NCOIL examines states' approach, industry views on repackaged drugs

At its summer meeting, the National Conference of Insurance Legislators reviewed proposed legislation in a couple of states and heard testimony from industry insiders on the practice of physicians selling medications out of their offices.

NCOIL is considering model law language to stem what many say has become an unnecessary multimillion dollar expense to the workers' comp system.

Supporters of the practice say there are several advantages, including the convenience for patients who might otherwise face delays because of bureaucracy in the workers' comp system. Opponents object to what they say are exorbitant price mark-ups for the drugs.

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"There's NO evidence that physician dispensing improves compliance, speeds return to work, or improves outcomes. None. Zilch," wrote Joseph Paduda on his blog, ManagedCareMatters. Paduda, a principal at Health Strategy Associates, has been among the most outspoken critics of the practice. "Physician dispensing drives up costs for employers, increases taxes, and kills jobs. This is little more than a big money-maker for a few, paid for by the rest of us."

The amount of the mark-ups for medical providers varies. A 2006 study by the California Workers' Compensation Institute estimated physician-dispensed drugs cost 490 percent of what was paid to pharmacies and in some cases exceeded 1,000 percent.

"The most common physician-dispensed drug, Ranitidine, generic Zantac, also has one of the highest mark-ups when physician dispensed," CWCI said. "Physicians were reimbursed on average for the ingredient cost at over 1,700 percent -- $2.97/pill -- what pharmacies were paid ($0.18)."

Workers' comp stakeholders are increasingly eyeing the issue as a major cost driver. According to a 2011 NCCI report on drug trends in workers' comp:

Prescription drug costs have increased to 19 percent of medical costs.
Physician dispensing continues to increase in nearly every state.
Increased physician dispensing is associated with increased drug costs per claim.

State actions. Connecticut is among the latest states to take action. A proposed rule change scheduled to take effect July 15 specifically addressed the reimbursement amount to physicians.

"The reimbursement allowed shall be based on the current Average Wholesale Price of the product as of the date of dispensing," the proposed language said. The maximum allowable fee shall be based on the original underlying National Drug Code to prevent mark-ups. "Reimbursement is as follows:

Brand/trade name medications -- AWP plus $5 dispensing fee.

Generic medications -- AWP plus $8 dispensing fee."

It identified the source for the AWP as the current issue of the Medi-Span Master Drug Data Base or Drug Topics Red Book.

"Many states are silent to the AWP source and this creates a lot of noise in the system," said Michael Gavin, chief strategy officer for PRIUM. "I think the Connecticut language is really optimal."

Connecticut's rule addresses the crux of the controversy surrounding physician-dispensed medications in the workers' comp system, he said. "It suggests there is nothing wrong with physician dispensing but seeks to remove the financial incentive," he said, "and it defaults to the carrier in the dispute resolution process, meaning the carrier's view is recognized as holding unless it is challenged by the provider."

Connecticut's was a regulatory rather than a statutory change -- something not permitted in all states. The chairman of the Workers' Compensation Commission was allowed to enact the change without legislative approval.

Other states are or have tried to address the issue legislatively. A proposal in Montana, for example, would make dispensing of drugs by medical practitioners unlawful, unless it meets one of the exceptions included in the language.

"Those [exceptions] are logical and make sense to the physician community," he said, but "I like the Connecticut language ... the immediate reaction to the Montana language from the physician community will be to reject it and lobby against it. It goes a tad too far."

Some states, however, have enacted outright bans on physician dispensing, including New York, Massachusetts, and Texas.

A bill in Florida earlier this year was similar to the proposed Connecticut language in that it would have limited the reimbursement amount paid to physicians for dispensing drugs. The legislation was amended and ultimately died.

In addition, NCOIL members recently heard from various industry representatives. The Property Casualty Insurers Association of America, for example, expressed concerns that more states would see physician dispensing of drugs due to what it termed the "aggressive efforts of repackagers and other related entities."

"Physician dispensing of repackaged drugs, though not violating any laws, clearly evades workers' compensation cost-savings measures such as fee schedules and treatment guidelines," PCI said. "PCI strongly supports measures (regulatory and legislative remedies) that require reimbursement for repackaged drugs be based on the National Drug Code of the original manufacturer of the drug product and not based on the NDC of the repackaging company."

Read more at the WorkersComp Forum homepage.

August 27, 2012

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