On July 19, WCRI (Workers’ Compensation Research Institute)  released its most recent study on the rapid growth of physician-dispensed pharmaceuticals for injured workers under state workers’ compensation.   The study compares 23 states, including Arkansas, Connecticut, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, Virginia, and Wisconsin highlighting changes in patterns of dispensing, as well as changes in percent of market and pricing from 2007/2008 thru 2010/2011.

Increases in Frequency and Cost for Physician Dispensed Drugs

Key findings in WCRI’s study year over year include the following:

1. Physician-dispensed drugs became increasingly common in most states that permit physician dispensing.   In Florida, Illinois, pre-reform Georgia, Maryland, Connecticut and post-reform Arizona and California, physicians dispensed 28-53 percent of all prescriptions, representing 28-63 percent of total spending on workers’ compensation claims.
2. Prices paid for physician-dispensed drugs were substantially higher than if the same drugs were dispensed by a retail pharmacy.  In 2010/2011, the price / pill when dispensed by a physician was 60-300 percent higher than the same prescriptions dispensed at a retail pharmacy.
3. Prices paid to dispensing physicians rose rapidly for medications that were commonly dispensed by physicians, while the prices paid to pharmacies for the same drugs changed little or fell.  As an example, Physician dispensed Vicodin, Mobic and Ultram, all commonly prescrbed in workers’ compensation, saw a average price increase of 52 percent while the same drugs dispensed in a retail pharmacy setting either remained at the same price or experienced a price decrease.
4. Dispensing physicians wrote prescriptions for and dispensed certain drugs (e.g., omeprazole [Prilosec®] and ranitidine HCL [Zantac®]) that are available without a prescription in a drug or grocery store at a much lower price.   When they did so, prices were 5-15 times higher than MSP retail prices.

With this trend of increased price and frequency of physician dispensed drugs , it is no surprise that several states have either banned the practice altogether, have initiatives in place to limit or prohibit, or are in the process of implementing reforms directed at reducing the cost of physician dispensing. The study examined the results of specific state initiatives, as well as highlighting baseline data for states with legislation currently in play.

States That Prohibit Physician Dispensing

In the United States, five states have prohibited physicians from dispensing drugs in general, by law.  These include Massachusetts, New York, Texas and Montana and Utah.  The first three are included in the study.  In all other states, issues related to physician dispenisng are more or less addressed through state workers’ compensation policies on state fee schedules, which set maximum reimbursement rates for prescrption drugs dispensed at pharmacies and physician offices.

Where Physician Dispensing is ‘Allowed’

Several states allow physician dispensing, but in some states, such as Arkansas and Minnesota, medical practices appear to be restrictive.  Arkansas, physician dispensed drugs are subject to the same fee schedule as pharmacy dispensed drugs. In both settings, the provider (whether pharmacist or physician) is required to report acquisition cost, and physicians do not receive a dispensing fee for drugs dispensed from their offices.  In Minnesota, physicians are allowed to dispense, but must register with the Medical Practices Board before doing so.  The physician must also disclose to the patient that the he/she profits from the dispensing of medications, and that the patient may choose to obtain  prescriptions from another source.

Louisiana limits physician dispensing of narcotics to a 48-hour supply, but allows for non-narcotic drugs to be physician dispensed for longer periods.  In Florida, as of June, 2011, physicians are prohibited from dispensing Schedule II and Schedule III narcotics.

Five states (Arizona, California, Tennessee, South Carolina and Georgia), allow physician dispensing, but have adopted reforms intended to limit the price markups for physician dispensed prescriptions.  Also, in Illinois, one of the largest noted in the study for cost increases associated with physician dispensing, the Workers’ Compensation Commission members voted Tuesday, July 24, 2012,  to move ahead with a proposed rule to regulate the price of repackaged drugs, dispite a recommendation by the Medical Fee Advisory Board not to proceed.  For the rest of the states, policies are either permissive or silent as they relate to physician dispensing.

In the state of Florida, while physician dispensing is prohibited for Schedule II and Schedule III narcotics as of June, 2011, the study still showed that 62 percent of all prescription drug spending in  Florida for injured workers was paid to physicians for drugs dispensed at their  offices—not to pharmacies.  This doesn’t mean 62 percent of all prescriptions….just 62 percent of the cost.  That’s the issue.

Certain drugs were prescribed and dispensed by physicians in Florida that were  infrequently prescribed in other states where physician dispensing was not  common. For example, 11 percent of the injured workers in Florida received  prescriptions for either Prilosec® or Zantac® as compared to less than 2 percent  in most other states. When physicians dispensed, the average price paid per pill  was $7.07 for Prilosec® and $4.81 for Zantac®, compared to $0.64 and $0.42 per  pill when the same drug was purchased over-the-counter at Walgreens.

In other states that allow physician dispensing of all prescriptions, as a  result of drug repackaging, prices paid to physicians were  typically much higher than what was paid to pharmacies for the same drug. For  example, the price for the most commonly used drug, Vicodin®, more than doubled  when dispensed by physicians compared to the pharmacy—an average of $1.08 per  pill at the physicians’ offices versus $0.43 at the pharmacy.

“There is a great discrepancy between what doctors and pharmacies charge for  dispensing the same drug,” observed Dr. Richard Victor, WCRI’s Executive  Director. “One question for policymakers is whether the large price difference  paid when physicians dispense is justified by the benefits of physician  dispensing. Policymakers can learn from the California reform experience, which  is also analyzed in this study.”

Pricing at WC Fee Schedule – Lessons Learned in California

One of the key findings of the report, the results of the California fee schedule reforms (physicians who dispensed were required to submit and price using the same NDC  as that used in retail pharmacies), provided evidence of the impact of physician dispensing on the following:

1. Prices paid for physician-dispensed prescriptions;
2. Patient access to physician-dispensed prescriptions;
3. Physician prescribing and dispensing patterns for certain drugs.

Approximately 1/2 of all drugs dispensed in CA remain as physician dispensed.  Following fee schedule reforms, however, the number of repackaged drugs dispensed in CA dropped from 43 percent to 11 percent.   In effect, the average price / pill for physician-dispensed prescriptions decreased to that for pharmacy-dispensed prescriptions.

State Initiatives to Control Growth and Manage Cost

States that have either implemented reforms similar to that of California over the past year, or have bills under debate currently include Arizona, California, Georgia, South Carolina, and Tennessee.  While the results of the legislative initiatives remain to be seen, California’s track record would lead us to believe that savings are possible if physicians are required to follow the same rules as their retail pharmacy counterparts when dispensing medications.

Impact on WCMSA Part D Cost Projection for Life Expectancy

As is the case in California and the other five states with reform initiatives onteh books, when physicians prescribe and dispense using the standard National Drug Code (NDC), pricing will occur at fee schedule or lower (if negotiated discounts are available).  From an MSA perspective, therefore, there are no objections to physician dispensing.  CMS Memos direct us to price at generic when available.   As such, when Tower identifies standard, commonly prescribed drugs being physician dispensed, we utilize the GCN (Generic Code Number) to determine therapeutic equivalency.  We then price at the lowest generic price available.

The Real Problem – Repackaging – Not Physician Dispensing

While physician dispensing is getting criticized, I would clarify that it is the process of repackaging medications that can be bought at much lower prices, and the egregious cost associated with repackaging, that is the real problem.  Many physicians, some who dispense, and others who do not, comment that the physicians aren’t the ones making money….it is the re-packagers that are making out ‘like bandits’.   While this may be true, it’s difficult to see how smart, educated physicians would continue this practice and the associated criticism if they aren’t making a nice profit.

 Potential Strategies to Mitigate Cost

The first step to mitigate claim cost is to be aware of physician dispensing and to move quickly to verify what the actual drug is.  Tower MSA Partners has full access to CMS mandated REDBOOK for drug pricing for all FDA approved NDC’s, as well as access to generic therapeutic equivalent drugs if they exist.   Ask the question.  Once you know what is being dispensed, and you understand the role the drug/compound plays in the overall treatment of the injury, the next question is whether intervention is appropriate to modify treatment and hopefully reduce cost.  We can assist there as well to make recommendations for nurse oversight, physician reviews. etc.

WCRI’s announcement of the report can be found at  http://www.wcrinet.org/whats_new.html.   For more information on physician dispensing and ‘staging’ claims to reduce claim cost , and to mitigate settlement and MSA issues, give us a call at 888-331-4941.