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Prepackaged Drugs in
Workers' Compensation


By Jason Clark, CompSource Oklahoma

Prepackaged Drugs in Compensation

In most regions across the country, medical costs now make up more than half of the total claim dollars of a workers’ compensation claim. As claim professionals, we are constantly uncovering a plethora of cost drivers contributing to this phenomenon. Our challenge is to implement cost containment strategies as most of our insureds have come to expect. Another familiar development is the rise in pharmaceutical costs, which now accounts for 10 percent of annual medical costs. Some attribute this rise to overprescribing or to an aging work force, while others credit the marketing campaigns financed by the major pharmaceutical manufacturers. In response, most claim operations have implemented effective Pharmacy Benefit Managers (PBMs) for the efficient electronic management and reduction of their pharmacy expenditures. PBMs provide cost-saving capabilities with reduced internal administrative costs. A new nationwide trend has emerged with a growing number of prescribing physicians, which could circumvent PBMs and other cost-containment efforts on prescribed medications for injured workers. The referenced trend is known as Prepackaged Drugs.

Prepackaged drugs are purchased in bulk by FDA-approved repackagers and repacked into individual prescription sizes, which are then distributed directly to physicians for in-office dispensing. This, of course, is in contrast to the traditional method of acquiring prescription medication through the local pharmacist. Physician dispensing is certainly not a new concept. In the 1800s through the early 1900s, doctors dispensed prescribed drugs in their offices. That began to change as sharp increases in the number of new medications and state-imposed regulations forced doctors to meet pharmacy requirements. Also, organized medicine established retail pharmacies as central distributors for prescription drugs. In the late 1980s, there was considerable debate over whether physicians should be allowed to dispense drugs to patients. Several Federal Trade Commission rulings upheld the right of physicians to dispense drugs, deciding this practice maximized the consumer’s options in purchasing and might lead to lower costs through increased competition.

Until recently, physician dispensing was not a common practice due to inventory barriers and liability concerns regarding drug interaction management. User-friendly and affordable software has now made it more practical for physicians to manage inventory, track prescribing habits, maintain patient and invoicing records and check for drug interactions. A number of companies have developed and are marketing their systems to clinics across the country, lauding the benefits of physician dispensing of prepackaged drugs. With the introduction of sophisticated software to support point-of-service dispensing and aggressive marketing by repackagers, the percentage of physicians dispensing drugs has risen to an estimated 7 percent to 10 percent. Doctors are constantly reminded of the squeeze on reimbursements from managed care, Medicare and Medicaid, increasing overhead and decreasing profitability. Prepackaged drugs are perceived and endorsed as an additional ancillary service offered by physicians to enhance revenue while meeting the needs of patients.

Proponents of prepackaged drugs tout several benefits of physician dispensing, including increased patient compliance, reduced risk of error, and convenience. Greater patient compliance in filling and refilling prescriptions is touted as a benefit because the patient leaves the clinic with drug in hand, thus the physician receives more assurance the patient will be compliant with the treatment regimen. This analogy has limited application to workers’ compensation, as the highest volume of drugs are pain medications. Presumably, injured workers would fill their prescriptions if they needed pain relief. Prepackaged drugs advocates also refer to the elimination of the risk of errors from illegible handwriting or sound-alike drugs often faced by pharmacists. Convenience is another cited advantage of physician dispensing of prepackaged drugs for both the patient and physician. The physician is no longer hassled by the need for calling in prescriptions to pharmacies, and patients no longer have to be challenged with finding a pharmacy that will fill workers’ compensation prescriptions.

Critics of physician-dispensed prepackaged drugs tend to discredit the claims of convenience and reduced risk of error due to the proliferation of PBM’s and their electronic communication systems and comprehensive pharmacy networks.

The opposition to prepackaged drugs continues to raise concerns of ethics, safety, and financial incentives. The American Medical Association Code of Ethics provides that physicians may dispense drugs within their office practices as long as there is no patient exploitation and patients have the right to a written prescription that can be filled elsewhere. It is uncertain if this is standard practice among physician dispensing clinics in the absence of patient survey confirmation. Drug safety issues have been raised in workers’ compensation since most physicians treating injured workers are not the worker’s primary care physician and consequently may know less about other medications the patient is taking than their local pharmacist.

Since repackagers market their services as an opportunity for physicians to increase their practice revenues, concerns are whether prepackaged drug profits create an incentive for inappropriate prescribing practices. With profit margins averaging up to $16 per workers’ compensation script, the potential for over-prescribing exists, especially with those drugs with greater profit margins. One may also assume these margins could be further inflated with any proposed drug rebates offered by repackagers.

From the workers’ compensation payers' perspective, dispensing of prepackaged drugs could have a direct impact on costs. Consider the argument of patient compliance offered by proponents for physician dispensing of prepackaged drugs (noted earlier). It has been reported 20 percent of patients decide to forgo filling their prescriptions, and 30 percent forgo refills. In workers’ compensation, this is especially true for minor injuries treated at injury care clinics where often the worker is seen for an initial visit, prescribed an analgesic or anti-inflammatory and scheduled for a follow-up visit. The worker subsequently finds relief after a day or two of rest without the aid of the prescription medication. Consequently, the employer/payer does not realize the cost of the unnecessary drug expense for that injury. With the introduction of the dispensing of prepackaged drugs at the point-of-service in a growing number of initial care/occupational medicine clinics, more patients will receive their medication before leaving the clinic. This includes those patients who would have otherwise forgone obtaining the prescription in which the cost will now be borne by the employer/workers’ comp (WC) payer.

Another cost consideration associated with prepackaged drugs is inherent in the method of billing. Since the medication is dispensed by the physician, the charge for the drug is included with the other billable charges for services rendered by the physician on the day of treatment. In many instances the WC payer first learns of the dispensing of the prepackaged drug by receipt of the physician’s HCFA invoice. This is particularly where your workers’ comp PBM may be bypassed, as most PBMs implement electronic pricing systems geared toward capturing savings at the point-of-sale through contracted participating pharmacies. The prepackaged drug is identified by its associated NDC number with a corresponding billed amount. Because most workers’ compensation fee schedules do not recognize physician-dispensed medications, some bill review systems have difficulty in repricing prepackaged drugs consistently. Also, some providers continue to bill using various alternative fee schedule ground rules to maximize reimbursement by suggesting they are exempt from state-mandated, AWP-based reimbursement formularies because they are not a dispensing pharmacy.

Even though only 7 percent to 10 percent of physician practices are reportedly dispensing drugs, it seems workers’ compensation patients happen to be one of the patient focus groups for physician-dispensed prepackaged drugs. Consider this excerpt taken directly from a repackaging company’s website:

    “Dr x says dispensing usually works best in offices that prescribe acute care medications to treat conditions that are usually cured with a single course of therapy. Practices that frequently dispense medications directly to their patients include urgent care, minor emergency, walk-in medical centers, family practice, occupational medicine/workers' compensation, oral and maxillofacial surgery, pediatrics and dermatology, the company says.”

In January 2005, the California Workers’ Compensation Institute (CWCI) released an interesting cost analysis compiled of repackaged drugs. The analysis evaluated a total 246,906 prescriptions with 30.5 percent represented by repackaged drugs and 69.5 percent comprised of pharmacy-based medications. Although repackaged drugs consisted of only 30 percent of the sample size they represented over 51 percent of the total paid amount. The same study also included a price comparison of three common repackaged drugs with pharmacy fee schedule and on-line pharmacy costs. In each of the three examples the repackaged drug contained significantly higher costs. Without further cost analysis of prepackaged drugs, comparing reimbursement rates with multi-state fee schedules, it is difficult to determine if these findings represent a unique observation. If nothing more, the study heightens concerns that repackaged (prepackaged) drugs may lead to increased pharmacy costs in workers’ compensation.

Despite cost implications and other opposing arguments, only a handful of states have endorsed regulations placing limitations on physician-dispensed or prepackaged medications. Unfortunately today, very little information or cost analysis is available that focuses on the impact of prepackaged drugs in workers’ compensation. However, considering the potential for increased utilization, concerns of over-prescribing, fee schedule limitations and lost savings through PBM discounts, physician dispensing of prepackaged drugs should certainly not fare well among WC payers.

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