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States strive to fill loopholes in rules on prescription drug repackaging

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State efforts to restrict prices for physician-dispensed prescriptions have helped lower drug spending for workers compensation claims, but experts say future reforms likely will need to limit or ban physician dispensing in order to prevent prices from rising again.

Those projections are based partly on recent research from the Cambridge, Massachusetts-based Workers Compensation Research Institute, which found that some drug repackaging firms are developing pill formulations that dodge state price caps for medications and are almost exclusively dispensed by doctors.

Those new drug strengths — which are neither more powerful nor more effective than previous formulations — have allowed repackagers and dispensing doctors to continue charging a premium for those pills, according to WCRI data.

For instance, Illinois workers comp payers have typically paid 99 cents to $1.74 per pill for 5- and 10-milligram cyclobenzaprine, a common muscle relaxant, the WCRI said. However, after Illinois implemented drug repackaging controls in 2012, the injured workers in the state began receiving more prescriptions for 7.5-milligram cyclobenzaprine — a strength that was “rarely seen” previously — at an average wholesale price of $3.79 a pill.

“They've been able to game the system by coming up with these "novel' drugs, thereby circumventing the rules regarding repackaged drug pricing,” said Joseph Paduda, president of Madison, Connecticut-based pharmacy benefit manager consortium CompPharma L.L.C.

Sources say states such as Pennsylvania and Indiana are leading the way in passing legislation that limits the overall ability of doctors to dispense medications directly to patients. Still, they say employers should educate their injured workers about filling prescriptions through pharmacies rather than doctors to avoid higher costs and dangerous drug interactions while waiting for states to act.

“There's a lot of money in” physician dispensing, said Mike Farrand, vice president and director of workers compensation cost containment at Willis North America Inc. in Radnor, Pennsylvania. “It's a big cottage industry that's really flown under the radar.”

Eighteen states have passed laws since 2007 to place controls on medications dispensed directly by doctors, rather than retail pharmacies, according to data presented by WCRI at its annual conference early this month. Of those states, 14 based their reforms on limiting reimbursement prices for physician-dispensed drugs — which WCRI says can be priced 60% to 300% higher than pharmacy-dispensed medications — while the remaining states restricted the ability of doctors to dispense medications.

Paul Braun, managing director of casualty claims at Aon Global Risk Consulting in Los Angeles, said such controls have become important since some doctors see prescription dispensing as a way to boost their revenues while serving injured workers who want instant pain relief rather than waiting for a pharmacy.

“It's all about the money,” he said.

State controls have typically limited reimbursement for physician-repackaged prescription drugs to an original manufacturer's average wholesale price. WCRI says some drug manufacturers have begun developing new medications that have significantly higher average wholesale prices than previous drugs, allowing dispensers to receive more money for such medications.

In the case of Illinois, because “these new-strength drug products were almost all dispensed by physicians at much higher prices, we infer that the shift in strength was unlikely to be driven by new evidence about superior medical practices,” said the WCRI study, which noted that similar trends have been seen in California. “Rather, it is likely that financial incentives drove some physicians to choose the strength for their patients.”

CompPharma's Mr. Paduda said WCRI's research shows that “price controls just don't work” in controlling physician dispensing. “They're very easily circumvented,” he said.

Willis' Mr. Farrand said it's likely that states focused on controlling prices for physician dispensed medications, rather than controlling the practice itself, because discussions about the problem have focused on how drug repackaging raises workers comp claim costs.

“I don't think the legislators really realized this was a possibility,” Mr. Farrand said of loopholes found by physicians and drug repackagers.

Beyond higher prices for repackaged medications, sources contend that such physician dispensing poses safety threats for injured workers. While bills for pharmacy-dispensed medications can be easily reviewed by workers comp claims handlers, claims for physician-dispensed medications often are folded into overall medical bills and are difficult to flag for consideration by pharmacy benefit managers, third-party administrators or insurers.

“There's no opportunity to have that comprehensive view of the prescriptions,” said Jennifer Kaburick, vice president of workers compensation product management and strategic initiatives with St. Louis-based PBM Express Scripts Inc.

Sources say they're hopeful that recent rounds of state reforms will be more effective at addressing physician dispensing and lead other states to consider similar legislation

“We can continue to try to whack the mole, or we can ban physician dispensing, period,” Mr. Paduda said.

In October, Pennsylvania passed H.B. 1846, which caps reimbursement of repackaged drugs at 110% of the average wholesale price, restricts doctors from dispensing Schedule II controlled substances, and prohibits physicians from dispensing more than a 30-day supply of other medications.

Meanwhile, Indiana in March 2014 passed S.B. 294, which says physicians can only be reimbursed for repackaged drugs dispensed during the first eight days of a workers comp injury, among other restrictions.

“They're addressing the fee schedule issue, or unit per cost, as well as the utilization of the drugs,” said Kim Ehrlich, vice president of workers' compensation compliance with Express Scripts, of recent reform efforts.