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Pharmacies’ self interest v silos v ignorance

$1.7 billion in workers’ comp drug costs are for drugs dispensed by physicians.  

Why don’t the big retail pharmacies care about physician dispensing in workers’ comp?

Why isn’t Walgreens, and CVS, and Rite-Aid, and Medicine Shoppe up in arms about this?

After all, claimants who get their drugs from their docs don’t visit a drug store, don’t pick up those other essentials, don’t establish a relationship with a pharmacist and possibly a store.

I’ve been stumped by this for years.  Here’s why.  About 65 percent of a chain drug store’s sales are for drugs; for independents its 93 percent.  The margin on most of those medications is pretty thin, and almost non-existent for Medicaid drugs in some states.  Chain drug stores sell drugs to get people to come in and buy toothpaste and magazines and convenience foods and cosmetics, where they do make a decent profit. And independents live and die on drug sales; and these days, most are dying. 

Yet anyone who’s tracked anti-physician dispensing efforts in Florida, Maryland, Hawai’i, Michigan, Illinois – anywhere, has not seen hide nor hair of anyone remotely associated with a drug store.

Is this a case of silos, where the department/person responsible for workers’ comp drug sales has no power or influence or is measured on percentage margin and not total sales or profits (because WC drugs are VERY profitable for pharmacies; the margins are many times those of drugs dispensed for group health plans).

Or is it ignorance, where the powers-that-be don’t care about WC drugs because they only represent a couple percentage points of scripts?  Of course, the total would be a lot higher if physicians weren’t dispensing, and this ignores the much higher profits on those drugs, but hey, ignorance is bliss, right?

Whatever the reason, it is abundantly clear that insurers, employers, PBMs, and others (me, for instance) have been fighting chain and independent pharmacies’ battles for them.

If independents don’t sell drugs, they’re dead.  And more are dying every day, as overall drug sales level off, and they are increasingly unable to compete with the chains and huge food-and-drugs.  Yet I’ve never seen anyone from an independent pharmacy, or their national trade group, engaged in the issue.

Folks on workers’ comp are either employed or getting a check to cover lost wages; they need toiletries and food and other medications and batteries, stuff they’ll likely get from the Big Box store if they don’t come in to the corner drug store to get their workers’ comp meds.  Yet NACDS and the other “advocacy” groups are nowhere on this issue.

It isn’t like I – and others – haven’t tried, multiple times, to get drug stores engaged.  For whatever reason, there’s been no response.

Meanwhile, the investment and provider communities have figured out that workers’ comp is a great business – profitable, with relatively low regulatory risk.  Comp is an “insulator”, a payer type that is removed from PPACA, Medicaid, Medicare, and all the changes coming down from Washington; a service line not affected by budget cuts or Obamacare.

At some point, perhaps when the last independent drug store is about to close up shop, someone may say “gosh, those dispensing docs sure killed our comp business; we could have used those dollars to stay open and profitable.”

Or a chain store exec may wonder “gee, why is my average profit per script lower than ever?’

Or, more likely, Not.


9 thoughts on “Pharmacies’ self interest v silos v ignorance”

  1. Joe I can’t speak to the independant store silence on the matter, but re chains. The physicians dispensing the drugs are getting them from somewhere. You might want to look into Walgreens. They supply bulk orders for a PBM for home delivery. Why not Docs? Don’t know but you might want to find out who is supplying the pharms.

  2. The large pharmacy companies don’t care about physician dispensing because they supply the physicians with medications through their wholesale drug sales subsidiaries.

    1. William and Anthony – thanks for the comments. Most of the drugs supplied to dispensing physicians come from repackagers and their supply chain partners. Typically the retail chains are not part of those supply chains.
      I’d also note that – even if the retail chains were part off the dispensing docs’ supply chain, that would be counter-productive, as it cannibalizes the retail chains’ core business – their retail store revenue.

  3. It is a wonder to me why pharmacists have not gotten into this battle…It seems like they are being told that their profession is irrelevant to the healthcare process by the doctors that dispense. But you are correct, most independent pharmacies only see a small percentage of their business from Work Comp. and to the pharmacist, Dr. dispensing is an invisible drain on their revenues since they never see the Dr. dispensed client… Maybe Independent Pharmacists and their National Associations just think their businesses are failing because everyone is suddenly getting healthier! I think somebody needs to wake them up…

  4. The national chain pharmacies don’t care about workers comp in general because they are faced with two scenarios – fill the script under a work comp PBM card (which they don’t mind doing but they are not making much more than they do on a group health script) or do the leg work to get approval from the work comp payer/TPA to fill the script. Chain pharmacies are all about throughput and they don’t want to be bothered with this. Independents, and especially mom-and-pops, used to be interested in work comp but they are struggling to compete against the national chains and they too are in the same boat with work comp PBM reimbursement rates.

    The state regulators/legislators will never get their act together so the best solution is for the work comp PBMs to continue to be very aggressive with the doctors and repackagers who are the bad actors in this arena. Having been in the repackaging business, PBM business and now in an observer/consultant role, I can tell you that the vast majority of doctors do not want to be on the “naughty” list of a work comp payer.

    1. Charles – thanks for the note.

      your comment pre-supposes the pharmacy has not yet linked that claimant with a PBM. If that has occurred, the entire process is electronic and there is no additional legwork.

      1. You are correct Joe. But once they are linked, the reimbursement isn’t much better than what they are getting from the group health PBMs.

        So, if they market to get work comp claimants into their stores, they will get the PBM linked ones coming in but also the unlinked ones. And most chains are contracted with companies like Stoneriver for the unlinked ones where the reimbursement has been negotiated so is also not as rich as a workers comp fee schedule.

        As you point out, work comp scripts are a very small portion of the overall pharmacy spend. Coupled with the operational issues, chains just don’t see the return on investment. Seems on both sides of the issue, it comes down to the financial bottom line – the root of most problems in our healthcare system today but that’s another topic.

        Thanks for continuing to fight this battle.

  5. Joe, here in NY we have strict laws against physician dispensing. YET, physicisans engaged in WC here, are able to purchase medication and disoense to patients. Who is to blame, the carriers, who continue to pay the physicians. You can have proper laws set, but if the carriers are too ignorant to abide by them, what’s the point.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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