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Workers’ Compensation – Another Example of the Zero Sum Game

By Byron Warnken, on August 27, 2014

Physician Dispensing of Medication

High markups on physician-dispensed drugs are creating costs in the Maryland workers’ compensation system.  Maryland’s laws are friendly to the practice of repackaging drugs.   It’s happening around the country, though Maryland has some of the highest costs. Physician dispensing is when doctors give medications directly to patients rather than sending them to their pharmacist with prescriptions in hand. This practice is most common among physicians who treat injured workers because the insurance companies often cover 100% of the prescriptions’ costs.

How it Works

Technology-enabling dispensing companies help doctors set up office pharmacies by providing them with billing software and connecting them with suppliers who repackage medications for office sale. Doctors then sell the drugs for the price they set and give the middlemen companies a chunk of the profit. The middlemen companies then charge the insurance companies for the drugs at full price.

In order to maximize their profits, doctors are charging incredible markups; Vicodin, which costs about 37 cents a pill at a typical pharmacy, costs an average of $1.46 when dispensed by a physician, according to the Massachusetts-based Workers Compensation Research Institute.

What are the Consequences?

Doctors can make tens of thousands of dollars a year operating their own office pharmacies. This is largely because the middlemen companies buy medications in bulk from wholesalers and repackage them for office sale. These “repackagers” can set a new “average wholesale price” – a price often many times higher than the original. As a result, the benchmark amounts of medication dispensed through workers’ compensation plans are thrown off. The benchmarked cost that is supposed to represent a drug’s typical wholesale cost can be far different from the repackaged doctor dispensed price. As such, marked-up drugs are overly costly to insurers and employers.

An additional concern is that large profit margins give doctors an incentive to overprescribe drugs, such as potentially addictive painkillers.

Maryland Legislation

Maryland’s laws are quite favorable to doctor dispensed drugs – physician dispensing accounts for more than 40% of filled prescriptions. There was, however, a recent Committee proposal, Bill Number SB0215, to limit the amount of medication a physician can sell directly to a patient to a 30-day supply. The bill would encourage injured workers to fill prescriptions through a pharmacy, leading to workers’ compensation savings. Critics, however, argued that the bill would interfere with a practice that is convenient for patients and helps physicians closely monitor whether drugs are working. Given the serious opposition from powerful lobbies, such as doctors and trial and workers’ compensation lawyers around Maryland, the bill was ultimately defeated.

What’s Best for Injured Workers

It cuts both ways for injured workers.  Physician medication dispensing makes it easier for injured workers to get their medication.  No need to go to the pharmacy, no need to have one additional chance to have something denied by the insurance companies.  However, if the workers’ comp insurance company is using a third-party administrator like Sedgwick or Gallagher Basset, that benefit is usually not present anyway.  For example, OrthoMaryland, one of the largest orthopedic practices in Maryland, literally has notes in its exams rooms stating not to give meds directly to injured workers whose cases are being managed by a list of companies, including Sedgwick workers’ comp and Gallagher Basset workers’ comp.  A disadvantage for injured workers, when physician direct dispensing is allowed, is that it’s a large cost for not a lot of payoff.  The individual injured worker doesn’t really care, as the insurance company is paying.  However, the high markup takes dollars out of the system.  Those dollars might otherwise be available for more necessary costs.  For example, an injured worker would rather have a surgery approved without a fight at the Commission than they would save a trip down the street to the pharmacy.

Unfortunately, workers’ compensation is generally a zero sum game.  Employers don’t want to pay higher insurance premiums.  The less they pay, the better a state is for business.  (Not the better a state is to work in, mind you.)  Instead of working to make conditions safer, the system works to make costs less.  You might think those two goals would be aligned.  They are not.

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