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It's no secret that pharmaceutical costs are a significant expense for insurance companies. In workers' comp, it's the third largest medical cost behind hospitalizations and doctor office visits.

It's also no secret that more and more patients often enjoy the convenience of having their prescriptions filled right in the treating doctor's office -- and this practice is common among doctors treating injured workers. But is the cost for such convenience to the patient within the realm of reasonableness for the workers' comp payers? And how does the prescribing physician stand to profit from this practice?

Mark-ups by dispensing physicians can typically be four to five times what the drug may cost from an independent pharmacy. That's substantial no matter what type of math is used. It has caused states such as Oklahoma and California to prohibit doctor dispensing in workers' comp cases. But typically, regulatory warfare commences between those on each side of the issue.

Take Florida for example. It has been a major battleground between those who oppose the practice of doctor dispensing prescriptions, and those who support it (the doctors, those who own pieces of those practices, and middlemen who set-up the doctors for self-dispensing). Maryland and Hawaii are also states where the issue of doctors dispensing prescription drugs has reached a flash point.

Predictably, the physicians claim that they do not engage in this practice for the money. They maintain that the workers' comp systems are hyper-bureaucratic, and that injured workers were often unable to get prescriptions filled and will go without their meds.

Opponents of this practice label the profits the doctors are making as immoral, and say it's making workers' comp claims go through the roof.

Drug prices are usually pegged to AWP (average wholesale price). AWP is supposed to represent a prescription drug's typical wholesale cost, and are allegedly made up of the cost of research and development, manufacture and dispensing cost. However, the drug manufacturers are the ones who decide what AWP is on the pharmaceuticals they produce. Therefore, determining the real cost of drugs is problematic. They may be grossly overpriced to begin with -- it only compounds when doctors mark them up even higher.

One of the pre-eminent middlemen in this equation is Automated HealthCare Solutions. They are one of the top companies involved with physician dispensing of drugs. They are partly owned by ABRY Capital, a venture-capital firm out of Boston, which invested about $85 million in 2010. Automated HealthCare assists physicians in establishing pharmacies in their offices. They supply billing computer software that establishes a link with drug re-packagers. This group will then repackage scripts for sales in physician offices.

The catch is that the dispensing doctors do not collect the script charges directly from the workers' comp payers. They are reimbursed by middlemen, such as Automated HealthCare. They may pay 60 percent or 70 percent of the charge to the doctor, and then turn around and collect 100 percent of the charge from the payer, thus making about a third of the charge for being "in the middle." Lucrative or what?

Would employers and workers' comp insurers balk at paying four of five times the cost for a script in the name of patient convenience from a doctor's office? Of course they will! Most workers' comp payers work with a variety of pharmacy benefits management companies who have huge pharmacy chains such as Walgreens, CVS and Rite-Aid in their networks. The vast majority of injured workers usually live within five miles of a PBM contracted apothecary. Therefore, it is in the best interest of the employer, as well as the insurance carrier to direct the injured workers to the PBM contracted pharmacies rather than pay the inflated bills produced from physician office dispensing.

Legislative efforts to rein in physician drug dispensing will continue, spurred on by the additional cost of pharmaceuticals distributed through this arrangement. There appears to be no middle ground in this battlefield. Not surprising considering the amount of money that's involved.

It appears that physician dispensing is a practice that is antithetical to controlling drug costs in any meaningful way. The lobbying efforts of special interest groups will continue to attempt to block any WC legislative that threatens to turn off the money spigot.

The legislators in each state need to study this problem in a dispassionate manner, and pass laws that make sense for the workers' comp system, rather than a small minority who are realizing ungodly profits via loopholes in the laws. To do otherwise is to acquiesce to special interest groups who are profiting at the expense of the system.

September 6, 2012

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