Insight, analysis & opinion from Joe Paduda

< Back to Home


Why be a crook when you can be a dispensing doc?

WCRI’s latest report on physician dispensing confirms what we weary soldiers have known for years; the physician dispensing industry is way better at figuring out how to screw employers and taxpayers than workers’ comp payers and regulators are at stopping them.

We’ve tried eliminating the upcharge for repackaged drugs; they came up with custom-manufactured medications.


Here’s the summary from WCRI:

the mechanism involves the creation of an opportunity to assign a much higher AWP to these new-strength and new-formulation products. Consider cyclobenzaprine HCL (a muscle relaxant), for which the most common strengths are 5 milligrams and 10 milligrams. If a new strength of 7.5 milligrams comes to market and the original manufacturer of that new strength sets a new AWP, this AWP could be much higher than the AWPs set by the original manufacturers for the existing 5- and 10-milligram strengths. These new strengths and formulation, almost all dispensed by physicians, are labeled as drugs made by generic manufacturers, not repackagers, and therefore, are not subject to the new reimbursement rules targeting physician-dispensed repackaged drugs.

Shockingly, Florida and California, two states that have attempted to control doc-dispensed drug costs with a repackaged drug cost cap have seen these “new” drugs become the most popular versions of the drug – and the most costly, with an average price of $3.01 per pill compared to $0.38 for the “regular” formulations.

Why has this 7.5mg version become so popular?

Is it better than 5mg or 10mg versions?

Of course not.

Make no mistake, these dispensing docs – and the industry that supports them, are quite clear about the money.

Proof.  More proof. And even more proof.

WCRI used data from 2 years ago; if anything it’s way worse now.

The solution is both simple in concept and difficult in execution.  Enable employer direction to pharmacies, a situation that currently exists in NY and MN (and in some cases in CA as well).

Yes, limiting doc dispensing to the first few days helps – legislation in IN and PA has been quite helpful in limiting the shameless profiteering of corrupt docs. However, the dispensing industry is quite creative in coming up with ways to circumvent regulations; don’t be surprised if:

  • docs rent a corner of their office to a “pharmacy”, and/or
  • docs get ownership in a pharmacy down the hall, and/or
  • companies are setting up vending machine-like dispensaries in medical office buildings

In fact, these all – and likely other maneuvers – are already operating in many states.  As I noted a year ago, these bad actors “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.”

Because that is precisely what they are doing.

What does this mean for you?

It is long past time to stop playing nice.

5 thoughts on “Why be a crook when you can be a dispensing doc?”

  1. Excellent post Joe – thanks for continuing to provide clarity. We have been far too tolerate of actions that are harmful to the injured worker (IW) and to society – being passive is being irresponsible.The costs, both the financial and more importantly the human costs, are inexcusable.Those involved will be innovative and find other ways to profit, whether it is from inappropriate treatment and/or diagnostic testing. The other “costs” include having IW consuming unneeded drugs (associated with risks) and reinforcing perceptions of a condition that mandates treatment. We need to educate the public, and most importantly educate, empower and engage the IW.

  2. What I don’t understand is how the insurance commissioners and state regulators for workers’ comp have not prohibited this in every state. WC is an easy target for these programs, there are no constraints. We don’t see these issues on the group health side. I am surprised we haven’t seen more Stark Law violations brought on by payers. The Stark law prohibits physician referrals of designated health services (DHS), outpatient prescription drugs are listed as a DHS.

    I agree Joe, time to stop playing nice. For payers/employers this is a call to action. Don’t take the path of least resistance and simply pay every bill because it’s easier. Where leagally viable we should prohibit and stop physician dispensing now.

  3. The best way to stop is to have laws that prohibit Doctors from dispensing medications from their office except is rare instances such as providers practicing in rural areas that have no pharmacies. That is the law in Texas not the comp law but the pharmacy law. The argument Doctors provide that patients need medicine asap and this keeps them from having to find a pharmacy is stuff of tooth fairies. When I was a little boy (and yes there were cars and telephones back then) when I went to the doctor, the doctor would give be two or three sample pills free of charge until I could get my prescription filled at the only drug store in that town. Today in that same town there are 4 pharmacies so the need to have doctor dispensing is nothing but cash flow.

  4. While I was the Pharmacy Consultant at the Ohio Bureau of Workers’ Compensation, I changed the rule to not reimburse physicians and other “non-pharmacy” providers for outpatient medications in 1997. I’m amazed that more than 19 years later this is such a big topic. The argument about access to a pharmacy provider was not valid then and it certainly is not now.

Comments are closed.

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.



© Joe Paduda 2024. We encourage links to any material on this page. Fair use excerpts of material written by Joe Paduda may be used with attribution to Joe Paduda, Managed Care Matters.

Note: Some material on this page may be excerpted from other sources. In such cases, copyright is retained by the respective authors of those sources.