9/27/2012

Understanding Physician Drug Dispensing and Its Growing Expense

Since the practice is new to the auto insurance industry, many insurers may be unaware of physician dispensing’s impact on pharmacy expenses, even though the impact is evident in other industries.

By Jeni VerMeulen

Physician-dispensed medications represent a new challenge for auto no-fault insurers looking to manage claims expenses. The practice of “physician dispensing” occurs when a doctor is licensed to distribute repackaged medications directly to patients at the point of care in his jurisdiction.

Since the practice is new to the auto insurance industry, many insurers may be unaware of physician dispensing’s impact on pharmacy expenses, even though the impact is evident in other industries. For example, physician-dispensed medications now account for approximately 28 percent of pharmaceutical costs in the workers’ compensation industry alone.

There are several reasons why auto no-fault insurers can expect to see a rise in physician dispensing, including:

  • Physicians are looking to increase their revenue. Physicians who dispense repackaged drugs are being reimbursed at much higher rates than pharmacies for the same medications. The earning potential can range an additional $20,000-$100,000 per year.
  • Proponents argue that office dispensing is more likely to ensure patient compliance, since 10 percent of all prescriptions are never filled, and 30 percent of patients never refill their prescriptions.
  • Physician dispensing is believed to be convenient for patients who cannot get to a retail pharmacy.
  • Treatment can begin immediately.

While physician dispensing may offer these benefits to both doctors and claimants, it brings with it several significant challenges for auto insurance payers.

Since these prescriptions are filled outside of a pharmacy network, there is an increased potential for fraud, misuse, abuse, as well as a higher potential for negative health risks for the patient, since physician-dispensed drugs are not subjected to drug utilization reviews.

Additionally, physician-dispensed drugs have a higher cost per unit than the same drug dispensed by a retail pharmacy, sometimes costing three or four times the amount. The higher price of physician-dispensed drugs is a direct result of the repackaging. Physician-dispensed medications are repackaged into an odd fill amount compared to industry standards, and the subsequent creation of a new National Drug Code (NDC) enables an exaggerated fee to be charged.

How is this possible? Every drug is identified in the NDC directory with a unique, three-segment number. The segments identify the manufacturer, the product (specific strength, dosage form, and formulation), and package size. For example, the NDC for Celebrex-50mg/60 capsules is 0025-1515-01. However, the NDC for Celebrex-100 mg/500 capsules is 0025-1520-51.

Each NDC comes with a unique average wholesale price (AWP) value. AWP is the generally accepted benchmark for prescription drug pricing and reimbursement throughout the healthcare industry. Any firm that repackages a drug can set both a new NDC and, possibly, an artificially inflated AWP.

Additionally, many bill review systems have trouble identifying physician-dispensed and repackaged medications with any consistency because they are billed as a physician and not a pharmacy provider.

Where Is It Practiced and How Do I Manage?

Since states are starting to add legislation to control the cost of repackaging and physician dispensing in workers’ compensation claims, physician dispensers are likely to shift to areas that are not as regulated. This has already begun occurring. For auto claims, the states with high minimum coverage requirements are at the highest risk to see an increase in physician dispensing.

The first step that auto insurers can take to manage physician dispensing is to stay educated and involved in how physician dispensing works in states and jurisdictions. Laws and regulations are constantly evolving. Research what is happening in the states where you offer auto insurance, or consult with counsel.

Additionally, working with a pharmacy benefit manager (PBM), particularly one with auto experience, can help you mitigate a rise in pharmacy expenses related to physician dispensing. A strong PBM will have regulatory contacts and legislators in key states who can offer support for measures that would create parity in the reimbursement levels for prescription medications. This includes aligning the reimbursement for repackaged or physician-dispensed medications with fees currently used for medications dispensed by a pharmacy.

Legislative action takes time to work through each state’s political process, so PBMs are reaching out to physician-dispensing groups, clinics, and facilities to develop performance-based networks. This effort provides for increased control of the actual medications dispensed, including subjecting them to the established formularies and all clinical alerts and edits. This also ensures the cost basis charged is that of a negotiated rate, including original manufacturer/innovator pricing, where possible.

A strong drug utilization review (DUR) program can help reduce opportunities for claimant fraud, misuse and abuse, or health complications. Through utilization reviews, physician-dispensed drugs can be audited for appropriateness. This is a valuable benefit that PBMs can offer to auto insurers. A proper DUR program should include formulary management, historical medication usage, physician intervention, and a variety of other clinical factors to eliminate fulfillment of medications that are unsuitable or dangerous. Quality DUR programs can also result in significant savings through control of unnecessary spending.

The practice of physician dispensing is a concern quickly expanding into the auto insurance industry. Insurers should be prepared to combat the potential cost increases and opportunities for injured-party misuse. Staying current with ongoing legislation around physician dispensing is extremely important, since decisions will be made individually, by state. Additionally, working with a PBM that has experience in handling auto claims can help address the high costs and safety concerns surrounding physician drug dispensing.      


Jeni VerMeulen is with Progressive Medical, Inc. She has been a CLM Fellow since 2012 and can be reached at (614) 570-7879, jeni.vermeulen@progressive-medical.com.



Jeni VerMeulen is with Progressive Medical, Inc. She has been a CLM Fellow since 2012 and can be reached at (614) 570-7879, jeni.vermeulen@progressive-medical.com.

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