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The latest “innovations’ in physician dispensing

Despite overwhelming evidence that physician dispensing in workers’ comp leads to extended disability, higher medical costs, and higher indemnity expense, doc dispensing continues to expand.

Here’s why this is such a tough nut.

Back in the day, almost all physician-dispensed drugs were repackaged medications; since WC drug fee schedules were based on AWP, and repackagers could set their own AWP, it was child’s play to make millions by stuffing a few pills into a bottle,dispense to an unwitting claimant, and pocket the several hundred dollars.

In response, many states passed laws or implemented regulations eliminating the repackaged drug upcharge by basing reimbursement on the non-repackaged drug.

The dispensing industry quickly adapted by identifying and buying their drugs from “contract” manufacturers; drug companies that “manufactured” their own drugs, and therefore could set their own AWP.  Not surprisingly, these prices were far higher than comparable drugs from mainstream manufacturers; however, payers had no choice but to pay the price as required under statute or regulation.

Another wrinkle came out of the creative minds of those seeking to suck dollars out of employers and taxpayers; “novel” drugs.  These new creations were very slight tweaks of long-accepted formulations, tweaks such as increasing or decreasing the milligrams of one active ingredient by a negligible amount, thereby creating a “new” drug that could be sold thru dispensing docs.  At a price that was far higher than the “non-tweaked” drugs these variations mimicked.

In response, some states (IN, PA) have moved to ban or significantly restrict physician dispensing.  Others have attempted to do so only to find their efforts thwarted by the unbelievably well-funded doc dispensing lobby.  (Remember they are using the hundreds of millions they’ve sucked out of employers and taxpayers to pay their high-priced lobbyists and curry favor with medical societies; they are using your money to fight you)

At one time, I thought this was the right move as it would end the practice. As one who’s been fighting this battle for almost a decade, I still believe banning physician dispensing is a necessary and appropriate strategy, one every state should implement immediately.

However.  As we’ve seen, the doc dispensing industry’s creative minds are always at least three steps ahead of regulators, legislators, and payors.  So, while one would think banning doc dispensing – or significantly restricting it – would be the final answer, I’m not so sure.

Without getting too deep in the weeds here, my concern comes from years of watching these shameless profiteers outmaneuver us pretty successfully.  They will find any loophole, whether in a states’ pharmacy licensing process, medical board regulation, work comp statute or scope of practice to find a way to continue screwing employers and taxpayers.

For example:

  • docs are leasing space in their offices, at astronomical prices for just a couple of square feet to “pharmacies” which are nothing more than drug storage cabinets.
  • “pharmacies” are opening up actual locations next door to doctors’ offices and clinics; we have no way of knowing what, if any, financial relationships exist between the prescriber and dispensers.
  • dispensing docs are flying in to Hawaii, setting up shop in a clinic and seeing work comp patients for a day or two and dispensing drugs to those patients.
  • automated drug dispensing machines are appearing in medical office buildings; these buildings are often partly owned by the docs working there, and the machines’ owners are leasing space.
  • similar machines – totally automated, handling dispensing, billing, and record keeping – are being leased to docs in California and other states.

So, what’s the work comp industry to do?

  1. Ban physician dispensing, with tight language prohibiting physicians from profiting from or sharing in the revenues from dispensing.
  2. Include clauses in network contracts prohibiting dispensing by physicians.
  3. Refuse to pay for doc-dispensed medications unless evidence of clear medical necessity for immediate dispensing is provided. (I know, this is a thorny one, but it’s either that or continue to get screwed)

One thought on “The latest “innovations’ in physician dispensing”

  1. I can see the demand for MD dispensing. My wife had wrist sx (not WC related) and when we left the center, she wondered why we had to drive th CVS and wait foir pain meds. She was uncomfortable and would have liked to have the MD or Rx within the building get get the pain meds. Im not in favor of MD dispencing Rx but this is an interesting pateint view from someone not in our business.

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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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