Physician Dispensing and Workers’ Compensation

Physician dispensing of repackaged drugs continues to be a major contributor to the growing cost of prescription drug treatment within the workers’ compensation industry. In the 2012 Survey of Prescription Drug Management released by CompPharma and authored by Joseph Paduda in January of 2013, it was noted that physician dispensed medications were second only to the use of opioids as the largest driver of workers’ compensation prescription drug costs.

Physician dispensing is not a new practice among physicians. It became popular in the late 19th and early 20th centuries and was first seen in workers’ compensation in California in the middle of the last decade. At that time, physicians began to partner with companies who marketed repackaged drugs for resale as an opportunity for offsetting practice revenue losses due to reimbursement cuts made by government, commercial and workers’ compensation payers.

Repackaged drugs are usually purchased in large quantities from the original manufacturer by companies who then repackage them into smaller quantities for resale. The repackaged drugs are usually sold at a profit by physicians who dispense them to the patient at time of treatment. The FDA requires the company that is repackaging and relabeling the drugs to assign a new NDC number (different from the original manufacturer’s NDC) and at that time it is common for the company to set a new AWP (average wholesale price) that is generally higher than the original. This new AWP is also typically higher than the AWP utilized by retail and mail order pharmacies and is often not controlled by state fee schedules.

From a workers’ compensation payer’s perspective, arguably there are numerous “Pros” and “Cons” concerning physician dispensing.


*Allows the physician the opportunity to ensure the patient has the medication to begin treatment immediately as it is dispensed at the time of service. Additionally, physician dispensing makes it more convenient for those patients who may have difficulty finding transportation to a retail pharmacy. Those patients that may not otherwise have reliable transportation may postpone filling the medication or never obtain the medication for treatment at all.

* Beneficial for specific medications that require physician monitoring such as those dispensed within a drug rehabilitation program.


*Patient Safety:  Since the medication is being dispensed by the physician without the oversight of the pharmacy benefit manager or pharmacist, an important safety check is bypassed.  Since the physician must depend on the injured worker to provide the medication history in order to perform drug utilization review, drug therapy problems may go undetected.  This leads to possible missed drug interactions, duplicate or excessive drug therapy, as well as other high risk medication concerns.

* Inflated costs:  The majority of medications dispensed by physicians are associated with an increased cost per unit because of the creation of a new NDC and AWP.  In many cases this AWP is much higher (in some cases as much as 400% higher) than the same drug dispensed through the retail or mail order pharmacy setting.

*Administrative inefficiency:  It is difficult for bill review systems to identify physician dispensed drugs as they are often simply included in the physician’s treatment bill and the reviewer is unable to separate the cost of treatment from that for drugs.  As these transactions are often billed on paper, this drives additional cost for payers compared to PBM-billed transactions that tend to be billed electronically.  This also makes it very difficult for the payer to build a complete data picture of the magnitude and amount of physician dispensed drugs.

As the practice of physician dispensing continues to gain in popularity, it will remain a concern for payers of worker’s compensation claims.  Due to the financial benefits as well as aggressive marketing by the repackaging companies, it is estimated that the percentage of physicians dispensing drugs is growing well over 10% per year.  In response to this, many, but not all of the states, have begun to  change regulations monitoring physician dispensing in an attempt to help control the inflated cost due to this type of dispensing.

In order to control rising costs, it is important that the workers’ compensation industry work with state legislators to provide insight into this issue. It is equally important for the industry to remain informed on how physician dispensing is being handled by each individual state.  Payers should also discuss with their PBMs their approach to controlling physician dispensing and to ensure sure that it is being actively managed and monitored.

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