Patients, Pills and Profits: Physician Dispensing Increases Costs in Illinois Workers’ Comp Claims

Patients, Pills and Profits: Physician Dispensing Increases Costs in Illinois Workers’ Comp Claims

Karen C. Yotis, Esq., a Feature Resident Columnist for the LexisNexis Workers’ Compensation eNewsletter, provides insights into workplace issues and the nuts and bolts of the workers’ comp world.

Peeling Away the Onion on Physician Dispensing

With workers’ compensation costs on the rise across the nation, studies that uncover the specific drivers of those rising costs educate the risk managers, physicians, and workers’ advocates who are under constant pressure to keep a close eye on the bottom line. A recent example that makes some provocative conclusions about the relationship these rising workers’ compensation costs and the manner in which injured workers receive their prescribed medications is a study titled Effect of Physician-Dispensed Medication on Workers’ Compensation Claim Outcomes in the State of Illinois, that authors Jeffrey A. White, MS, Zuguang Tao, MD, PhD, Craig Bilinski, MS, James Rademacher, BA, and Edward J. Bernacki, MD, MPH published in the May 2014 edition of the Journal of Occupational and Environmental Medicine. The study, which concluded that claims where physicians dispensed medications were associated with higher pharmaceutical, medical, and indemnity costs and more lost time days than claims where pharmacies dispensed the medication—and that physician dispensing of opioids seems to accentuate the negative impact on claim outcomes across all variables analyzed—adds fuel to the continuing debate over whether the touted advantages of physician dispensing (patient convenience, coordination of care, quality control, and more effective compliance with plans of care) can stand up to scrutiny in an industry that is bleeding money in spite of a whirlwind of legislative reforms.

Attacks against physician dispensed medication have been waging for decades, because this sure-fire winning business model for physician practices is often perceived as a shameless way for the already wealthy medical profession to create yet another profitable income stream. Concern over the issue persists because the numbers tend to show that dispensing practices may be getting totally out of control. As the study points out, medical and indemnity cost increases have been observed in virtually every state that permits physicians to dispense medication. In California, Maryland, Georgia, Florida, and Illinois, physician-dispensed medications now account for approximately half of the entire workers’ compensation medication expenditures. For most drugs that physicians commonly dispense, the prices paid per pill were 60 percent to 300 percent higher than the same medication dispensed at a retail pharmacy. In addition to pharmacy costs, physician-dispensed medications also negatively impact claims costs and disability outcomes, with the average paid benefit per workers’ compensation claim being 16.4 percent higher and indemnity expenses being 6.9 percent higher when physician-dispensing occurred.

Study Methodology and Results

The researchers looked at 6824 indemnity claims from a large workers’ compensation insurer that were opened and closed from 1/1/07 to 12/31/12 in the State of Illinois. Then claim-related records that contained demographic variables (such as age at accident and sex) and accident-related variables (date of event, disease classification or ICD, claim status, closing date, claim duration, medical cost, indemnity cost, final cost, lost-time days, and attorney involvement) were compiled and linked to pharmacy records for the same period. These pharmacy records contained physician and pharmacy-dispensed medications and included opioids. The authors also used the Care Analytics On-Level Model developed by Accident Fund Holdings, Inc. to assign a medical complexity score to each file they reviewed to approximate the severity of each claim. 

This study can be distinguished from other inquiries dealing with physician dispensing of medications because the authors made provisions to control for the various other factors (medical complexity, age, sex, attorney involvement, disability duration) that are related to increased medical and indemnity costs. The study also acknowledges the measurable effect that state-specific legislative restrictions have had in reducing the cost of physician-dispensed medications in workers’ compensation, as well as the cost that storage, security and drug ownership could contribute to the overall expense of physician-dispensed settings. What remained unexplainable to the authors was their finding that non-pharmaceutical medical and indemnity expenses were also markedly higher among injured workers receiving physician-dispensed medication. This persistence of higher costs across the board suggested to the authors that there is something inherent in the practices where physician dispensing occurs that sends medical and indemnity costs, as well as disability duration, through the proverbial roof.

The study does of course have limitations. First, the outcomes that the authors observed in the State of Illinois may not be fully replicable in other state workers’ compensation systems. Second, as the authors admit, their technique to adjust for medical complexity uses a proprietary on-leveling model, which may over or underestimate a claim’s ultimate severity. The study can also be criticized for being somewhat misleading in pointing the finger at physician dispensing as the main culprit for higher overall claim costs. After all, it’s no secret to anyone familiar with the daily realities of personal injury litigation that plaintiff friendly providers (the great majority of whom also dispense medication) run up big numbers for accident-related medical care for a higher personal injury settlement outcome. These physicians are also often selected within the workers’ compensation arena to provide positive causal connection opinions, friendlier permanent work restrictions and ongoing pain management. Utilization Review provisions have also been in place in Illinois since comprehensive workers’ compensation reform legislation was enacted in 2011, and thus employers’ ability to call out questionably excessive medical treatment—at least during the last year or so of the time period encompassed within the study—suggests another evil cost culprit that the study methodology did not control. Perhaps the inherent something that the authors seem unable to identify is actually plaintiff bias driven by the selective choice of a doctor . . .

The Impact of Utilization Review

Of course, UR is relatively new in Illinois, so the data demonstrating UR’s effects on physician-dispensed medicine, as well as its effects on the so-called bright line connection that this study draws between physician-dispensing and skyrocketing workers’ compensation costs, isn’t quite ripe for analysis. According to Illinois workers’ compensation attorney Kenneth F. Werts, partner at Craig and Craig in Mt. Vernon, Illinois, and co-author of the LexisNexis Illinois Workers’ Compensation Guidebook:

“The data is not fully developed as to what savings will result from the reforms adopted recently in Illinois. It is believed that we will see some medical savings as a result of the reforms made. When NCCI provides their Medical Data Call in the next few months we will know more about what the reforms have meant. What is clear is that there was concern at the Illinois Workers’ Compensation Commission as to the added costs incurred by the repackaging and recoding of drugs by physician suppliers. As a consequence the Commission pushed for and obtained approval of changes to our Medical Fee Schedule that placed limits on non-pharmacies in doing same. The changes to the Medical Fee Schedule began with changes in the Summer of 2011 and then late Fall of 2012. I have posted below the changes as set forth on the Commission’s website:

The changes Werts is referring to, which are set forth on the Commission’s website, state:

“Effective 6/28/11 (Section 8.2(a-3) of the Act), each prescription filled and dispensed outside of a licensed pharmacy shall be reimbursed at or below the Average Wholesale Price (AWP) plus a dispensing fee of $4.18. AWP or its equivalent as registered by the National Drug Code shall be set forth as published for that drug on that date in Medi-span. Prescriptions filled at a licensed pharmacy will continue to be paid at U&C.

Effective 11/20/12, the maximum reimbursement for repackaged drugs shall be the Average Wholesale Price for the underlying drug product, as identified by its National Drug Code from the original labeler.”

The Cost of (un)Ethical Conduct

In any event, the study’s conclusion with regard to the exponential cost increases observed in connection with physicians’ dispensing of opioids identifies the ethically troubling aspects of a business model that gives providers an incentive to prescribe pills for profit. According to Stuart Colburn, Shareholder at Downs Stanford and legal thought leader in the Great State of Texas and co-author of the Texas Workers’ Compensation Handbook (LexisNexis):

“Physician dispensing is an excellent business model to significantly increase a doctor’s revenue. Incentivized to dispense, this study reveals what anecdotally many knew: doctors who dispense medications dispense more than doctors that don’t. Dispensing more medications, especially opioids, is statistically proven to increase costs, decrease return to work, and leads to poorer outcomes. Any dispensing practice that leads to more opioids dispensing is ethically questionable given what we know about opioids addiction, death (now greater than deaths from MVA), and increase heroin use. The mantra of ”First, do no harm” becomes a footnote to the profit and loss statement. The ACOEM article based on data from Illinois delivers much needed transparency on the costs associated with the profitable physician-dispensing business model. Whatever the advantages proponents of physician dispensing advocate are clearly outweighed by the total costs to injured workers, payors and society at large.”

As for the State on the hook in this particular study, Wertz commented, “[c]oncern with Opiate abuse has sparked interest in proposed legislation during the last legislative session here in Illinois as in other States but nothing has yet been passed.”

By stripping away injury complexity, age, sex, and attorney involvement the authors bring an indictment against physician dispensing. But is this admittedly revenue generating practice really the lone naked suspect responsible for the crime of driving historically high workers’ comp costs? The authors suggest that we need more research to determine the specific reasons why physician dispensing negatively impacts claim outcomes. With private equity firms investing in the profitable business of physician-dispensed medications, and political lobbying for dispensaries in full swing, it may all come down to how physicians ethically practice their duty.

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