Pharmacy Cost Control

Addressing the Physician Dispensing Challenge

Dispensers are using loopholes to circumvent reforms. But PBMs and payers are pushing back.
By: | August 24, 2017 • 9 min read

Although many states have enacted regulations to curb physician dispensing, doctors are finding ways to get around restrictions — driving up costs for workers’ compensation systems.


That’s a key conclusion of the recent report, “A Multistate Perspective on Physician Dispensing, 2011—2014,” by Cambridge, Mass.-based Workers Compensation Research Institute.

WCRI analyzed the prevalence and costs of physician dispensing across 26 state workers’ comp systems, comparing post-reform states with the states where no reforms were made, or where there were reforms but the data reflect pre-reform experiences.

The study found that, in post-reform states, the average price per pill for existing drugs decreased after reforms. However, physicians are bypassing the reimbursement rules that specifically target repackaged drugs by dispensing newer, higher-priced drugs.

That has offset the cost savings of reforms, actually driving up the average price per physician-dispensed pill in some states — particularly in California, Florida, and Illinois.

Prior to reforms, physicians often sold repackaged drugs, the average wholesale prices of which are typically higher than the original drug as packaged by the manufacturer.

Repackaged drugs are not addressed in pharmacy fee schedules — which are based on average wholesale prices of the drugs dispensed. So physicians who dispense repackaged drugs are paid higher prices than those who dispense the drug as originally packaged.

Dongchun Wang, economist, WCRI

Reforms capped the maximum reimbursement amount for repackaged drugs to the average wholesale price of the original.

“Facing a substantial price reduction, some physician dispensers might have tried to find a way to maintain the income they had from dispensing repackaged drugs prior to the reforms,” said Dongchun Wang, an economist at WCRI and author of the report.

“Those higher-priced new strength drug products provided a means for them to do so.”

WCRI said while some physicians dispensing the new strengths may have been motivated by the desire to provide benefits for their patients, “we are not aware of any scientific studies that support this,” said Wang.

“Our data show that the higher-priced new strengths were chosen by physicians who dispense drugs, not by those who write prescriptions and send their patients to a retail pharmacy. We rarely see these new strength products in pharmacy-dispensed prescriptions.”

The report cites evidence that other physician dispensing reforms in Florida, Indiana, Kentucky, and Tennessee might have some impact on these concerns.

“These more recent reforms either limit physicians’ ability to dispense certain drugs or limit the timeframe over which physicians are allowed to be reimbursed for drugs they dispense,” Wang said. “This may be one area to look into to gain additional insights.”

Dr. Robert L. Goldberg, chief medical officer for Tampa-based Healthesystems, said there is still a very limited role for physician dispensing as it serves patient convenience and access to medications during an initial visit for an injury.

“Employers enjoy the benefits of patients being able to come back to work after that visit instead of having to wait an hour or two at the pharmacy,” Goldberg said.

“Unfortunately, for many physicians, dispensing has become a revenue enhancer. That’s a problem as it’s become a big cost to the workers’ comp system — to employers and payers — because there’s a whole industry growing around physician dispensing to take advantage of the opportunity.”

Safety at Risk

There are other issues in addition to the cost — first and foremost, patient safety, Goldberg said. Early on, the treating physician may not necessarily have the full medical history of patients, and the patient doesn’t always know the name of the other medications he or she may also be taking.

“Drug interactions are common and are often unrecognized, but when patients go to the same pharmacist, that pharmacist should have their medication history and is responsible for checking to see whether there may be any potential drug interactions,” Goldberg said.

“And even if a physician has access to a patient’s full medical history, unfortunately some are not always up-to-date on drug interactions — but most pharmacists are.”

There’s also the issue of utilization of medication when it goes out the door of the physician’s office or clinic — “in essence, no one is keeping an eye on the dosage, the quantity and the duration,” he said.

“They could also be taking an off-the-shelf topical and making it higher strength and turning it into a faux prescription — changing the cost from $7.50 a tube to $750 a tube.” — Dr. Robert L. Goldberg, chief medical officer, Healthesystems

However, if the prescription is being processed by a PBM that is serving the interests of the payer and employer, that PBM will develop transaction and medication histories, as well as be familiar with state and payer formularies, Goldberg said.


Those formularies may have edits, step therapy, and certain quantity, duration and dosage limits — which can answer the question of whether a patient needs to go out the door with 30 or 60 days’ worth of medication, or whether it should be five or seven days’ worth or none at all.

“These checks on dosage, quantity, duration and drug interactions are important, particularly in a workers’ comp environment where there are no copays and deductibles for patients,” he said.

“If they are injured or ill and just handed bottles of medication, they are going to take it no matter what the doctor is giving them.”

Numerous Loopholes

Data published by Healthesystems shows that when physicians are dispensing medications, claim costs, medical costs and indemnity costs go up, Goldberg said.

“Physicians who dispense often are prolonging the use of the medical model by continuing to have patients take the medications longer than they might really need to for their injury — and if opioids are given, it really increases the total costs,” he said.

Doctors are finding a number of ways get around the physician dispensing reforms, Goldberg said. First, there’s “new, not novel” medications. An example would be a medication that’s typically in a 5 mg or 10 mg pill, approved by the FDA and authorized for treatment. But then a manufacturer produces a 7.5 mg pill that is not recognized by any system, with no average wholesale price, and it can then be priced at “whatever.”

“The older pill might cost $1 a pill, but the new, not novel pill — with the same chemicals but different dosage — can be selling for $10 or $100 a pill,” he said. “There’s no way to actually stop that from happening unless it ends up on a formulary or state-approved fee schedule.”

Dr. Robert L. Goldberg, chief medical officer, Healthesystems

Compounding is another way to get around the reforms, Goldberg said. Drugs are put in some concoction, and the impacts of the dosage form or combination can be unknown and outside of any cost-control mechanism.

The latest phenomenon is private-label topicals, he said. A drug that in and of itself is known to be useful or effective at a certain dosage strength may be perfectly safe, but then its manufacturer makes it a unique product by converting it into a topical that is not well known — and which costs more.

“They could also be taking an off-the-shelf topical and making it higher strength and turning it into a faux prescription — changing the cost from $7.50 a tube to $750 a tube,” Goldberg said.

Formulary adoption usually says what can and can’t be used, but depending on how specific those state formularies become, these items could potentially still get through, he said. Formularies now have to become even more specific, such as banning specific compounds and private-label topicals, and new definitions of “new, not novel.”

Formularies that say drugs at certain dosages such as 5 and 10 mg are acceptable, should also specifically exclude those drugs at 7.5 mg.

“California’s formulary is getting ready to be adopted.  It has an approved, or exempt, list of medications, but even that does not address new, not novel drugs until the state includes the dosages,” Goldberg said.

“California’s formulary also states that compounds need to be pre-authorized — they can’t just go out the door and have people trying to catch up with them later.”

A number of states (those cited in WCRI’s report), are also now requiring doctors as well as workers’ comp systems to limit the quantities of all medications and limit the timeframe they can be given.

“California’s proposal for physician dispensing is limited to initial treatment, and only one fill for the first seven days of injury,” Goldberg said. “That alone would knock out most physician dispensing or unsafe dispensing, and reduce a lot of the problems.”

Brigette Nelson, senior vice president, Workers’ Compensation Clinical Management at Express Scripts in Scottsdale, Az., said that physician dispensing continues to be a problem in workers’ comp.

“The costs of medications are significantly higher, but the other thing to be concerned about is that physicians doing this often don’t have the full prescribing history from other physicians, so drug interaction screening and safety screening is missed,” Nelson said.

Regulations are “all over the board” in post-reform states, ranging from prohibiting dispensing of certain types of medications, limiting quantities, or establishing fee schedule caps, she said.

The battle against problems stemming from continued dispensing by physicians should really be about continuing to “put more teeth” in regulations.

“From our perspective at Express Scripts, even in states where there are fee schedule caps, we can still see issues,” Nelson said.

“The quickest way is to prohibit it. But if it’s not prohibited, states should try to encourage injured workers to use a retail pharmacy which can perform the appropriate patient safety screening.”

As part of its physician dispensing solution, Express Scripts sends a letter to patients, providing them with information on the potential safety issues, and letting them know how expensive physician dispensing can be and “to do their part to keep costs down.”


“Perhaps more important, when we get a claim with physician-dispensed medications, we bounce it up against the plan design with formulary edits that had to come through a retail pharmacist — the same ones that would have been in place at the retail pharmacy,” she said.

“We look at safety issues, and we make a determination to cut the fee schedule or not pay if the state says the practice is prohibited.”

Using its physician dispensing solution, Express Scripts can bring the physician-dispensed medication back into the retail or mail order network.

“We give the payer the information they need, to not let this go through physician dispensing the next time there is a prescription,” Nelson said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Absence Management

Establishing Balance With Volunteers

It’s good business to allow job-leave for volunteer emergency responders, whether or not state laws apply.
By: | January 10, 2018 • 7 min read

If 2017 had a moniker, it might be “the year of the natural disasters,” thanks to a phenomenal array of catastrophic or severe events— hurricanes, tornadoes, wildfires, ice storms and floods.


Combined with smaller-scale fires and other emergencies, these incidents tax the resources of local and state emergency services, often prompting the need to call volunteer emergency responders into action.

But as lean as most organizations are already running, volunteer activities can sometimes cause friction between employees and employers. Handling conflicts the wrong way can potentially lead to legal headaches, harm employee morale and batter a company’s reputation.

State by State Variations

Most employers are aware of the various federal and state leave laws protecting their employees, including family and medical leave, pregnancy leave and military leave. But leave laws that protect the livelihoods of volunteer emergency responders are more likely to fly under the radar of some HR managers and risk managers.

Such laws don’t exist in every state, but more than 20 states do have some type of law in place to protect volunteers including emergency responders, firefighters, disaster workers, medical responders, ambulance drivers or peace officers.

Marti Cardi, vice president of Product Compliance for Matrix Absence Management

The laws vary broadly. Nearly all specify that such leave be unpaid, and that employees disclose their volunteer status to employers and provide documentation for each leave. But there is a spectrum of variations in terms of what may trigger an eligible leave. Some, for instance, apply for any emergency that prompts a call from the volunteer’s affiliated responder group. Others may require a government declaration of emergency for the law to be triggered.

While many of the laws do not explicitly require employers to let employees leave work when called to an emergency during a shift, most specify that an employee may be late or even miss work entirely without facing termination or any other adverse employment action.

Some states mandate a maximum number of unpaid leave days that a volunteer can claim. But others may place more significant burdens on employers. In California, for instance, employers with 50 or more employees are required to grant up to 14 days of unpaid leave for training activities in addition to any leave taken to respond to emergency events. For multistate employers, keeping on top of what obligations may apply in each circumstance can be a challenge.

Significant Risks

Large or mid-sized employers may rely on absence management providers to keep them in compliance. For smaller employers though, it may be as simple as looking up a state’s law via Google to find out what’s required. However, checking in with the state department of labor or the company’s attorney may be the best way to get the correct facts.

“I would caution that just because you don’t find something [on the internet], it doesn’t mean it’s not there,” said absence management and employment law attorney Marti Cardi, vice president of Product Compliance for Matrix Absence Management.

For example, Cardi said, an obscure Texas law provides job-protected leave for volunteer ham radio operators called into service during an emergency.

Cardi said employers should task HR to investigate the laws in each state the company operates in, and to ensure that supervisors are educated about the existence of these laws.

“If a supervisor is told by one of his or her employees, ‘Sorry I’m not coming in today … I’ve been called to volunteer firefighter duty for the [nearby region] fire,’” she said, you want to be sure that the supervisor knows not to take action against the employee, and to contact HR for guidance.

“Training supervisors to be aware of this kind of absence is really important.”


An employer that does terminate a protected volunteer for responding to an emergency may be ordered to pay back wages and reinstate the employee. In some cases, the employee may also be able to sue for wrongful termination.

And of course, “you don’t want to be the company in the headlines that is getting sued because you fired the volunteer firefighter,” she added.

If an employer bars a volunteer from responding, the worst-case scenario may be a third-party claim. Failure to comply with the law could give rise to a claim along the lines of “‘If you had complied with your statutory obligation to give Jane Doe time to respond, my loved one would not have died,’” explained Philadelphia-based Jonathan Segal, partner at law firm Duane Morris and managing principal of the Duane Morris Institute.

“That’s the claim I think is the largest in terms of legal risk.”

Even if no one dies or is seriously injured, he added, “there could still be significant reputational risk if an individual were to go to the media and say, ‘Look, I got called by the fire department and I wasn’t allowed to go.’”

The Right Thing to Do

What employers should be thinking about, Segal said, is that whether or not you have a legal obligation to provide job-protected leave for volunteer responders, “there’s still the question of what are the consequences if you don’t?”

Employee morale should be factored in, he said. The last thing any company wants is for employees to perceive it as insensitive to their interests or the interests of the community at large.

“Sometimes employers need to go beyond the law, and this is one of those times,” — Jonathan Segal, partner, Duane Morris; managing principal, Duane Morris Institute

“How is this going to resonate with my employees, with my workforce, how are people going to see this? These are all relevant factors to consider,” he said.

There’s an argument to be made for employers to look at the bigger picture when it comes to any volunteer responders on their payroll, said Segal.

“Sometimes employers need to go beyond the law, and this is one of those times,” he said. “Think about the case where’s there’s not a specific state law [for emergency responders] and you say to a volunteer, ‘No, you can’t leave to deal with this fire’ and then people die. You as an employer have potentially played a role, indirectly, because you didn’t allow the first responder or responders to go,” he said.

The bottom line is that “it’s the right thing to do, even if it’s not required by law,” agreed Cardi.

“I feel that companies should have a policy that they’re not going to discipline or discharge someone for absences due to this kind of civic service, subject to verification of course.”

Clear Policy

While most employers do strive to be good corporate citizens, it goes without question that employers need to guard their own interests. It’s not especially likely that volunteer responders will try to take advantage of the unpaid leave allowed them, but of course, it could happen.

That’s why it’s important to have policies that are aligned with state laws. Those policies could include:

  • Notifying the company of any volunteer affiliations either upon hire or as soon they are activated as volunteers.
  • Requiring that employees notify a supervisor as soon as possible if called to an emergency (state requirements vary).
  • Requiring documentation after the event from the head of the entity supervising the volunteer’s activities.

If at some point it becomes excessive – someone has responded to emergencies five times in nine weeks, then it’s time to examine the specifics of the law and have a discussion with the employee about what’s reasonable, said Segal. It may also be time to ask specifics about whether the person is volunteering each time, or are they being called.


In some cases, the discussion may need to be about finding a middle ground, especially if an employee has taken on an excessively demanding volunteer role.

“We encourage volunteers to pick the style that best fits their schedule,” said Greta Gustafson, a representative of the American Red Cross. “Disaster volunteers can elect to respond to disasters locally, nationally, or even virtually, and each assignment varies in length — from responding overnight to a home fire in your community to deploying across the country for several weeks following a hurricane.

“The Red Cross encourages all volunteers to talk with their employers to determine their availability and to communicate this with their local Red Cross chapter.”

Segal suggests approaching it as an interactive dialogue — borrowing from the ADA. “Employers may need to open a discussion along the lines of ‘I need you here this week because this week we have a deliverable on Friday and you’re critical to that client deliverable,’” he said, but also identify when the employee’s absence would be less critical.

No doubt there will be tough calls. An employer may have its hands full just trying to meet basic customer needs and need all hands on deck.

“That may be a situation where you say, ‘First let me check the law,’” said Segal. If there’s a leave law that applies, “then I’m going to need to comply with it. If there’s not, then you may need to balance competing interests and say, ‘We need you here.’” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]