First, I’d be remiss if I didn’t note that advocates for physician dispensing cite a couple of advantages. It is certainly easier for the patient to pick up their drugs on the way out of the doctor’s office than to make another stop at the pharmacy.
Some also contend that handing the patient their medication on the way out of the doctor’s office increases “compliance” – the chance that the patient will actually take the medication. This may well be true, but I haven’t found any solid research that proves this to be the case.
However, the cost per script is usually much higher than the same prescription dispensed by a retail pharmacy; details on that are provided below.
There is another potentially significant issue with physician-dispensed medications: patient safety. The dispensing physician may not always have access to, or check the retail pharmacy prescription database which includes information about the patient’s other medications. Some drugs can cause problems when they are combined with others, so a lack of information can be a problem.
When physicians dispense repackaged drugs, costs are often much higher than the same script purchased at a retail pharmacy.
A July 26, 2010 Business Insurance article written by Roberto Ceniceros, summarized the cost problem rather succinctly:

“An increase in pharmaceuticals dispensing by doctors in several states is likely driving up workers compensation costs, [emphasis added] experts say. As more doctors link with companies that provide repackaged drugs with irregular identity codes to physician offices, the arrangements add extra costs and bypass established means of capping drug costs, they say…” According to Boca Raton, Fla.-based NCCI Holdings Inc., physician-dispensed pharmaceuticals accounted for 17% of workers comp drug costs in 2008, the latest year for which data is available, up from 8% the prior year…”We think it may be increasing costs,” said John Robertson, an NCCI director and senior actuary… the nonstandard NDCs used on repackaged drugs often facilitate charging prices above those allowed by state fee schedules, several sources agreed…
A report by the Workers Compensation Research Institute (WCRI) found that the average payment per claim for prescription drugs in the Massachusetts workers’ compensation system was $289–30 percent lower than the median of the study states. The main reasons for the lower prescription costs in Massachusetts include lower prices paid to pharmacies due to a lower pharmacy fee schedule, more frequent use of less expensive generic drugs, and a ban on physicians dispensing medications directly to their patients.
WCRI also found the average payment per work comp claim for prescription drugs in Florida was $565–38 percent higher than the median of the 16 states in the study. The main reason for Florida’s higher than average prescription costs was that some physicians wrote prescriptions and dispensed them directly to the patient at their offices. When physicians dispensed, they often were paid much more than pharmacies for the same prescription. [emphasis added.]”

In a Research Update published by the California Workers Compensation Institute in September of 2009, authors Alex Swedlow and John Ireland reported repackaged drugs had grown to account for 54.7% of prescriptions, and 59.2% of dollars spent on drugs by 2006. The problem has shrunk dramatically since the passage of legislation n California addressing the issue, but alas, it has moved on to other states.
According to the Workers’ Compensation Research Institute’s March 2010 Prescription Analysis, “the prices paid to physicians [in Florida] were often much higher for common drugs. The most striking examples are Ranitidine HCL (more than double what pharmacies were paid), Carisoprodol (five times higher), Hydrocodone-Acetaminophen (one and a half times higher).”
But this isn’t just a Florida problem. In fact, most other states allow physician dispensing.
WCRI also reported that 22% of prescriptions in Illinois were physician-dispensed, and that prices per pill were “often 25-50 percent higher than the price paid to pharmacies for the same prescription.”
WCRI’s analysis of Pennsylvania data showed “when physicians dispensed commonly used drugs, the average price paid was often 20-80 percent higher than what pharmacies would be paid for the same prescription.”
What does this mean for you?
Higher costs. Potentially problematic drug interactions.

I’m part way through the Seventh Annual Survey of Prescription Drug Management in Workers Comp, and have a couple of initial impressions worth sharing.
First, and no surprise, is the increased concern about the growth of narcotic opioid usage in comp. Every respondent save one has specifically mentioned opioid usage as a significant problem, contributor to drug costs, and/or area of focus. Many have, or are about to, implement programs designed specifically to address narcotic opioids, with some taking rather aggressive positions to attack off-label usage.
Second, respondents are more concerned about drug costs this year than last, and believe executives in their companies are also tracking drug costs with more interest.
Third, more and more payers are using more and more sophisticated programs to deal with drug utilization – involving pharmacists in the prior authorization process, providing access to physicians for review of selected high cost cases, getting tighter and more restrictive formularies, and implementing step therapy programs.
Fourth, most respondents believe compound medications are a very significant problem; several have developed or are working on programs to address compound meds.
Details on these and other findings will be provided in the final report; as always respondents get a detailed copy of the report; there will also be a summary report available to the public.
If you are interested in participating in the survey (insurers, TPAs, self-insured employers, and managed care firms), send an email to infoAThealthstrategyassocDOTcom.
And thanks to those folks who’ve agreed to participate this year – your insights and understanding will help all of us get better at managing drug costs.
You can download copies of past reports here.

Mike Whitely of WorkCompCentral’s piece [subscription required] this morning about Miami-Dade Schools’ solution to the high cost of repackaged drugs should be required reading for any employer or insurer operating in the Sunshine State.
As noted here and elsewhere, a loophole in the Florida workers comp law allows drug repackagers and their affiliated technology and billing companies to set the price for drugs at whatever amount they desire. As the law requires payers to reimburse at AWP + $4.18 for dispensing, if the AWP for a repackaged drug is 5 times what the same drug would cost at a retail pharmacy, too bad – for the payer.
However, there’s another law on the Florida books that provides a solution – simply stated, employers and insurers that contract with a PBM or a retail pharmacy for drugs can pay that contracted amount for any script from any dispenser. That’s correct – the payer’s liability to the dispenser is the same as if that drug was dispensed through one of the payer’s contracted pharmacies.
Miami-Dade Schools began implementing this policy September 15 of 2009. Since that time, the Schools have saved an estimated $700,000 – the equivalent of about eight teachers’ pay and benefits.
A letter [opens .pdf] from Florida CFO Alex Sink (currently a candidate for Governor) cites the specific statute:

section 440.13(12)(c), Florida Statutes, which provides:
As to reimbursement for a prescription medication, the reimbursement amount for a
prescription shall be the average wholesale price plus $4.18 for the dispensing fee, except
where the carrier has contracted for a lower amount. Fees for pharmaceuticals and
pharmaceutical services shall be reimbursable at the applicable fee schedule amount.
Where the employer or carrier has contracted for such services and the employee elects to
obtain them through a provider not a party to the contract, the carrier shall reimburse at
the schedule, negotiated, or contract price, whichever is lower. No such contract shall
rely on a provider that is not reasonably accessible to the employee.

and makes this recommendation:

The Division urges employer/carriers providing reimbursement for prescription medication under Chapter 440, Florida Statutes, to take section 465.0267(1), Florida Statutes, into consideration when making prescription provider reimbursement decisions.

What does this mean for you?
Well, what are you waiting for? Talk with your PBM, ask them to implement Ms Sink’s recommendation, and start reducing your drug costs.
Disclosure – I gave $250 (or something like that) to Ms Sink during her campaign for CFO some years ago. She’s been a strong advocate for Florida’s employers – and workers – and I remain a supporter.
(Note – I received this in an email from a Florida Insurance consulting firm. I appreciate their correction.
“In reading your most recent article about physician repackaging, I noted an incorrect statutory reference. The referenced “section 465.0267(1)” does not exist in Florida Statutes. I am quite certain that it should read “465.0276(1).”. The mistake appears to not be yours as it actually originates from Alex Sink’s letter which had the numbers in the citation transposed in one place, but correct in another.”)

A couple days ago my evening was interrupted by a call from a reporter, who wanted my comment on ‘the suit’. I had to confess I didn’t know what he was talking about, whereupon he somewhat incredulously asked if I hadn’t seen ‘it’.
I said I didn’t know what ‘it’ was, whereupon he proceeded to tell me that he had just got off the phone with Ron Sachs, who evidently was hired to do PR for Automated Healthcare Solutions. (Later, after other, similar calls, I learned that Sachs had evidently been hitting the phone pretty hard, informing all about the suit that AHCS had filed naming me and my consulting firm, Health Strategy Associates LLC, as defendants.)
By the way, Ron Sachs Communications’ website has this to say: “Sachs also distinguished himself by serving as former Florida Governor Lawton Chiles’ Director of Communications. The deeply experienced senior management team includes two communications directors to two governors (Bush and Chiles), a seven-time Emmy Award-winning producer, a former Senate staff director, and communications directors to state agencies, the Cabinet and a Senate President…Serving clients with 25 full-time professionals and offices in Tallahassee and Orlando”
Pretty impressive resumes, AND Mr Sachs has 24 times more staff than I do, and that’s just the PR firm…
Now, I still haven’t been ‘served’, but I’ve been informed that the suit charges me with a variety of offenses related to my blog posts of September 2 and 9. And I do know that the AHCS folks are plenty mad, and have lots of money – my guess is Ron Sachs doesn’t come cheap.
Here’s a bit of history. AHCS sent me a letter and email a week or so ago calling me out on a number of issues related to the afore-mentioned posts. Here’s a bit of what I wrote back:
“…I’m only too happy to publicly acknowledge and correct any errors in the two posts. In the six years I have been writing MCM, I’ve worked hard to establish and maintain a reputation for veracity; on occasion that effort has required a correction and I’ve been more than willing to write one. I’d note that in the past I’ve left my mistakes on the blog as I believe it’s important for readers to be able to see the entire span of my work, warts and all. Happy to discuss this further as the situation dictates.”
I then went on to address each of their issues point by point, again offering to review any materials and correct and apologize for any errors,
Apparently that good-faith offer wasn’t good enough, as they spent loads of time last weekend hitting my blog, then filed what I understand is a 21-page charge in Federal District Court on Monday. In fact, AHCS still hasn’t responded to my letter – Perhaps they were going to file no matter what I said…
The main point in the suit appears to revolve around my characterization of AHCS as a ‘repackager’. According to AHCS, they are NOT a repackager, but a healthcare IT company. My mistake; from reading their website they sure sounded like a repackager to me. I’ll discuss this in more detail in a later post.
What I want to talk about now is what ISN’T in the suit, and why that’s important.
There were at least two statements in the letter that evidently aren’t in the suit.
One involved a statement questioning Paul Zimmerman MD’s claim to have been a Medical Director for several firms. In the letter, they demanded I retract that statement; that demand evidently isn’t in the suit itself.
My guess – and this is only a guess – is Zimmerman et al decided they couldn’t prove that he was a ‘Medical Director’. However, as of today, their site still says:
“Dr. Zimmerman is considered an expert in workers’ compensation who has served as medical director for a number of workers’ compensation insurers, third party administrators, and self-funded employer programs including Liberty Mutual, The Home Depot, Pan American Airlines, Baxter Healthcare and Sears.”
What’s my point? AHCS’ letter was pretty, well, demanding. Strident. Threatening – really threatening. It also didn’t include any documentation, materials, or evidence supporting these claims. AHCS was demanding I retract my posts on the basis of nothing more than their say-so. Then, when they decided to file charges in Federal Court, they didn’t include their assertions that Zimmerman was a ‘Medical Director’ at Sears, Liberty, Baxter, etc.
Why? Was this an error or oversight? Highly doubtful.
Next, the letter said that Zimmerman had sued Dr Richard Dolsey (since deceased) for slander and won. That claim is apparently not contained in the suit either. I could not find any record in the Miami-Dade or Broward court records of Zimmerman suing Dolsey for slander (I’m not a legal researcher, so perhaps it’s in there somewhere). Again, in my letter I asked AHCS for documentation; I’m still waiting.
And my point is…?
AHCS attempted to bully me into retracting my statements on the basis of nothing more than their say-so. When I offered to review any materials they’d provide, retract any statements in error and apologize publicly, they ignored my letter and filed suit.
I find this, well, weird. Here they had the opportunity to get me to publicly acknowledge errors, publish a retraction, and apologize for those errors, yet they decided to hire Ron Sachs and a high-powered law firm to file suit against me. If they had provided that documentation, and we had a chance to discuss their issues, this might well have been a post of apology and correction, which would have resolved the entire issue in a couple of weeks at zero expense.

If there’s one area of work comp pharmacy management that’s making payers crazy, it’s physician dispensing (followed closely by compounding).
The number of physicians and clinics dispensing drugs is growing; as one state seeks to reel in abusive practices, the purveyors move to the next. I first examined the business four years ago and found 18 companies in the business; a recent search turned up over fifty (I stopped counting there). This despite California’s belated move to rein in the practice that had, at one time, accounted for over half of the work comp drug costs in the ‘Golden State’ (an appelation likely invented by dispensing firms…)
The problem lies not in the actual practice, but in the opportunity for abuse – an opportunity that far too many ‘entrepreneurs’ have grabbed onto with both hands. (Details on this, and specifically the high cost of drugs in Florida, are provided below)
That’s not to say all clinics and practices dispensing drugs are unethical – some bill appropriately, charging perhaps slightly more than usual but nothing outrageous. That’s OK, as handing the patient their meds on the way out fo the office can help increase compliance and reduce patient hassles.
Unfortunately, those good actors are the exception rather than the rule. The Investigative Reporting staff here at Managed Care Matters recently uncovered some rather alarming information about one physician dispensing firm – Automated Healthcare Solutions.
Automated Healthcare Solutions, located in south Florida, has one of the slicker websites, full of platitudes about improving patient care, ensuring access, improving outcomes, reducing payers’ administrative workload…
Sounds great. Before you sign up, you may want to do a quick check on the folks behind AHCS.
Let’s start with Paul Zimmerman, M.D. ‘practicing orthopedic surgeon’ and CEO of AHCS.
Impressive bio – including claims that he was formerly Medical Director at “Liberty Mutual, The Home Depot, Pan American Airlines, Baxter Healthcare and Sears”. Knowledgeable sources have informed me that Zimmerman was never a ‘Medical Director’ at Liberty Mutual. And there’s no evidence he filled that role at the Home Depot either. I’ve asked AHCS to provide substantiation for Zimmerman’s claims…no response yet…
There’s much more to the Zimmerman bio, information that for some reason the good doctor hasn’t included on the AHCS site.
We’ll leave aside his rather modest rating on healthgrades, as the sample size is so small as to be unreliable.
There are two other issues that may provide insight into Dr Z’s policies and practices.
Allegedly, some years ago Zimmerman decided to go into practice in South Florida. He was taken under the wing of the late Dr Richard Dolsey, one of the best occ med physicians I’ve ever come across. Dr Dolsey ran an excellent practice (Physicians’ Health Centers in Miami), dealt ethically and honorably with patients and payers alike, and was widely respected in the physician community. In the course of their association, Zimmerman practiced at Dolsey’s clinic, at least until he allegedly decided to open his own office. According to sources knowledgeable about the events, Zimmerman was accused of attempting to interfere in Dolsey’s practice, specifically by taking patients, clients, and staff from Dolsey to help Dr Z’s new practice hit the ground running.
Instead, Dr Dolsey found out about Dr Z’s plans, and right about the time Zimmerman was about to execute his plan, confronted him. According to sources, the confrontation allegedly involved Zimmerman being escorted out of the office in restraints.
Dolsey subsequently sued Dr. Zimmerman and won his case.
More recently, Zimmerman’s decided to become heavily involved in Florida’s political scene, contributing heavily to GOP candidates and campaigns. Among the candidates Dr Z has supported is Charlie Crist, the ex-GOP and current independent candidate for Senate. In fact, the Zimmermans have maxed out their individual contributions to Crist – who happens to be the current governor.
The dollars didn’t stop there – at a measly $9600. Zimmerman’s company, AHCS, also plopped down a check for $100 grand on the desk of the Florida First Committee, Inc., a Florida PAC controlled by GOP veteran Bill McCollum.
Loyal readers may recall Crist vetoed a bill that would have tightly limited reimbursement for physician-dispensed drugs, a veto that came out of nowhere, surprising many who thought it was a done deal as it would have helped rein in costs in the Sunshine State, where drug costs are 38% higher than other states reviewed by WCRI.
Yep, Crist vetoed a bill that directly, materially, and significantly helped Zimmerman and AHCS. A bill that, had it become law, would have significantly hurt Zimmerman.
What’s the net?
What do you think?
Florida’s drug cost problem
Florida’s drug costs were recently analyzed by WCRI, which reported:
“…the average payment per claim for prescription drugs in Florida’s workers’ compensation system was $565–38 percent higher than the median of the study states.
The main reason for the higher prescription costs in Florida was that some physicians wrote prescriptions and dispensed the prescribed medications directly to their patients. [emphasis added] When physicians dispensed prescription drugs, they often were paid much more than pharmacies for the same prescription.
The WCRI study, Prescription Benchmarks for Florida, found that some Florida physicians wrote prescriptions more often for certain drugs that were especially profitable. [emphasis added] For example, Carisoprodol (Soma®, a muscle relaxant) was prescribed for 11 percent of the Florida injured workers with prescriptions, compared to 2 to 4 percent in most other study states.
Financial incentives may help explain more frequent prescription of the drug, as the study suggested. The price per pill paid to Florida physician dispensers for Carisoprodol was 4 times higher than if the same prescription was filled at pharmacies in the state. [emphasis added]
The study reported that the average number of prescriptions per claim in Florida was 17 percent higher than in the median state. [emphasis added] Similar results can be seen in the average number of pills per claim.”.

The good folks at CWCI just published a research report (The Cost and Utilization of Compound Drugs, Convenience Packs and Medical Foods in California WC) documenting the rise in spend on medical foods, repackaged drugs, and compound drugs from 2006 – 2009; the highlight is these categories accounted for almost 12% of drug spend in California in Q1 2009.
A couple of the findings that jumped out at me…
– the average amount paid per compound drug as $728 in Q1 2009.
– medical food reimbursement hit $233 per script that quarter
– a new category, ‘co-packs’ has emerged as a significant therapy; these are combinations of drugs with medical foods dispensed as a single unit.
The story of drug costs and attempts to address same in California is fascinating, with lessons aplenty for regulators and payers.
– A drastic reduction in the fee schedule was followed by explosive growth in repackaged drugs.
– Regulatory changes finally addressed that issue, but meanwhile the use of narcotic opioids increased six-fold, likely negatively impacting disability duration as well as increasing cost.
– New entrants into the therapeutic armamentarium, entrants that are foreign to many adjusters, case managers, and work comp execs alike, are growing in importance, requiring regulators and payers alike to understand their impact and develop policies for coverage and reimbursement.
The list of medical foods includes Theramine, Gabadone, Sentra, Apptrim, Trepadone, and others, with Theramine (pain) and Sentra (sleep aid) accounting for over half of the volume in California. Medical foods are pretty new to me; according to the Orphan Drug Act (1988 Amendment), a medical food is “a food which is formulated to be consumed or administered enterally (orally) under the supervision of a physician, and which is intended for specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.”
I’m no pharmacist or clinician, and am certainly not able to comment on the efficacy of medical foods or specific medications. For a primer on medical foods, click here.
There does appear to be evidence supporting the use of medical foods for treatment of pain, osteoarthritis, and other conditions, with one medical food, Limbrel, the subject of large, double-blind, placebo-controlled clinical studies in the United States and Japan. According to one source, “Limbrel administration has resulted in statistically significant improvement in all primary clinical endpoints (functional mobility, functional stiffness and functional joint discomfort).”
What does this mean for you?
If your P&T Committee hasn’t looked at medical foods yet, you may want to add it to the agenda for the next meeting. It is highly likely we’re going to see more of these scripts, and far better to be ready than to have your adjusters making decisions completely unprepared.

California’s Senate will be considering AB 2779 today, a bill that would (among other things) require Prior Authorization of compound medications for work comp claimants. While there’s no question compound meds are a big issue, the bill would do nothing to solve the Golden State’s larger problem – out of control drug utilization.
(thanks to WorkCompCentral for the heads up)
Here’s the issue.
The work comp drug fee schedule in California is pegged to Medi-Cal, resulting in the lowest reimbursement for drugs in the nation (with the possible exception of WA).
Pharmacy Benefit Managers (PBMs) operate on the difference between what they pay the pharmacy and what their customers pay them. In California, that delta is tiny, if not negative. If PBMs don’t have any operating margin, they can’t afford to allocate clinical resources to deal with prior auth requirements; they’ll lose even more money in an effort to help their clients. That’s neither appropriate nor good for the long term health of the comp business in California.
To those who claim the low fee schedule hasn’t caused any problems, I’d suggest a thorough read of CWCI’s excellent discussion of the explosive growth of narcotic opioids among comp claimants. Here’s the brief takeaway – California slashed the work comp pharmacy fee schedule just about in half six years ago. Since that time, the number of scripts per claimant has increased 25% and costs per claimant are up 31% (CWCI stats). And that’s not the worst of it. Schedule II narcotics have gone from less than one percent of scripts to almost six percent, a six-fold increase.
But what does that have to do with a bill designed to attack one of the emerging cost drivers – compound meds? Isn’t the proverbial half a loaf better than no loaf at all?
No. While the bill enables payers to deny compound meds for medical necessity (a relatively easy call, as I don’t know of any evidence-based guidelines that recommend compounded medications, PBMs simply can’t afford to develop the workflows, do the research, hire the clinical staff, and manage and monitor the intake/referral to the adjuster/approval-denial/appeal processes. This is a lot of work, requires careful planning and implementation, and must include clinical staffing – nurses, pharmacists, and in some cases perhaps physicians.
We’ve seen the impact of the low fee schedule on total costs – they’ve gone up. What we haven’t seen is the impact on injured workers – many more are now on narcotic opioids, with some undoubtedly suffering from all the complications linked to these potentially debilitating and addictive drugs.
AB 2779 piles more work on top of an already overburdened industry, while doing nothing to address the underlying problem.
A major step in the right direction would be for California to de-link the comp fee schedule from Medicaid. That would give PBMs the pricing stability they need to help their clients regain control over drug costs.
For a detailed discussion of Medicaid’s suitability for work comp drug pricing, click here.