Workers’ Compensation Still Under Pressure from Drug Repackagers, Compounding Pharmacies

Though the number of physician dispensed prescriptions has declined considerably from just a few years ago, the workers’ compensation industry continues to battle a market seeking to maintain high prices by changing drug strength and formulations.

The impact of physician dispensed pharmaceuticals and drug compounding on workers’ compensation systems nationwide was highlighted recently during a session hosted by the National Conference of Insurance Legislators’ (NCOIL) Workers’ Compensation Insurance Committee at its annual meeting in Phoenix.

According to Kathy Fisher, assistant director of external engagement at the Workers’ Compensation Research Institute (WCRI), a 2017 study examining physician dispensing across 26 states revealed that both prescribing frequency and pricing decreased in all the states studied, except California, Florida and Illinois.

The study examined 2011-2014 data, an important timeframe during which reforms were instituted in several states. Twenty-two states currently have reforms in place. The reforms have been of two types: price-focused reforms to control high prices and repackaged drugs with caps instituted at the wholesale price; and what Fisher termed limiting reforms that limit a certain type of drug or restrict use for a certain time period.

According to Fisher, WCRI’s study examined prices, frequency of prescribing and cost share, relative to all prescription drug costs to uncover trends. It compared data between reform and non-reform states, as well. Some findings:

  • In Florida, the number of prescriptions of Ibuprofen/Naproxen increased due to the introduction of a new product.
  • Prices were static or increased in non or pre-reform states.
  • In all post-reform states – there was a reduction in physician dispensing. For example, in South Carolina, there was a 63 percent reduction. In Tennessee and Indiana, physician dispensing went down by 23 percent.

Fisher said there was a significant decrease in cost share of physician dispensed drugs to all prescription drugs in many reform states.

The states with the most physician dispensed drugs – California, Florida and Illinois – saw a significant increase in new drug strengths and formulations of certain existing drugs, said Fisher. This offset any other decreases. In these states, 54-64 percent of all total prescription payments were to physician dispensers. While many of the reforms were aimed at high-priced, repackaged drugs, it’s likely that costs didn’t go down in these states, said Fisher, because manufacturers came up with new formulations and drug strengths.

Some examples of new drug strengths or formulations:

  • 5 mg cyclobenzaprine HCL (Flexeril)
  • 150 mg extended release Tramadol HCL (Ultram)
  • 5-325 mg Hydrocodone-Acetaminophen (Vicodin) (2.5 -Lowest dose, highest cost)
  • Lidocaine-menthol (new formulation of a pain patch).

The changes in drug strength and formulations reveal just how adaptable the supply chain is, said Joseph Paduda, principal of Health Strategy Associates, a consulting firm for workers’ compensation managed care. The only solution, he said is to cut off repackaging. The manufacturers can set whatever price they want, he added, noting “the only reason they do that is to make money.”

Among states with limiting reforms, Fisher said there was a 12 percent decrease in opioid physician dispensed drugs in Kentucky, with similar decreases noted in Indiana and Tennessee.

Because opioid prescriptions dropped dramatically after the reforms, Paduda said the narcotics should have never been considered.

“What that said to me is they should have never been prescribed in the first place,” said Paduda, a firm supporter of allowing employers the ability to direct injured workers to a specific network of pharmacies to combat physician dispensing and drug compounding issues.

Tom Oliverson, a member of the Texas House and an anesthesiologist, commented that the problem is systematic and widespread, and much bigger than a bunch of greedy physicians. He said that because quality of care is measured based on lowering pain, work needs to be done to change that philosophy within the entire healthcare system.

“Bad policy is what started all of this,” said Oliverson.

Paduda turned the focus of the session to drug compounding. He noted that while physician dispensing and compounding are different issues, they are both driven by the same financial motivation.

Drug compounding is the preparation, mixing, assembling, packaging or labeling of a drug. Paduda said there are valid reasons for using compounding drugs, including to help patients who may be allergic to a binder in standard medication, patients with swallowing issues and children who may require a smaller dose. According to Paduda, compounded drugs account for less than one percent of prescriptions in the country.

Though valid reasons may exist for their use, there is currently little testing or oversight of compounded drugs.

Workers’ compensation systems are seeing a rise in dermal absorption compounded drugs, something Paduda said is potentially dangerous and likely ineffective. He has seen prices range between $300-$21,000 for compounded medication. Many states have no control over price or the number of scripts, he added. To get around bans and restrictions, compounding kits are being created for physicians to mix and dispense topical medication to patients.

Some possible solutions, according to Paduda, include placing reimbursement limits per script or per ingredient, capping the number of ingredients or the total cost per script. Other ideas include allowing employers a retrospective review with the option to deny coverage for a medication, allowing pre-authorization subject to certain requirements and allowing employers the ability to direct injured workers to a network of specified pharmacies.

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