High Drug Costs Attributed to Premiums for Physician-Dispensed Prescriptions: Study Reviews Price Gap Reducing Reforms
By John Stahl, Esq.
The fact that many workers’ compensation claimants obtained prescription drugs directly from physicians was not the problem; the primary issue was that these medical professionals often charged much more than a pharmacy for the same medications. This contributed to recent alarming increases in workers’ compensation costs.
A hot-off-the-presses study from the Workers’ Compensation Research Institute (WCRI) analyzed this issue and compared state-specific trends regarding physician-dispensed drugs. This research further discussed how reforms in California and other states addressed physician-dispensed drugs eating up disproportionately high percentages of the total spent on prescription drugs in the workers’ compensation system.
WCRI researcher Dongchun Wang conducted the study and published her findings in a report titled “Physician Dispensing in Workers’ Compensation”, which can be purchased at the WCRI site.
In addition to the workers’ compensation system absorbing the expense of physicians’ boutique prices for prescription medications, Wang discovered that:
The prices that physicians received for drugs that they commonly dispensed rose significantly between 2007 and 2010 while the prices that pharmacies received for the same medications either changed little or decreased.
Physicians often wrote and filled prescriptions for Prilosec and other drugs that were available without a prescription and for a much lower price at drug and grocery stores.
Scope of Study
Wang examined data from 2010 and 2011 that related to prescriptions for which a workers’ compensation payor was liable. Inclusion in the study required as well that the underlying workers’ compensation claim involved more than seven days of lost time. The more specific timeframes were that the compensable injuries occurred between October 2009 and September 2010 and that the prescriptions be written before April 1, 2011.
The 23 states in the study represented a wide spectrum regarding policies that affected the practice of physician-dispensed drugs. Massachusetts, New York, and Texas were at one end of the scale in that they generally prohibited physicians from dispensing medications. California and four other states in the study recently enacted reforms that were directed at reducing costs associated with this method of dispensing drugs.
These 23 jurisdictions additionally represented more than two-thirds of the workers’ compensation benefits in the United States.
The results from California identified the need for, and the initial effect of, that state’s March 2007 reform that partially motivated the study. Wang concluded that 53-percent of the relevant California workers’ compensation prescriptions were physician-dispensed. The cost of those prescriptions totaled a proportional 52-percent of the total spent on those prescriptions. [Read companion article on California results.]
Conversely, the percentage of physician-dispensed prescriptions in Illinois and Florida averaged 44-percent in each state and respectively cost a disproportionate 62 and 63-percent of the total spent on those prescriptions.
At the other end of the spectrum, the results from Minnesota and Arkansas were that physicians dispensed only four-percent of the prescriptions on which the study was based. Those prescriptions cost a slightly disproportionately lower percentage of three-percent of the total cost of such medications.
The statistics showed that increases in the costs of physician-dispensed drugs in Pennsylvania and three other states outpaced increases in utilizing that distribution method between 2007 and 2011. Wang concluded that “this occurred because of large increases in the prices of physician-dispensed drugs, while the prices paid to pharmacies for the same medications changed little or fell.” As the second chart provided below demonstrated, the inconsistent price increases occurred in other states as well.
Tennessee’s response included regulations, which become effective in August 2012, that targeted the difference between what physicians and pharmacies received for the same drug. California and three other states in addition to Tennessee have recently adopted similar reforms. Wang emphasized that these “recent reforms have not sought to limit the ability of physicians to dispense drugs directly to their patients” with the exception of 2011 Florida legislation that targeted “pill mills.”
Much of the difference between what physicians and pharmacies received for the same drugs was attributed to the price of such medications being between 60 and 300-percent higher when physician-dispensed. This phenomenon was particularly common in states in which physician dispensing was heavily utilized.
Growth of Physician-Dispensed Drugs
Because a significant portion of the research related to the impact of reforms on costs associated with physician-dispensed drugs, Wang prepared a table that compared statistics from 2007/2008 with numbers from 2010/2011. The top 5 states in that table with the highest increases in the percentage of all drugs that were physician-dispensed and the percentage of drug payments that were paid for physician-dispensed drugs were:
#4 South Carolina
With respect to Illinois, which held the #1 spot, the percentage of all drugs that were physician-dispensed was 26% in 2007/2008, increasing to 43% in 2010/2011, and the percentage of drug payments that were paid for physician-dispensed drugs was 22% in 2007/2008, increasing to 63% in 2010/2011.
The study also examined increases in the costs of specific drugs to further illustrate disparities in prices that physicians and pharmacies received for medications. Specifically, the cost of a single Vicodin pill in five states was illustrative in that it showed that physicians almost always charged at least twice as much as pharmacies for the exact same product. The top five states with the highest cost in 2010/2011 and the highest percentage change from 2007/2008 to 2010/2011 for physician-dispensed prescriptions of Vicodin were:
#1 Maryland: $1.48 – a 78% increase; compare $0.36 charged by pharmacy in 2010/2011
#2 Illinois: $1.44 – a 66% increase; compare $0.53 charged by pharmacy in 2010/2011
#3 Connecticut: $1.43 – a 54% increase; compare $0.37 charged by pharmacy in 2010/2011
#4 South Carolina: $1.20 – a 50% increase; compare $0.41 charged by pharmacy in 2010/2011
#5 Wisconsin: $1.14 – a 48% increase; compare $0.41 charged by pharmacy in 2010/2011
Effect of Dispensing Methods on Treatment
Findings related to physician dispensing practices impacting treatment that workers’ compensation claimants received included indications “that some physician-dispensers may prescribe certain drugs because of the extra income to be obtained from dispensing and that when not dispensing, those doctors either do not use the medications for their patients, or suggest that the patient obtain the medication from the drug store or grocery store without the need for a prescription.”
The conclusion regarding a profit motive’s impact on prescribed treatment touched on two arguments favoring physicians dispensing medication. These benefits are convenience and claimants taking prescribed drugs.
A claimant may either simply not go to the store for a recommended drug or forget to make that purchase while at the store. Either scenario would result in the claimant not following the prescribed treatment and consequently being deprived of its benefits.
Dose of Common Sense
Reforms regarding the costs of physician-dispensed drugs seemed to reduce workers’ compensation costs. Further, the profitability of a prescription has no place in an analysis of whether treatment meets the standard of providing a claimant “reasonable and necessary” care for a compensable injury.