Are Physician Dispensing Reforms Sustainable?

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After 18 states enacted reforms to limit the prices paid to doctors for prescriptions they write and dispense, a new study―Are Physician Dispensing Reforms Sustainable?―from the Workers Compensation Research Institute (WCRI) finds that physician-dispensers in Illinois and California discovered a new way to continue charging and to get paid two to three times the price of a drug when compared with pharmacies. The study raises questions for all states where physician-dispensing prices are regulated.

A doctor handing a patient a prescription.

A doctor handing a patient a prescription.

When prices are reduced by regulation, the regulated parties―in this case physician-dispensers―sometimes find new ways to retain the higher revenues they had prior to the reforms.

After 18 states enacted reforms to limit the prices paid to doctors for prescriptions they write and dispense, a new study from the Workers Compensation Research Institute (WCRI) finds that physician-dispensers in Illinois and California discovered a new way to continue charging and to get paid two to three times the price of a drug when compared with pharmacies.

“When prices are reduced by regulation, the regulated parties―in this case physician-dispensers―sometimes find new ways to retain the higher revenues they had prior to the reforms,” said Dr. Richard Victor, WCRI’s executive director. “Although this study uses data from two large states, it raises questions for all states where physician-dispensing prices are regulated.”

The study―Are Physician Dispensing Reforms Sustainable?―identifies the mechanism that allows doctors in Illinois and California to dispense drugs from their offices at much higher prices when compared with pharmacies. It involves the creation of an opportunity to, once again, assign a much higher average wholesale price (AWP) to a physician-dispensed drug—a practice targeted by the earlier reforms enacted in many states using language limiting reimbursement to a price based on the AWP assigned by the manufacturer of the original drug.

The study answers the question of how a new and higher AWP can be set for physician-dispensed drugs by asking the reader to consider a drug where the most common strengths are 5 milligrams and 10 milligrams. If a new strength, say 7.5 milligrams, comes to market, the manufacturer of that new strength can assign a new AWP. According to the report, the AWP of the new strength was much higher than the 5-milligram and 10-milligram AWPs set by their original manufacturers.

In Illinois, the average prices paid for cyclobenzaprine HCL of 5 and 10 milligrams ranged from $0.99 to $1.74 per pill. Prior to 2012, 7.5-milligram cyclobenzaprine HCL was rarely seen in the market. The 7.5-milligram product was introduced in 2012 and almost all were dispensed by physicians at an average price of $3.79 per pill in post-reform Illinois. The market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0 percent in the third quarter of 2012 to 21 percent in the first quarter of 2013.

Similarly in California, prior to 2012, 7.5-milligram cyclobenzaprine HCL was rarely seen in the market. The average prices paid for 5- and 10-milligram cyclobenzaprine HCL, the two common strengths, ranged from $0.35 to $0.70 per pill. Since the introduction of the 7.5-milligram product in 2012, the market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0 percent in the fourth quarter of 2011 to 47 percent in the first quarter of 2013, when it became the strength of the drug most commonly dispensed by physicians. The average price paid for the new strength was $2.90 to $3.45 per pill.

From these patterns, the study’s authors infer that the shift in strength was unlikely to be driven by new evidence about superior medical practices. Rather, it is likely that financial incentives drove some physicians to choose the strength for their patients. The study cites several reports that provide evidence of behavioral changes in response to price regulations.

For more information about this study, or to purchase a copy, visit http://www.wcrinet.org/result/are_phy_disp_reforms_sustainable_result.html.

The data used for this report came from payors that represented 46 and 51 percent of all medical claims, respectively, for California and Illinois. The detailed prescription transaction data were organized by calendar quarter so that for each quarter, all prescriptions filled for claims with dates of injury within 24 months of the observation quarter were included. On average for each of the quarters reported, WCRI included 219,572 prescriptions paid for 60,448 claims in California. The same figures were 43,034 prescriptions paid for 12,714 claims in Illinois. The detailed prescription data cover calendar quarters from the first quarter of 2010 though the first quarter of 2013.

ABOUT WCRI:

The Workers Compensation Research Institute (WCRI) is an independent, not-for-profit research organization based in Cambridge, MA. Founded in 1983, WCRI is recognized as a leader in providing high-quality, credible, and objective information about public policy issues involving workers' compensation systems. WCRI's diverse membership includes employers; insurers; governmental entities; managed care companies; health care providers; insurance regulators; state labor organizations; and state administrative agencies in the U.S., Canada, Australia, and New Zealand. For more information, visit: http://www.wcrinet.org.

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Andrew Kenneally
Workers Compensation Research Institute
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Workers Compensation Research Institute - WCRI
since: 06/2011
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