Higher costs of doctor-dispensed drugs draw state reform efforts


Drugs dispensed by physicians are far more expensive than those dispensed by pharmacies. And there are other issues.

Under workers’ compensation programs, physicians occasionally dispense drugs to injured employees. Compared to medications dispensed through a pharmacy, medications given to patients during an office visit often have higher mark-up, adding to doctors’ profits.

The Workers Compensation Research Institute (WCRI), a not-for-profit, public policy research organization in Cambridge, Mass., is keeping tabs on how frequently physicians dispense drugs and the costs involved. A recent WCRI study reveals not only higher costs for drugs given to patients in physician offices, but also the effect that state legislation has had in modifying or preventing the practice.

A reference book produced from study findings contains data from 24 states and more than 600,000 workers’ compensation claims, accounting for 70% of workers’ compensation benefits paid in the United States.   

These claims represent more than seven days of lost time and 4.8 million prescriptions for injuries occurring from Oct. 1, 2007, to Sept. 30, 2011, with prescriptions filled through March 31, 2012. WCRI developed its first large-scale benchmark study in 2010 and has added reports focusing on specific states since then, as data become available.




One of the drivers of higher costs of drugs dispensed by physicians is repackaging, said Dongchun Wang, co-author of the study and an economist for WCRI.

Doctors purchase drugs in bulk, contract with a repackaging company to rebundle them into smaller containers for in-office dispensing, and assign a new national drug code (NDC).

Drugs dispensed at a pharmacy are controlled by a fee schedule, Wang said.

Physicians reap the benefits of the higher costs because they can submit claims without any caps and receive full reimbursement without any repercussions.

Pharmacies, however, often are part of a network established by a pharmacy benefits manager (PBM) that is able to negotiate pricing with manufacturers for discounts.



No incentive to save

Jennifer Kaburick, vice president, product management for workers’ compensation at Express Scripts, a St. Louis-based PBM, pointed out that physician-dispensed drugs are priced 60% to 300% higher than identical drugs dispensed at a pharmacy for several reasons: Not only does a new NDC allow for a higher average wholesale price, but also physicians have no incentive to negotiate lower rates for these drugs with repackagers, thus enabling them to pass costs onto payers.

Generally, employers must cover an entire workers’ claim. So there are no out-of-pocket costs for injured employees and few incentives to question prices or shop around.

“The challenge facing workers’ comp payers is that, depending on the state, injured workers are not required to use an in-network pharmacy or physician when seeking treatment for a work-related injury,” Kaburick said. “It’s very important that risk managers talk to their claims administrators to make sure they have the appropriate programs in place to help minimize the impact of physician-dispensed medications. This will help rein in costs and ensure safe utilization of drugs by injured workers.”

Safety, Kaburick said, is an issue with physician dispensing, because unlike at pharmacies, drugs available at doctors’ offices could lack the point-of-sale safety edits that check for potential drug interactions or duplications of therapy.

“A doctor - especially one who is not a primary care physician - may not have a complete view of an injured worker’s prescription history or current regimen, resulting in a higher risk of adverse effects,” Kaburick said.

Express Scripts recently launched a new product that helps payers deal with the issue of physician dispensing. It relies on comprehensive pharmacy data to review physician-dispensed pharmacy claims and checks them against a client’s formulary and plan design and against a prescription’s history.

At that point, the PBM recommends appropriate payment in alignment with state guidelines to help payers control costs and minimize the impact of physician dispensing, while ensuring that injured workers have access to the medications they need.


Cost variation

WCRI studied five popular generic drugs - hydrocodone, ibuprofen, meloxicam, and tramadol HCL (all pain relievers), and cydobenzaprine HCL (muscle relaxant) - and compared the costs of those dispensed by physicians and by pharmacies; in every case, pharmacy-dispensed medications were less expensive, sometimes by as much as 134%.

Vicodin sells for $1.46 a pill when a doctor dispenses it. This is four times more than what a patient would pay at a pharmacy, according to WCRI. The markup on the muscle relaxer carisoprodol (Soma) is 700%, according to research.

Today, 14.5% of workers’ comp medical expenses are attributed to pharmacy, according to CompPharm, a Madison, Conn. consulting company that offers solutions for workers’ compensation issues.

CompPharm asked insurers and third-party administrators what they considered to be the largest drivers of drug costs.

Opioids sprang to the top of the list, followed by physician dispensing, which accounted for more than 35% of drug costs in 2012. Concerns connected with physician-dispensed drugs cited by CompPharm include: no required drug utilization review; potential duplication of therapy; higher costs caused by repackaging; prescribing of unnecessary medications or medications unrelated to a claimant’s injury; extended disability duration; and higher overall medical costs.


More data

The National Council on Compensation Insurance (NCCI), which collects workers’ comp data, also has conducted studies on workers’ compensation claims, and while earlier reports showed that utilization, not price, was the culprit for rising costs, its latest information points to physician-dispensed drugs as the primary cost driver.

According to NCCI data, the average cost of physician-dispensed drugs grew about 25% between 2008 and 2009, and doubled by 2011. The average cost of prescriptions dispensed by other sources rose only 5% during the same period.

In addition, the number of prescriptions per claim dispensed by a physician rose 14% between 2007 and 2011, while prescriptions from other sources increased by only 8%.

Although NCCI reports the discrepancies in costs and alludes to the possibility that physicians are seeking higher revenue, it also recognizes reasons that many drugs are dispensed in doctors’ offices: Patients need an immediate and limited prescription before visiting a pharmacy; the physician is unsure of the patient’s reaction to a drug and dispenses it to give the patient a chance to respond; patients may not be able to access a pharmacy.

Lynn R. Webster, MD, president of the American Academy of Pain Medicine, said there are two reasons why physicians dispense medications in their offices.

“Many patients find it more convenient, because it can save time and energy for the patient or caregiver,” she said. “But the primary reason is that it increases revenue to the practice.”

She suggested that drugs cost more in many physician offices because physicians do not receive the bulk discounts that pharmacies can command.


The pharmacy POV

The National Community Pharmacists Association (NCPA) has taken a stance on the use of physician dispensing. The organization opposes physician dispensing for profit and supports laws and regulations that prohibit dispensing of prescription legend drugs by individuals other than pharmacists.

“This practice erodes the traditional system of checks and balances inherent in the drug delivery system and is contrary to the best interests of the public,” the organization has stated.

NCPA maintains that physician dispensing denies the patient the advantages of personal consultation with a pharmacist.


States have adopted a spectrum of reform initiatives to deal with what they see as higher costs for drugs dispensed at a physician’s office. Six states - New York, Montana, Wyoming, Massachusetts, Texas, and Utah - generally prohibit all physician dispensing. Fourteen states allow physician dispensing but have established reforms that limit price markups, while Florida and Louisiana prevent physician dispensing of Schedule II and Schedule III narcotics.

Although prices for physician-dispensed drugs have dropped in states with reform efforts, said Wang, the costs in most cases are still much higher than for the same drugs dispensed by a pharmacy.

In states with reform efforts, prices for most drugs dropped 22% to 36% at physician offices, but still remained 20% to 40% higher than for drugs dispensed by pharmacies.

On the docket in Pennsylvania is House Bill 1846, a regulation that would restrict physician dispensing to an initial five-day supply; require physicians to include the original drug manufacturer’s NDC on bills they submit for reimbursement; forbid the use of a new NDC; and establish a maximum reimbursement rate of 110% for physician-dispensed drugs.

Georgia jumped on the bandwagon in April 2011, with legislation that would cap the reimbursement amount for physician-dispensed, repackaged drugs at the average wholesale price of the original product. According to WRCI, the intention is to lower drug costs, not prevent physician dispensing.

In Georgia, one of the biggest changes was the tremendous drop in the cost of physician-dispensed carisoprodol, which went from $2.54 before reform to $.63 after legislation, a 75% decrease. The difference between the physician-dispensed and pharmacy-dispensed drug prices was 388% before reform; it dropped to 19% after the legislation took effect.  

Mari Edlinis a healthcare writer based in Sonoma County, California.

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