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By GREGORY DL MORRIS, an independent business journalist with more than 20 years' experience covering finance, industry and commerce worldwide.

Like a low-grade fever that lingers then suddenly strengthens, the debate over doctors dispensing pharmaceuticals has come to the fore lately, mostly due to outrage by payers of workers' compensation who are now documenting what they say are astronomical mark-ups.

Like many public-health and public-policy issues, there is a patchwork of widely differing state regulations. Only seven states ban physician dispensing outright: New York, Massachusetts, Ohio, Texas, Utah, North Dakota and Montana. In the current legislative sessions in Florida, Maryland and Hawaii there are bills pending to significantly restrict physician dispensing. Naturally, the repackagers, who buy in bulk from the original manufacturers and supply doctors, are fighting the proposed rule changes.

California allows physician dispensing but is feeling the brunt of the problem, according to a February report by the California Workers' Compensation Institute.

"California's use of total physician-dispensed drugs remains among the nation's highest, despite the 2007 regulatory change associated with the rapid decrease of repackaged drug utilization and cost," according to the report.

Joe Paduda, principal of managed-care consulting firm Health Strategies Associates in Madison, Conn., explained that his firm has been tracking the issue since 2004. "The situation exploded in California in 2006 and 2007. In several states, physicians can dispense directly. The repackagers come in, tell the doctor he can add $50,000 to $100,000 to his gross. The company puts in a medicine cabinet and a scanner, trains the staff for an hour, and off they go."

The cost problem, Paduda explained, is that under federal regulations, a repackager is considered a manufacturer, and so they can set their own average wholesale price. Markups range from 30 percent to 50 percent to several multiples. "In fairness, there is a lot of legitimate repackaging, for first aid kits, emergency responders, even cruise ships and factories," he said. "But in too many cases, the cost to workers' comp programs from physician dispensing is just a license to steal," said Paduda.

Given the gridlock in legislative and regulatory affairs at the state and federal levels, no one expects reform to come quickly. So while payers continue to plead their cases in those forums, they are also pushing for tactical solutions.

"Clients send us their out-of-network bills to double-check against a fee schedule," said Modern Medical's Satterfield. Her clients are self-insuring companies, carriers and reinsurance firms across the country.

Despite the eye-watering premiums coming across her desk, Satterfield is a clinician and says patient health can be compromised when physician dispensing is prevalent.

"Physician dispensing, especially for workers' comp, complicates drug-use reviews, drug-interaction monitoring, and excessive or early refills," she said. "Often the doctor who a worker sees for a comp claim is not that person's regular physician, so there is even less control."

Paduda cautioned that the risks in this issue are not just the millions being paid out in claims, but they also extend to life, death and liability. "There have been workers harmed and even killed because of this. Hard cases have not yet been established, but if they were, it might rise to a criminal prosecution. Separately, there could be malpractice implications for doctors and their insurers."

While they watch the legislative battles in the three current states where they are joined, reformers are pushing for more documentation, more disclosure and more analysis under the principle that greater awareness by the public and by claims payers is likely to curb at least the worst excesses.

March 5, 2013

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