Drug prices show staggering markup
Physicians occasionally dispense drugs to injured employees under workers’ compensation programs. 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., keeps tabs on the prevalence and costs of physician-dispensed drugs. A recent WCRI study not only indicates higher costs for drugs given to patients in physician offices, but also the effect of state legislation on modifying or preventing the practice.
The study has resulted in a reference book containing data from 24 states with more than 600,000 workers’ compensation claims, accounting for 70% of total 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 as data become available.
One of the drivers of higher prices from drugs dispensed by physicians is repackaging, says 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, however, are controlled by a fee schedule, Wang says.
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.
Jennifer Kaburick, Express Scripts vice president, product management for workers’ compensation, points 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, 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 says. “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 says, is an issue with physician dispensing because unlike at pharmacies, drugs available at offices could lack the point-of-sale safety edits that check for potential drug interactions, for example.
“A doctor-especially one that 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 says.
Express Scripts recently launched a product that 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 script’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.
WCRI studied five popular generics-hydrocodone, ibuprofen, meloxicam and tramadol HCL (all pain relievers) and cyclobenzaprine HCL (muscle relaxant)-and compared the costs of those dispensed by physicians and by pharmacies and in every case, the latter was less expensive, sometimes by as much as 134%.
Vicodin sells for $1.46 a pill when a doctor dispenses it, which is four times more than what a patient would pay at a pharmacy, according to WCRI. The markup on muscle relaxer Soma (carisoprodol) is 700%, according to research.
Today, 14.5% of workers’ comp medical expenses are attributed to pharmacy, according to CompPharm, a consulting company. It asked insurers and third-party administrators what they considered to be the largest drivers of drug costs.
Opioids spring to the top of the list, followed by physician dispensing, which accounted for more than 35% of drug costs in 2012. CompPharm cited concerns about physician-dispensed drugs: no required drug utilization review; potential duplication of therapy; higher costs due to repackaging; unnecessary medications or those not related to a claimant’s injury; extended disability duration; and higher overall medical costs.
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 driver.
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 others only rose 5% during the same period.
Also, the number of prescriptions per claim dispensed by a physician rose 14% between 2007 and 2011, while prescriptions from other sources only increased 8%.
Although NCCI reports the discrepancies in costs and alludes to physicians seeking higher revenue, it also recognizes why 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 giving the patient a chance to respond; and patients may not be able to access a pharmacy.
Lynn R. Webster, MD, president of the American Academy of Pain Medicine, says there are two reasons why physicians dispense medications in their offices.
“Many patients find it more convenient,” she says. “But the primary reason is that it increases revenue to the practice.”
She suggests drugs cost more in many physician offices because they don’t have bulk discounts that pharmacies can command.
The National Community Pharmacists Assn. (NCPA) 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,” according to the organization.
NCPA believes 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 reforms that limit price mark-ups, while Florida and Louisiana prevent physician dispensing of Schedule II and Schedule III narcotics.
Although Wang says that prices for physician-dispensed drugs have dropped in states with reform efforts, the costs in most cases are still much higher than the same drugs dispensed by a pharmacy.
Most drug prices dropped 22% to 36% at physician offices, but still remained 20% to 40% higher than those dispensed at pharmacies.
Georgia has legislation that caps the reimbursement amount for physician-dispensed, repackaged drugs to the average wholesale price of the original product. WRCI says the intention is to lower drug costs, not prevent physician dispensing.