Physician Dispensing of Higher-Priced New Drug Strengths and Formulation: A Growing Trend

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This WCRI study finds the prevalence of physician-dispensed high-priced new drug products has expanded beyond California and Illinois to other states.

Doctor writing prescription.

Doctor writing prescription.

The results raise questions about the effectiveness and sustainability of the price-focused reforms. The study also provides lessons for those states where physician dispensing is permitted.

A new report from the Workers Compensation Research Institute (WCRI) found evidence of frequent physician dispensing of new drug strengths and a new formulation at much higher prices. This phenomenon was observed in several states with recent reforms aimed at reducing prices paid for physician-dispensed prescriptions. Frequent dispensing of higher-priced new drug products led to substantial increases in average prices paid for some common physician-dispensed drugs.

According to the study, Physician Dispensing of Higher-Priced New Drug Strengths and Formulation, the trend was initially triggered by a response to price-focused reforms targeting high-priced repackaged drugs. “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. John Ruser, president and CEO of WCRI. “The results raise questions about the effectiveness and sustainability of the price-focused reforms. The study also provides lessons for those states where physician dispensing is permitted.”

This report is part of a series of WCRI studies that examine the effects of regulatory or legislative changes to the rules governing reimbursement for physician-dispensed prescriptions. In the past decade, many states in the U.S. have enacted reforms to cap prices paid to physicians by tying the maximum reimbursement amount to the average wholesale price (AWP) set by the original manufacturer of the drug. However, these new strengths and formulations are labeled as drugs made by generic manufacturers, not repackagers, and therefore, are not subject to the new reimbursement rules targeting physician-dispensed repackaged drugs.

The study reported several drugs that exhibited this phenomenon and highlighted several states where physician dispensing of these new drug products was prevalent. Take cyclobenzaprine, a muscle-relaxant, as an example. The 7.5-milligram new strength was not seen in the market until 2012. For many years, the most common strengths were 5 and 10 milligrams. The manufacturer of this new strength assigned a new AWP, which was much higher than the AWPs for the 5- and 10-milligram products. Below are some examples from the study of the frequent physician dispensing of higher-priced new strengths.

  •     California: The average prices paid to physicians for cyclobenzaprine of 5 and 10 milligrams ranged from $0.38 to $0.39 per pill in the first quarter of 2014. The 7.5-milligram product, introduced in 2012 and almost always dispensed by physicians, cost $3.01 per pill in the same quarter. The percentage of physician-dispensed cyclobenzaprine prescriptions that were for the 7.5-milligram strength increased from 0 percent prior to 2012 to 55 percent in the first quarter of 2014.
  •     Florida: The average prices paid for physician-dispensed cyclobenzaprine of 5 and 10 milligrams were $1.75 and $1.29 per pill, respectively, in the first quarter of 2014. The 7.5-milligram new strength was seen prior to Florida’s 2013 reform, but the frequency of dispensing increased substantially post-reform—from 16 percent in the pre-reform second quarter of 2013 to 49 percent in the first quarter of 2014. When physicians dispensed the 7.5-milligram new-strength product, they were paid an average of $4.11 per pill.
  •     Illinois: The average prices paid to physicians for cyclobenzaprine of 5 and 10 milligrams were $1.55 and $1.25 per pill, respectively, in the first quarter of 2014. Prior to Illinois’ 2012 reforms, the 7.5-milligram new strength was rarely seen in the market, but by the first quarter of 2014, 22 percent of all physician-dispensed cyclobenzaprine prescriptions were for the new strength. When physicians dispensed the new strength, they were paid on average $3.86 per pill.
  •     Tennessee: Ten-milligram cyclobenzaprine was the most-commonly dispensed drug strength by physicians in the state, which cost $1.08 per pill on average in the first quarter of 2014. The 7.5-milligram product was not seen in the initial post-reform quarters until the fourth quarter of 2013. By the first quarter of 2014, 19 percent of physician-dispensed cyclobenzaprine prescriptions were for the 7.5-milligram new strength. When physicians dispensed the new strength, it cost $3.97 per pill on average.

The data used for this report came from payors that represented 31–70 percent of all medical claims across 22 states studied and comprised detailed prescriptions based on calendar quarter from the first quarter of 2012 though the first quarter of 2014. The 22 states in the study are Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Virginia, and Wisconsin.

To purchase this study, visit http://www.wcrinet.org/studies/public/books/pd_higher_priced_drugs_book.html.

The Cambridge-based WCRI is an independent, non-partisan research institute that is recognized as a leader in providing high quality, objective information about public policy issues involving workers' compensation systems.

ABOUT WCRI:

The Workers Compensation Research Institute (WCRI) is an independent, not-for-profit research organization based in Cambridge, MA. Organized in late 1983, the Institute does not take positions on the issues it researches; rather, it provides information obtained through studies and data collection efforts, which conform to recognized scientific methods. Objectivity is further ensured through rigorous, unbiased peer review procedures. 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.

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Andrew Kenneally
Workers Compensation Research Institute
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