By Claims & Rehabilitation Committee
During the past several years workers' compensation carriers have
experienced a significant increase in costs. In order to contain these costs
carriers have deemed it necessary to establish fundamental cost controls. The preponderance of these costs can be
identified as the indemnity and health care parts of workers' compensation
claims. Unquestionably, the rise in indemnity payments can be controlled a lot better than its counter-part, the
health care costs part of a claim. Reservists can be self-confident when
setting aside the necessary and proper security in order to manage the cost of
paying indemnity, but increasingly it has become a challenge to set reserves
for the cost of paying health care benefits.
If Forrest Gump were to chime-in
with his opinion, he probably would state that "health care costs are
like a box of chocolates, you never know what you are going to get.".
For example, a simple cut to a construction
worker's leg should appear to have a relatively minor and insignificant impact
upon a workers' compensation carrier.
However, what might appear to be a trivial claim can explode into a
claim that could run out of control and last much longer than it would normally
be expected to do so. One part of such a claim could require a greater reliance
upon paying for prescription drugs than an
adjuster would normally anticipate. Obviously, this type of case is not a common occurrence, but such cases
have occurred and it is better to use the extreme type of case in order to best
illuminate the horrors of such a potential problem.
Historically, up until the later part of the 19th century and the early part of the 20th century doctors traditionally
dispensed drugs directly to their patients. But just like the assembly line as
perfected by Henry Ford , the manufacture of drugs became more centralized by
the formation of drug companies. And a direct result of this type of business
model, drug companies were better equipped to deliver drugs to the marketplace
more efficiently than individual doctors. Additionally, states began to pass
laws the basically constrained doctors from dispensing drugs. Thus, the end of
the distribution line became the neighborhood pharmacy rather the local doctor. Additionally, drug companies were in a better
position to do the research and development of new drugs that doctors could not
afford to do. Consequently with the emergence of the “drug companies to the neighborhood pharmacy distribution
model” the need for doctors to provide maintenance drugs to their patients evaporated.
The basic cost of producing a drug is something that neither the states nor workers' compensation carriers
can control. However, once a drug is sent into the marketplace many states have
enacted laws to institute caps upon which a predetermined price will be paid to
the retail distributor. One method of controlling costs is to use the Average
Wholesale Price (AWP) as a basis for the payment. In addition to using the AWP
some statutes have set the reimbursement rate for drugs at a certain percentage above the AWP. Under normal circumstances the various
methods used to determine the retail price of drugs generally works for all
parties concerned. But like any other type of business people from time to time attempt to create new methods to
obtain a piece of the pie.
One of the unique methods of cutting into the piece of the pie have been the establishment of “re-packagers”. Essentially a “re-packager” purchases drugs
in bulk and then repackage the drugs into individual sizes. Once a drug is
repackaged it will require an new National Drug Code (NDC). At this point the “re-packager” will mark-up
the price of the specific drug to distribute either to doctors or directly to
claimants themselves. Once the drugs are distributed to the workers
compensation claimants the carriers will be billed at a higher rate than would
normally be expected. At this point it is incumbent upon the carriers to be vigilant in monitoring their prescription
costs. The creation of special units, such as Pharmacy Benefit Managers have been the most successful method of
monitoring these costs. When “re-packagers” have become a problem carriers must
utilize whatever statutory and/or business controls that are available to them to prevent the
unnecessary payment of these costs.
With respect to the role that doctors play in this type of distribution has been limited to a few
jurisdictions mainly because of the statutory prohibitions against this type of
business. Parenthetically, most doctors limit themselves to providing drugs to their patients mainly after the initial
treatment, which is understandable. However, in cases that have progressed into the chronic phase most
doctors do not become pharmacists. The reasons for avoiding taking on the aspects of another profession can vary from jurisdiction, but the main
reasons for not doing so are simply that doctors are not in the business/practice of operating a pharmacy and issue of malpractice coverage.
In sum, carriers must be vigilant in watching for new and creative billing and/or methods of
providing services by doctors and other health care providers. Statutory caps should be helpful in
effectively managing costs, however, people are always finding new and creative methods to maneuver around what appears to
be a clear and indisputable method of providing services.
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