Drug-Dispensing Physicians Charge More Than Pharmacies

August 21, 2012 — Physicians who dispense pain medications and other commonly used drugs to workers' compensation (WC) patients charge up to 3 times more than pharmacies in some states, according to a recent study from the not-for-profit Workers Compensation Research Institute (WCRI).

That kind of mark-up could explain why physician dispensing for WC patients has grown at a rapid clip in recent years, and why some states now limit how much clinicians can charge. However, a desire for profit may not be the only reason why physicians charge more than pharmacies. Another factor may be wholesale prices that physicians pay to obtain the drugs that they sell.

The WCRI study, published in July, compares 23 states, including 3 (Massachusetts, New York, and Texas) in which physician dispensing in general is prohibited. Author Dongchun Wang, a senior researcher at WCRI, examined WC claims for work-related injuries that were submitted and paid during 2 periods: from 2007 to 2008 and from 2010 to 2011. WC claims typically are processed by private insurers.

Illinois stood out as the epicenter for physician dispensing for WC patients. From 2007-2008 to 2010-2011, the percentage of all prescription drugs for WC patients that were dispensed by physicians rose from 26% to 43%, the fastest growth of any state in the study. More significantly, physician dispensing represented 63% of total spending on WC prescriptions in 2010-2011 compared with just 22% in 2007-2008.

In a trend repeated in other states, Illinois physicians raised prices for the drugs they dispensed — most of them generic versions — during this period, even as pharmacies were lowering theirs. For example, Illinois physicians in 2007-2008 charged 87 cents on average for a hydrocodone/acetaminophen (Vicodin, Abbott) pill compared with 54 cents charged by pharmacies.

By 2010-2010, the physician price for the analgesic had jumped 66%, to $1.44 per pill, whereas the pharmacy price had dropped to 53 cents. (Hydrocodone/acetaminophen was the most commonly dispensed drug that physicians and pharmacies alike dispensed to WC patients in 2010-2011, followed by ibuprofen, meloxicam, tramadol, and cyclobenzaprine).

Physicians also jacked up the price of over-the-counter drugs they handed to WC patients, charging as much as 15 times more than pharmacies.

In Florida, Georgia, Illinois, and Maryland, for example, WC patients paid physicians on average $4 to $7 for a pill of ranitidine (Zantac, Boehringer Ingelheim) when they could have bought it at Walgreens for from 33 to 42 cents, depending on the strength and quantity.

California Law Had Only Small Effect on Physician Dispensing

A number of states during the last 5 years have closed the gap between what pharmacies and physicians charge WC patients for medications, the WCRI study reports. These states generally limit physician reimbursement to the average wholesale price (AWP) that drug makers charge their customers, including pharmacies. In some states, physicians are allowed to tack on a dispensing fee.

Supporters of physician dispensing, writes Wang, have argued that reducing what physicians can charge will discourage them from dispensing, which in turn could hurt patient care. After all, one clinical rationale for physician dispensing is that it increases patient compliance with medication regimens, as patients given a prescription may not necessarily bother to fill it at a pharmacy. In addition, treatment starts much sooner.

Wang, however, did not find a major downturn in physician dispensing for WC patients when she analyzed the effects of a California regulation that equalized what physicians and pharmacies could charge, beginning in March 2007. In the first quarter of 2007, physicians dispensed 55% of medications ordered for WC patients (that percentage had topped 65% 12 months earlier). In the 2010-2011 claim period, dispensing physicians accounted for 53% of WC prescriptions, which is just a tad short of the mark set in early 2007.

The biggest change in California since 2007, writes Wang, was the location at which physicians obtained the drugs they dispensed. In early 2007, they bought them mostly from so-called repackagers, who buy them in bulk from manufacturers and repackage them in smaller, prescription-sized quantities. Repackaging companies, writes Wang, often sell their drugs at a much higher AWP than drug manufacturers. By 2010-2011, dispensing physicians had largely switched to buying generally less expensive non-repackaged drugs in bulk. Wang's study did not provide details on the difference in wholesale prices between repackaged drugs and bulk drugs and how that might affect what dispensing physicians charge.

The WCRI study undercuts another argument against limiting what physicians can charge — that if physician dispensing decreases or disappears, patients will pay higher prices at the pharmacy. The reasoning here is that physicians invariably dispense generic drugs, whereas pharmacies dispense both generic drugs and more costly brand-name versions.

However, Wang found that for the drugs most commonly dispensed by physicians, the generic version was almost always dispensed by physicians and pharmacies alike, meaning that patients did not face the prospect of paying for a brand-name drug at the pharmacy. Moreover, physicians invariably charged more than pharmacies for the generic drugs they handed to patients.