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Bringing a knife to a gun fight

Employers, taxpayers and insurers got a very loud wake-up call last month. If there was any doubt about the financial power of dispensing companies and their owners (we’re talking you, ABRY) – and the unbelievable profitability of dispensing – that has been put to rest.

Physician dispensing companies spent over a half-million dollars on lobbying efforts to allow physician dispensing to continue in Pennsylvania.  Unlike battles in other states – Maryland, Florida, Hawaii come to mind – doc dispensing opponents were able to prevail despite an overwhelming disadvantage in financial resources.

In most other battles, we have lost, lost repeatedly, and lost badly.  That’s what happens when you bring a knife to a gun fight.


Yes, employers, injured workers, and taxpayers did win in PA, but only because we were there early, in force, and coordinated – an unfortunately uncommon event.  We managed to overcome dispensing companies’ overwhelming financial resources only with a concerted effort on the part of many, many people and organizations coupled with strong leadership from key influencers and committed and persistent legislators.

Meanwhile, we’re finding that the measures taken in Connecticut to reduce costs of physician dispensed repackaged drugs aren’t working out so well.  A just-released WCRI study indicates that, while prices are down from pre-reform days, doc-dispensed drugs still cost 30 to 60 percent more than the same drugs bought from a retail pharmacy.  In my view, there are a few reasons…

  • Docs are dispensing a lot of over-the-counter drugs at prices far higher than the OTC retail price.  We’re talking generic Tylenol(r), Prilosec, etc.
  • Dispensing companies are likely sourcing their drugs from manufacturers with high AWP prices; these manufacturers give dispensers a big discount, allowing them to make more money on the “spread” between their cost and what they charge work comp payers.
  • The “contract” manufacturers that have targeted the work comp dispensing industry are selling direct to dispensing companies at prices very close to – if not more than – the repackagers. This allows them to get around the “original manufacturer” price that’s set as the cap in CT.
  • PBMs get a hefty discount below the fee schedule which reduces employers’ costs rather dramatically – this discount isn’t available from doc-dispensed drugs.

What does this mean for you?

1.  Employers, insurers, and their allies need to get serious about physician dispensing.  It is costing taxpayers and employers about a billion dollars a year.

2.  Regulations/legislation based on “original manufacturer” language, while helpful, are readily circumvented by dispensing companies.

3.  Banning dispensing outright – as Texas, Ohio, Washington, North Dakota, Massachusetts, and New York do – is by far the best answer.


7 thoughts on “Bringing a knife to a gun fight”

  1. The only problem that I can see, perhaps due to innate laziness and advancing years, is the sheer nonsense of having to visit the doctor, get given a prescription, and then have to go off premises to fill the d*mn thing. Sounds like a bureaucratic solution because they can’t come up with a real one. Just because doctors are overcharging, why do I have to go to the bother and expense of traipsing around town? Will those costs be born by insurance? I think not.

    1. I don’t understand the ‘traipsing around town’ portion of your response Mr. Chamberlain. In most areas, the injured worker is driving to his physician’s office for his appointment and can easily stop to fill a prescription on his way home. I would think that only in the most rural of places would that even be out of the injured worker’s way since in most places there is a WalMart or a chain drugstore every mile or so.

    2. John, John, John, you do like to stir the pot now, don’t you? We all pay for the abusive pricing practices of physicians who view the patient as a profit center. Furthermore, allowing gross profits for sales dictated by the doctor just might lead to unnecessary medications. Doctors also do not have multiple med tracking systems employed by pharmacists. This is a health issue. And finally, what gives you the idea that injured workers are entirely without responsibilities in regards to their care? In most areas stopping by a pharmacy does not require major re routing. It is a small price to pay for the protections the effort provides.

  2. I have a bill on my desk for a doctor-dispensed “pain cream.” They provided 5 tubes and charged over $1,000. The active ingredient in the concoction is capsaicin. You can buy a tube of capsaicin cream at retail cost between $3-10. That means the markup for the physician dispensing is between 20X-60X retail cost.

    You can’t blame lawyers for the cost of the litigation to fight this sort of silliness.

  3. A State of California-commissioned analysis of physician dispensing in 2006 found that the mean distance between the physician’s office and the nearest pharmacy was 0.8 miles, and that a workers’ compensation patient had a choice of 5 pharmacies within 2.2 miles.

  4. There is so much wrong with this. One is of course the absurd price spread between market and what offices charge as compared to OTC or pharmacist filled prescriptions. This could be regulated away by a fee schedule for meds which I assume exists from PBM’s and others.

    The ‘inconvenience’ of travel to a pharmacy would only move me in the case of a person who is otherwise homebound. With e-prescribing one can have the script sent direct to pharmacies so there is no wait upon arrival, or mail-order for longer term drugs. I just roam the chocolate aisle while I wait for mine.

    The big concern not mentioned in this particular posting is the clinical validity of the meds prescribed and the moral hazard that profiting from prescribing conveys to the prescribing and dispensing physician. In my life as a physician I still see a few patients, some of whom are receiving medications. In all cases, I write a script, always generic, and take comfort in knowing that I am not impacted financially by whether I write a prescription or what I write it for. I am paid for my consultation time and do this in the context of a standard visit. This is the case for the vast majority of physicians who don’t prescribe. Exceptions include I understand, oncology, who make big bucks from the infusions that they sell but that is another issue.

    I don’t understand why payers don’t just say no, or hell no, to egregious bills and for clinically unnecessary or even damaging drugs.

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.



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