Sun Investigates

Doctors overcharge on workers' comp medicine, critics say

When Marylanders purchase the painkiller Vicodin, it costs about 37 cents a pill at a pharmacy.

But when a doctor dispenses it under Maryland's workers' compensation system, the cost per pill can increase dramatically, officials and doctors acknowledge.It sells for $1.46 a pill, four times the standard cost, according to a study by the Massachusetts-based Workers Compensation Research Institute.


The pain reliever Percocet is no better: When dispensed by a doctor, it's four times more expensive for local governments and private employers who foot the bill in the workers' compensation system, the study found. And muscle relaxer Soma? It's nearly 700 percent more costly when handled by a doctor.

As local governments and insurers seek to rein in costs of the program that pays workers who are injured on the job, they're highlighting such disparities and targeting physician-dispensed drugs — while setting up a potential battle in the next General Assembly session.


Some governments in Maryland are simply refusing to pay high prices for medication; Anne Arundel County, for example, says it saves $100,000 a month — more than a $1 million a year — by holding the line on such costs. Statewide legislation that would limit the doctors' practice known as "repackaging" has been prepared for the 2014 General Assembly; six states across the country have already banned the practice.

Payments under Maryland's workers' compensation system affect both private employers and government entities, but governments are typically the hardest hit — meaning that taxpayers pay up, too. Of the 10 employers with the highest costs in Maryland, eight are government entities.

"It's a lot of dough," said Jack Andryszak, an Annapolis lawyer who represents workers' compensation insurers. "It's a big deal benefiting a relatively small group who have found a loophole."

The push for change takes aim at repackaging, in which doctors buy prescription drugs from companies that take bulk quantities of pills and package them for doctors in ready-to-dispense containers with new federal identification numbers. After the repackager and doctor add their fees, the cost of the drug can spike.

$300,000 a year

Arizona-based IntegrityRx, one of the better-known drug repackagers, advertises on its website that doctors can make up to $300,000 a year by using its system. The company advises doctors to primarily target workers' compensation cases. In these cases, employers must cover 100 percent of the bill and some states like Maryland have set no limits on drug fees.

Doctors acknowledge that repackaging can lead to higher costs for taxpayers and companies, but they say the practice is convenient for injured workers and speeds up treatment. Costs can increase because many doctors' offices are small operations that cannot benefit from economies of scale — just as so-called "mom and pop" stores charge more for goods than Walmart.

"Physicians have been dispensing since the Middle Ages," said Gene M. Ransom III, chief executive officer of MedChi, the state medical society, which is lobbying against efforts to ban or limit physician dispensing. "It's done for patient convenience. The idea that you would limit patients' access to drugs is crazy."


Two bills in the approaching General Assembly session are expected to target physician costs. The first would exempt employers from having to pay for doctor-dispensed medication 30 days after the initial visit. The bill would still allow doctors to provide initial doses of medication, but thereafter patients would have to fill prescriptions at a pharmacy.

The second bill would exempt employers from being required to pay for narcotics dispensed by doctors, except under certain circumstances. That bill, backed by workers' compensation insurers, is meant to combat the problem of prescription-drug abuse and addiction by requiring doctors to receive authorization from an employer before dispensing narcotics, have the patient enter into a drug management plan or take a drug test.

Robert C. Erlandson, an Ellicott City lawyer who represents insurers, said he's worried about patients who miss work because of a legitimate injury and get hooked on prescription drugs.

"It's a huge problem," he said. "There's no end in sight for some of these patients, and they're not working."

More Maryland doctors are dispensing medication these days, according to the nonprofit Workers Compensation Research Institute, which is funded by a mix of employers, state governments, insurers and labor organizations. Physician-dispensed medications now make up 55 percent of the systems' prescription costs, up from 43 percent three years ago, even though they account for just 40 percent of the prescriptions.

The average price paid to dispensing physicians in Maryland is often more than double the prices charged by pharmacies such as CVS or Rite Aid, according to the institute, which released a study of Maryland's prices this fall.


Dongchun Wang, an author of the study, said her research indicates that Maryland is one of two states with the highest costs and frequency of physician-dispensing cases. The other is Pennsylvania.

"Some of the markups are really striking," she said. "Maryland is among the states with the highest rate of physician dispensing. Maryland is also among the states with the highest costs."

Refusing to pay

While no study has determined the full extent of repackaging in Maryland, many employers — including local governments in the Baltimore region — say they've begun refusing to pay high prices for medication. Both Maryland's insurance provider and Anne Arundel County say they are saving more than $1 million a year with that tactic.

"Although no true 'fix' has been established, Anne Arundel County continues to deny payment of exorbitant markups," said Amy Lanham, safety and insurance manager for the county. She said doctors want to charge double for ibuprofen and four times what oxycodone should cost. "We pay only reasonable charges."

Lanham and risk managers for Baltimore City, Harford County and the Chesapeake Employers Insurance Co., which handles the state government's account, say they've begun sending bills back to doctors — refusing to pay any amount higher than a typical pharmacy's price. Though employers must pay for the drugs under the workers' compensation system, doctors typically agree to the lower price when the issue is pressed, officials said.


"We review all prescription bills prior to paying them — and we will not pay the huge markup," said Sherrie Johnson, a spokeswoman for Harford County.

Medical costs, including drugs,make up one of three major expenses of the workers' compensation system. The others are covering a worker's lost wages while her or she is unable to perform the job and "partial-permanency" payments that compensate for lasting injuries such as reduced function of an arm or leg.

The state commission that acts as a court system for workers' compensation cases ordered $15.6 million in medical payments from Baltimore City in 2013; $5.2 million from Baltimore County; $4.5 million from Anne Arundel County; $1.2 million from Howard County and $230,000 from Carroll County.

IntegrityRx recommends on its website that physicians target workers' compensation cases because "the reimbursement rules for workers' compensation and the nature of on-the-job injuries make workers' compensation prescriptions the easiest and most financially beneficial prescriptions for you to dispense." Under the workers' compensation system, patients make no co-pays on the cost of medical care or drugs.

IntegrityRx did not respond to a request for comment.

Six states have banned physician dispensing and 14 have placed limits on how much doctors can charge. Some of the laws have had immediate impact. For instance, in Georgia, which bans physician dispensing, the price of Soma dropped by 75 percent, from $2.54 per pill to 63 cents, according to the Workers Compensation Research Institute.


Political battle

Last year, bills requiring caps on the price of physician-dispensed drugs and limits on physician-dispensing both died in committee.

State Sen. Katherine Klausmeier, the sponsor of the latest bill to limit doctors' ability to dispense medication, wants to balance the needs of patients and the costs borne by municipalities and insurers.

"I want to make sure patients are getting treated fairly and the medication they need," said Klausmeier, a Baltimore County Democrat who co-chairs the legislature's workers' compensation oversight committee. "And the insurance companies shouldn't have to pay atrocious prices."

Klausmeier acknowledged that the legislation faces a tough road in Annapolis, given the lobbying clout of the state's doctors.

"The docs have a very powerful way," she said. "And it's not just lobbying, but patients start weighing in and they say, 'We like getting our drugs this way.' When you start getting those kinds of letters across your desk, you start thinking."


Klausmeier also supports new controls on how doctors prescribe narcotics such as Oxycontin.

"I'm deathly afraid of people being hooked on drugs," she said. "People come through my office like that all the time: 'I had an accident; I took these drugs and all of a sudden I can't get off of them.' It leads you down bad paths."

Lenna Israbian-Jamgochian, president of the Maryland Board of Pharmacy, said her organization supports both measures. She said physician dispensing — which cuts into pharmacies' revenue — made more sense decades ago in rural areas where there were few pharmacies. She also noted that pharmacies face annual inspections; dispensing facilities in doctors' offices do not.

"The board is concerned about safety with physician dispensing and a lack of oversight," she said. "There's more physician dispensing than ever."

MedChi says both bills are overkill.

Doctors who are behaving unethically can be reported to the state's medical board, Ransom said, adding that the group is happy to negotiate a fee structure for prescription medication.


"If cost is really an issue, we're willing to have a fee schedule in place," he said. "That's a reasonable thing to talk about. What they really want is to make it harder for patients to get their prescriptions. We think this is a patients' rights issue."

Dr. Lester Zuckerman of the National Spine & Pain Centers in Rockville, said that if drug repackaging is limited, fewer doctors might participate in workers' compensation programs.

"Physicians see these bills as limiting access to their patients," he said. "Workers' compensation patients have limited mobility and transportation issues. They don't have a lot of money. That's why they rely on the in-office or in-clinic dispensing."

Anne Arundel County Assistant County Attorney Ronald J. Travers disagrees. He has one word to describe repackaging: "usurious."

"There's a 600 to 800 percent markup on these prescriptions," Travers said. "Just seeing those types of bills, there's a problem here. When we're seeing a repackaging of medication that's leading to costs six to eight times CVS or Rite Aide — I just think that's absolutely exorbitant."

Baltimore Sun reporter Scott Calvert contributed to this article.