California 2007 Reforms Reduced Costs of Physician-Dispensed Drugs: Study Shows Success Spawned Imitators

The fact that the 53-percent of all of the 2010/2011 prescriptions in the California workers’ compensation system that physicians dispensed cost a proportional 52-percent of the total for every prescription in the system showed the effectiveness of March 2007 reforms. The new guidelines regarding fee schedules targeted the large disparity between the prices that physicians and pharmacies charged for the same drugs; the underlying proportion of physician-dispensed to pharmacy-dispensed drugs was not a concern.

This reform and its influence on other states was a prominent topic in a July 19, 2012, report by the Workers’ Compensation Research Institute (WCRI). This document was based on a study titled “Physician Dispensing in Workers’ Compensation” that WCRI researcher Dongchun Wang conducted.

The research tracked changes regarding the percentage of physician-dispensed drugs in the workers’ compensation system from 2007/2008 to 2010/2011 and the corresponding costs of that practice. Wang concluded both that significant cost increases were largely attributable to physicians charging much more than pharmacies for the same drugs and that reforms in California and other states effectively combatted that.

The following discussions focused on aspects of the research regarding California. A companion article that addressed the more general conclusions regarding all 23 states that Wang studied is also available.

Overview of California Reform

California amended its fee schedule regarding physician-dispensed drugs in March 2007. Wang reported that the new guidelines “required that the relevant fee schedule for physician-dispensed drugs be based on the original manufacturer National Drug Code (NDC) for the drug-the same rule that applies to pharmacies.” The states that followed California’s lead in equalizing reimbursement rates included:

• Arizona (October 2009)
• Georgia (April 2011)
• South Carolina (December 2011)
• Tennessee (effective August 2012)

Concern that lower reimbursement rates would prompt California physicians to stop prescribing drugs and that patient compliance rates would suffer were unfounded. Fifty-six of all 2007/2008 workers’ compensation prescriptions were physician-dispensed; that statistic was 53-percent for 2010/2011.

The data also revealed that “the 2007 fee schedule change in California nearly eliminated the use of more-expensive repackaged drugs. Despite that, many California physicians continued to dispense prescription drugs, and often dispensed the same drugs as they did pre-reform.” The difference was that physicians began purchasing their supplies directly from the manufacturers.

Results that Wang detailed did show that the new fee schedule predictably affected the drugs that physicians prescribed. Anecdotal examples included fewer prescriptions for the expensive pain reliever Soma.

The study noted as well that the pre-reform physician-dispensed price for a single Ultram pill was $1.33 compared to the $.54 that a pharmacy charged. The average post-reform price in 2008/2009 was $.49/pill for both physician and pharmacy-dispensed prescriptions. The research determined that this result was representative of other prescription drugs.

National Trends

The following data from the report regarding increased physician dispensing and the cost of that distribution method between 2007/2008 and 2010/2011 demonstrated exactly how the California initiative succeeded.

#1 Illinois Physician Dispensing Up 17%, Payment Percentage Up 41%

#2 Connecticut Physician Dispensing Up 10%, Payment Percentage Up 21%

#3 Florida Physician Dispensing Up 10%, Payment Percentage Up 19%

#4 S. Carolina Physician Dispensing Up 6%, Payment Percentage Up 16%

#5 Georgia Physician Dispensing Up 6%, Payment Percentage Up 16%

#23 California Physician Dispensing Down 3%, Payment Percentage Down 3%

Lesson Learned

The effect of California’s reform showed that equalizing the reimbursement rates for physician-dispensed drugs might significantly affect the mix of prescribed drugs but not the number of prescriptions that those medical professionals write.

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