention to appropriate prescribing and preferred formulations is essential
What Should Claims Professionals Watch For?
When a dermatological medication appears on a claim, the following questions guide appropriate review:
Is this a commercial or compounded formulation?
FDA-approved commercial products generally have stronger evidence and lower costs than custom compounds. Multi-drug compounded formulations have little evidence to support efficacy, and absorption can be inconsistent. Require documented medical necessity before approving compounded topicals.
Is the condition documented and tied to the claim?
Whether treating pain, a skin injury, or a chronic dermatological condition, the clinical indication should be clearly documented and directly connected to the work-related injury. If it is not, compensability is in question.
Was it dispensed at a pharmacy or directly by the physician?
Physician-dispensed products often carry higher costs and may bypass formulary controls. Always verify the dispensing source.
Does the cost align with the formulary or fee schedule?
Given that dermatologicals now represent the largest share of prescription drug payments nationally, pricing outliers warrant a closer look — particularly for branded or compounded products.
Conclusion
Dermatological medications represent an increasingly important component of workers’ compensation pharmacy management. Their rise to the top of prescription payment rankings nationally — accounting for 22% of total prescription dollars across 28 states per WCRI — reflects both their growing role in pain management and the urgency of careful oversight. When appropriately prescribed and monitored, these medications can provide effective localized pain relief with potentially fewer risks than systemic alternatives like opioids. However, their significant cost impact necessitates careful attention to ensure they are being used judiciously and effectively as part of comprehensive treatment plans for injured workers.
References
1. WCRI. Interstate Variation and Trends in Workers’ Compensation Drug Payments, 5th Edition. June 20, 2024. Available at: wcrinet.org.
2. CWCI. Pharmaceutical Cost Trends in California Workers’ Compensation, 2024.