Florida Trend | Florida's Business Authority

Pharmaceuticals - Bitter Pills?

Pinched by insurance companies and increased overhead, physicians have looked for ways to boost their bottom lines — adding money-making services ranging from physical therapy to MRIs to weight management programs and bone density scans.

One tactic: Some doctors choose to dispense some of the medications they prescribe from their offices, in effect, turning their practices into mini-pharmacies. While a handful of states like New York, Massachusetts and Texas restrict physicians from dispensing drugs, the practice is legal in Florida and most other states. Since 2008, the number of Florida physicians registered to dispense medication has risen from 3,710 to more than 5,500 — approximately 9% of physicians in the state.

Annually, in-house drug dispensing can bring in “between $75,000 to over $150,000 depending on the volume of prescriptions being dispensed — and that’s per physician in the practice,” says Kimberly Sullivan, who works in sales and marketing at the American Association of Dispensing Practitioners, a Boca Raton company that helps physicians set up and maintain pharmaceutical dispensing systems.

The trend has been facilitated by a proliferation of firms that help doctors manage their in-house drugstores. Some are companies that buy bulk shipments of pharmaceuticals from drug manufacturers and distributors and repackage them into smaller, individual prescription sizes. The repackagers might break down a batch of 1,000 pills, for instance, into single prescription sizes of 15, 30 or 60 tablets that the doctor dispenses to patients.

Other firms like AADP, which has been in business since 2005, handle the credentialing process for physicians; provide them with dispensing cabinets, laser printers, pharmacy bags, labels and other supplies; offer compliance information and on-site training; and provide processing of third-party reimbursement claims through proprietary software programs. Sullivan says her company charges from $199 to $5,000 and then a fee for every prescription processed.

Privately insured patients don’t necessarily pay more for physician-dispensed medications: The doctors have incentives to keep prices down because insurers generally won’t pay more than the rates negotiated by insurers’ pharmacy benefits managers.

Phil Berry, owner of an Indianapolis-based repackaging company Northwind Pharmaceuticals, says privately insured patients typically receive their medications “at or below” prices they’d pay at a pharmacy. Sullivan says her company urges doctors who are pricing prescriptions to check out local competitors and undercut their prices: “If CVS is selling the prescription for cash for $14.50, we suggest going a dollar lower.”

But there’s a fly in the ointment — a wrinkle in state law that allows doctors to charge significantly higher prices for meds dispensed in workers’ compensation cases.

The problem came to light several years ago when Florida workers’ comp insurance companies realized their costs were going up because of an increase in physician-dispensed, repackaged drugs. The state’s Division of Workers’ Compensation found that payments to pharmacies for prescriptions declined from $136.2 million to $122.3 million between 2007 and 2010, but payments for prescriptions dispensed by doctors mushroomed from $35.9 million to $63.2 million.

The National Council on Compensation Insurance (NCCI), a firm that provides data to workers’ comp insurers and analyzes trends in the industry, found that doctors were marking up repackaged drugs in workers’ comp cases from 45% to 679% for 15 most frequently dispensed medications. Under the state’s workers’ compensation statute, the reimbursement amounts for prescription medication in workers’ comp cases is supposed to be capped at what’s known as the average wholesale price (AWP), usually the wholesaler’s suggested price, plus a $4.18 dispensing fee.

There’s a loophole, however: When drug repackagers remove the pills from their original containers and repackage them, there are no limits on the markup. The repackagers are allowed to create an entirely new AWP, which is often higher than the manufacturers’ suggested retail price. The doctors who then buy the repackaged drugs add their own margin and pass the cost along to the workers’ comp insurer.

Pricing Loophole
Medications commonly prescribed in workers’ comp cases (2009)
Medication Repackaged
Per Pill
Per Pill
Carisoprodol (muscle relaxant) $4.21 54 cents 679.6%
Meloxicam (pain reliever) $5.70 $3.04 87.5%
Ranitidine HCL (heartburn relief) $3.77 $1.32 185.6%
Tramadol HCL (pain reliever) $1.63 78 cents 109.0%
Cephalexin (antibiotic) $3.01 66 cents 356.1%
Source: National Council on Compensation Insurance

A wrinkle in state law allows doctors to charge significantly higher prices for medications dispensed in workers’ compensation cases.

One example of the results: Carisoprodol, a commonly prescribed muscle relaxant, costs 54 cents a pill from a pharmacy that purchases the drug in bulk but about $4.21 per pill on average when repackaged and dispensed by a workers’ comp physician, according to 2009 council data.

Business trade groups like the Florida Chamber of Commerce, the NFIB and Associated Industries of Florida say the loophole is driving up workers’ comp premiums — and they’ve been pushing lawmakers to impose caps on what physicians can charge in workers’ comp cases.

“We fully support doctors being able to dispense ... but we also support them doing so at a reasonable cost,” says David Hart, Florida Chamber’s chief lobbyist and executive vice president. “They ought to have to dispense at the same rate that everyone else is required to under the state law, with an additional dispensing fee, since they can’t buy in bulk.”

Thus far, the chamber and its allies have been unsuccessful. In 2010, the Legislature approved a bill that would have put price caps on drugs repackaged for workers’ comp patients, but Gov. Charlie Crist vetoed the law. In the most recent legislative session, Senate President Mike Haridopolos blocked similar legislation. One important player, the Florida Medical Association, supports physician dispensing but hasn’t taken a position on capping markups on workers’ comp-related prescriptions.

Automated HealthCare Solutions, a Miramar company that provides software that enables workers’ comp doctors who want to dispense drugs, has spent more than $1 million lobbying against price caps on repackaged drugs over the past several years. The company and its affiliates are also generous GOP contributors, giving more than $3 million to conservative candidates and groups since 2005. Among the recipients: Haridopolos’ Freedom First Committee, which received $200,000 from Green Solar Transportation, a company registered to Automated HealthCare Solutions co-founders Paul Zimmerman and Gerald Glass.

Automated HealthCare disputes the insurance industry’s claims that caps on drug prices for workers’ comp patients will save Florida employers $62 million in workers’ comp costs, saying its calculations show at best a $7-million savings. Tom Panza, a lawyer for Automated HealthCare Solutions, says drug repackagers are “considered manufacturers by the FDA ... and they have to have purity controls and non-cross contamination and there’s a lot of things they have to do technically” that drive up costs.

Capping reimbursements for prepackaged meds, says Panza, would effectively put most doctors out of the dispensing business because they can’t benefit from economies of scale the way retail pharmacies can. “The doctor is never going to be able to get the discounts and rebates that the pharmacies get when you have a Walgreen’s that orders 40,000 pills. The doctor is not going to have 20 pharmacy techs like you have at Walgreen’s, so what you’re going to do is put a roadblock between the doctor and their ability to treat their patient in the best way they know how.”

Martin Dix, a health care attorney with Akerman Senterfitt who focuses on pharmacy law, agrees with Panza that drug dispensing is more costly for a physician than a retail pharmacy because of the repackaging component but says there’s a wide variance among what various repackagers charge for their meds. “You’ve got a little of both — some repackagers who are charging a little bit over AWP, and you have repackagers that are giving the drugs a very large AWP,” says Dix.

Lori Lovgren, NCCI’s state relations executive for Florida, stands by the group’s $62 million figure and says there’s no evidence to support arguments by Panza that injured workers are more likely to take their medications and return to work quicker if a physician dispenses the drugs.

Gary Brown, managing member of the American Association of Dispensing Practitioners, rejects the idea that caps on workers’ comp physicians would somehow put doctors out of the dispensing business.

His firm, he says, works with about 130 physicians who dispense medications in-office, primarily to patients with private health insurance. The private insurers reimburse physician-dispensed drugs at prenegotiated rates set by the insurers’ pharmacy benefits managers. The doctor’s profit margin, he says, ends up being about $7 per prescription — slightly less than what a pharmacy would get but still enough to make it worthwhile.

Brown calls the high markups of prescriptions in workers’ comp cases “price-gouging.”

“I really think the workers’ comp system has been abused, and I think it is a loophole,” he says. “And I think it’s actually given physician dispensing some bad connotations, so quite frankly, I would like to see similar requirements within the workers’ comp system as we have in regular dispensing.”