An increase in pharmaceuticals dispensing by doctors in several states is likely driving up workers compensation costs, experts say.

As more doctors link with companies that provide repackaged drugs with irregular identity codes to physician offices, the arrangements add extra costs and bypass established means of capping drug costs, they say.

And in California, where 2007 workers comp reforms curbed physician dispensing, other nontraditional dispensing practices, including compound drugs and medical foods, are adding to comp costs, they say.

Nationwide, physicians dispensing common pharmaceuticals from their offices is a bigger workers compensation payer concern.

According to Boca Raton, Fla.-based NCCI Holdings Inc., physician-dispensed pharmaceuticals accounted for 17% of workers comp drug costs in 2008, the latest year for which data is available, up from 8% the prior year.

“We think it may be increasing costs,” said John Robertson, an NCCI director and senior actuary.

Physician dispensing can benefit patients as they are more likely to follow through with treatment regimens when their doctor personally provides medications, said John Aforismo, CEO at Wethersfield, Conn.-based RJ Health Systems International L.L.C., which conducts pharmaceutical clinical reviews.

But the practice also can increase costs as the “repackagers” profit from supplying doctors with pharmaceuticals, Mr. Aforismo said.

“So, of course, the cost of the drug is going to go up, just because somebody has to make money here,” he said.

Companies that specialize in providing doctors with pharmacy dispensing machines help increase the distribution of pharmaceuticals from physician offices, sources said.

“We are seeing a definite uptick in cooperation between the physician and companies that will help the physician install machines in their office that dispense (common) medications, but in a special package or a different dose,” said Kevin Tribout, director of government affairs for Tampa, Fla.-based PMSI, a pharmacy benefits manager.

Selling repackaged drugs in unusual doses can increase the number of times a patient must visit a doctor's office for prescription renewals, sources said.

In addition, doctor-dispensed repackaged drugs typically are assigned numbers other than the widely recognized National Drug Code numbers used to describe specific pharmaceuticals, sources added. Workers compensation fee schedules that cap pharmaceutical prices typically are based on a drug's average wholesale price, but determining a drug's AWP requires recognizing the NDC, sources said. So the nonstandard NDCs used on repackaged drugs often facilitate charging prices above those allowed by state fee schedules, several sources agreed.

Deciphering the drugs prescribed for utilization review purposes and bill review cost-containment purposes also is challenging, especially when nonstandard codes are coupled with the manual or paper billing systems used by many doctor's offices, sources added.

“You don't get an automated assurance of drug utilization review on drugs that are being dispensed in a physician's office,” said Jim P. Andrews, senior vp of pharmacy services at Healthcare Solutions Inc. in Atlanta.

Contracting with a doctor network and with a prescription benefit manager can address doctor-dispensing expenses, said Kimberly George, vp and national managed care practice lead in Chicago for Sedgwick Claims Management Services Inc.

But, ultimately, claims examiners must decide whether to approve the bills, Ms. George said.

Observers say a September 2009 California Workers Compensation Institute study on pharmaceutical costs in California's system provides insight on the potential for reforms to reduce doctor-dispensed repackaged drugs and the average payment for those pharmaceuticals.

In 2006, just before California curbed doctor dispensing, repackaged drugs accounted for 54.7% of the state's workers comp prescriptions and 59.2% of prescription dollars. But soon after implementing regulatory changes, repackaged drugs dwindled to 10.5% of prescriptions and 8.3% of payments.

By the third quarter of 2008, repackaged drugs represented 8.1% of workers comp prescriptions and 5.8% of pharmaceutical payments.

However, repackaging appears to have been replaced in California by the increased prescribing of untested “compound drugs” and “medical foods,” sources say.

Compound drugs typically are an improvisational mix of pharmaceuticals and ointments or creams that doctors sometimes prescribe if they believe that a patient cannot tolerate the drug internally, said Alex Swedlow, executive vp of research and development for the Oakland, Calif.-based California Workers' Compensation Institute.

But compound drugs are not subject to the U.S. Food and Drug Administration approval process that traditional pharmaceuticals undergo, and their efficacy remains questionable, Mr. Swedlow said.

Compound drugs typically are not subject to state fee schedules that cap pharmaceutical charges, sources say.

In addition to California, there is an increase in bills reflecting their utilization in Florida and Georgia, said David Deitz, national medical director at Liberty Mutual Group Inc. in Boston.

Compounding drugs is a longstanding medical practice appropriate for some cases, he said.

“It's just that we have observed in many instances that the use of compounded drugs appears to have no medical benefit for the injured worker,” Dr. Deitz added.

Compound drugs can be a significant cost driver, leaving employers and workers comp insurers confused over what they are being billed for, said Mr. Andrews.

“The bills we are seeing (in California) are 100%, 200%, 300% higher than what we believe is a valid California industrial fee schedule rate,” he said.

Observers say they also are seeing an increase in bills for prescribing medical foods in California. Medical foods essentially are vitamins prescribed along with pharmaceuticals, Mr. Andrews said. Some experts question the efficacy of medical foods in workers comp cases.

Research the CWCI is expected to release this week will document that doctor prescribing of compound drugs and medical foods is on the rise for treating injured California workers.