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Workers' Compensation

Impact of Reform on Prevalence/Costs of Physician-Dispensed Drugs - WCRI Study Shows Promising Results Overall of Amending Reimbursement Rates

By John Stahl, Esq.

Enhancing the regulation of physician-dispensed drugs is one tactic that workers’ compensation jurisdictions use in the war against the opioid epidemic that is costing workers’ compensation systems millions of dollars. These methods include severely limiting the ability of a medical-care provider to dispense opioids and other prescription medications from his or her office and amending reimbursement rates under fee schedules to reduce financial incentives to operate these “pill mills.”

A September 2013 report from the Workers Compensation Research Institute in Cambridge, Massachusetts discusses and documents the effectiveness of the efforts described above. That report is titled “The Prevalence and Costs of Physician-Dispensed Drugs.” The authors are Dongchun Wang, Te-Chun Liu, and Vennela Thumula.

Scope of Study

The report provides data from 24 states that aggregately represent 70 percent of the workers’ compensation benefits that are paid in the United States. The subjects include comparing the costs of physician and pharmacy-dispensed drugs and trends regarding the drugs that physicians often dispense to workers’ compensation claimants.

The workers’ compensation claims that provided the data for the study on which the report was based represented between 26 and 58 percent of the total number of claims in the workers’ compensation system of each of the 24 states. Each claim required more than seven days of lost time and related to compensable incidents that occurred between October 2007 and September 2011 and involved at least one prescription that was filled no later than March 2012. Every provided statistic was in the context of the state of the workers’ compensation reforms in each jurisdiction.

Overview of History of Regulating Physician-Dispensed Drugs

The California Workers’ Compensation Institute’s documentation of the high incidence of medical-care providers dispensing drugs and the costs of those drugs far exceeding the prices of pharmacy-dispensed prescriptions for the same drugs prompted California to initiate the effort to address the practice of physician-dispensed drugs. A 2007 initiative in that state amended the reimbursement rules in an effort to equalize the prices in the workers’ compensation system for physician and pharmacy-dispensed drugs.

A minimum of 13 states have adopted the California model of allowing physicians to continue directly dispensing drugs to claimants but acting to reduce the costs of those prescriptions. These include Florida, Connecticut, Georgia, and Illinois.

A change in Florida law that became effective in July 2011 took the additional step of barring physicians in that state from dispensing Schedule II and Schedule III narcotics. Other states, which include Maryland and Pennsylvania, have recognized that the practice of physicians dispensing drugs has become more prevalent and are debating the best methods for regulating that activity.

The study states of Massachusetts, Texas, and New York generally prohibit physicians from dispensing drugs; the other three states that take that approach are Montana, Utah, and Wyoming. Research that was conducted in July 2013 showed that reforms in 9 of the remaining 21 states in the study addressed the costs that related to physicians dispensing drugs.

Conclusions Regarding Physician-Dispensed Drugs

A finding that the cost of the 51 percent of workers’ compensation prescriptions that physicians filled in the post-reform period in California represented 55 percent of the total cost of those prescriptions illustrated that the reforms were effective regarding keeping the costs of physician-dispensed drugs in line with the price of pharmacy-dispensed drugs. The fact that 40 percent of physician-dispensed drugs in the workers’ compensation system in Maryland, which has not initiated any reform regarding this issue, comprised a disproportionate 55 percent of the total cost of those drugs further indicated the value of the California model.

It is worth noting as well that California had the highest incidence of physician-dispensed drugs among the 24 study states. Florida came in second at roughly 40 percent. Among the other 19 states that did not severely limit physician dispensing of drugs, Arkansas came in at the bottom with two percent of the workers’ compensation drugs being dispensed via that method.

A comparison of the percentage of the cost of the physician-dispensed drugs showed that the Arkansas figure was three percent, which was virtually identical to the percentage of those drugs dispensed in the workers’ compensation system in that state. It is notable that Illinois came out slightly above California by having physician-dispensed drugs represent 59 percent of the cost of workers’ compensation drugs despite the percentage of those drugs only being 41 percent of the total number of those drugs dispensed in that state during the study period.

Another noteworthy result was that the 7 percent of physician-dispensed drugs in the Louisiana workers’ compensation system represented 21 percent, which was three times higher than the percentage of dispensed drugs, of the total cost of drugs in that state’s system. This seemed to be the largest such gap among the study states.

The report noted that Illinois, as well as other states that include Tennessee and Michigan, recently initiated reforms that addressed the cost of physician-dispensed drugs.

Observed Trends in Physician Dispensing of Drugs

The study’s analysis of trends related to physician dispensing of drugs was based on data ranging from 2008/09 to 2011/12. It did not include figures from Massachusetts, New York, or Texas because of the general prohibition against that practice in those states.

The figures from California showed that the percentage of physician-dispensed drugs decreased seven percent from 2008/09 to 2011/12. Conversely, that percentage increased 9 percent in Connecticut during that same period.

The fact that the percentage of physician-dispensed drugs in the workers’ compensation system in Illinois increased 8 percent between 2008/09 and 2011/12 but decreased 1 percent between 2010/11 and 2011/12 indicated that the reforms in that state were having the desired result. This figure was 33 percent in 2008/09 and 41 percent in 2011/12.

The numbers indicated even greater success regarding Georgia reforms that became effective in April 2011. There was a 4 percent drop in the percentage of physician-dispensed drug in the workers’ compensation system in that state between 2008/09 and 2011/12 and a 7 percent drop between 2010 and 2012. The 2008/09 percentage was 33 percent, the 2010/11 percentage was 36 percent, and the 2011/12 percentage was 29 percent.

Regarding the costs of physician-dispensed drugs as a percentage of workers’ compensation drugs between 2008/09 and 2011/12:

• That percentage fell three percent in California;

• That percentage increased 25 percent in Connecticut;

• That percentage increased 19 percent in Illinois; and

• That percentage decreased 4 percent during that period in Georgia, but dropped 13 percent between 2010/11 and 2011/12.


The study results generally indicate that reducing the reimbursement rate for physician-dispensed drugs not only greatly impacts the percentage of physician-dispensed drugs in a workers’ compensation system but is effective regarding the cost of those drugs; imposing strict limits on the ability of a physician to dispense drugs is a more straightforward method for reducing the percentage of drugs that are dispensed via that means.

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