Most patients receive a prescription from their doctor, which they then take to a pharmacy to be filled. Recently, however, more and more doctors have begun filling certain prescriptions in their offices. This is convenient for patients, because it saves the time of going to a pharmacy. So, what is the controversy?
Physician dispensing is part of a larger health care issue called ‘physician self-referral. Typically, the term refers to doctors sending patients for tests, procedures, and follow-ups to other health facilities or professionals that benefit the doctor financially. Similarly, with physician dispensing, the doctor is essentially referring the patient to his or her own pharmacy and profiting off of the prescriptions.
How Does It Work?
Companies serve as middlemen to help doctors set up pharmacies in their offices and connect them with drug suppliers. These drug suppliers do not manufacture the drugs but only ‘repackage’ them so they can be sold in-office. The middlemen companies pay doctors a certain percentage of what the doctors charge for the drugs, then they charge insurance companies the full cost. For example, a doctor could charge $100 for a 20 prescription that the middlemen companies buys for $10. The middlemen companies would agree to pay the doctor $50 and charge the insurance company the full $100, pocketing the remaining $40. This way, the doctors and the middlemen companies each benefit greatly from charging 10 times as much as the drug actually costs.
How Common Is This?
Nationally, 7% of doctors dispense repackaged drugs. The practice is becoming more common in areas where it is legal, and it is more common in practices that treat patients receiving workers compensation.
Is This More Expensive?
Yes. Doctors can increase the cost of drugs by a huge margin – often two to three times the normal cost. One study showed that Carisoprodol, a muscle relaxant, was priced an average of five times higher at in-office pharmacies. Another study focusing on workers’ compensation found that the price per pill under physician dispensing increased by 60-300%. Because doctors profit from selling drugs in their offices, they can make tens of thousands of dollars from this practice each year. However, patients with prescription drug coverage will not pay more for these drugs – his or her co-pay would be the same at the doctor’s office or the pharmacy. Instead, the insurance companies must pay these enormous costs, which will result in higher insurance premiums that will later be paid for by patients. Patients will know that their healthcare costs are rising, but they won’t realize why.
Can these fees be justified? Some claim that doctors expenses have decreased and payments have decreased, and that they therefore need to dispense drugs at their practices to make up for other reductions in income. However, most would agree that this solution rewards individual greed rather than helping improve the healthcare system.
What Are the Legitimate Reasons for In-Office Pharmacies?
An estimated 20% of patients who receive prescriptions do not actually pick up their prescriptions at the pharmacy, and 30% of patients don’t pick up their refills. Doctors think that patients may be more likely to adhere to their treatments if they are able to pick up their medicine at the same time and same place as their doctor appointment. However, no studies have shown an improvement in how well patients take their medications, although anecdotal evidence from physicians has been offered.
Why Can Doctors Get Away With These High Markups?
All prescriptions have unique identifiers called National Drug Codes (NDCs), which are specific according to the product, strength, formulation, and package size. Drug fees, particularly under workers compensation, are based on what is called the Average Wholesale Price (AWP).
When companies ‘repackage’ drugs to be sold in doctors’ offices, the drugs get new NDCs and, as a result, new AWPs as well. These AWPs are often at highly inflated levels. Companies can do this because the Food and Drug Administration considers them to be manufacturers, even though they only repackage the drugs.
How Big of a Deal Is This?
Researchers have estimated that $1.7 billion from workers compensation is spent on inflated drug costs from physician dispensers each year. This accounts for 25% of all workers compensation pharmacy expenses. The state of Massachusetts bans in-office pharmacies, and it has 30% lower pharmacy costs under workers compensation than states that do not ban the practice.Other researchers have shown that physician-dispensed drugs accounted for about 15% of all drug spending in 2003, and this share increased to about 25% in 2008.
Isn’t This a Conflict of Interest on the Doctor’s Behalf?
Yes. If doctors make money from selling drugs, they have an incentive to prescribe more drugs even if the patient doesn’t need the medication. The doctor has significant power to influence the patient’s treatment decision, and if the doctor earns money from each prescription, it would not be surprising if they wrote more prescriptions.
Until 1997, many physicians in Taiwan dispensed pharmaceutical drugs in their offices. That year, a law went into effect that prohibited physicians from dispensing drugs unless an onsite pharmacist was employed by the practice. As a result, some physicians stopped dispensing drugs in their offices and researchers used this ‘natural experiment’ to see if the financial incentives for prescribing drugs resulted in physicians writing more prescriptions for patients. They found that doctors who subsequently employed a pharmacist prescribed drugs at much higher rates than doctors who no longer dispensed drugs in their offices.
In-office pharmacies typically only carry a few different drugs because it is not profitable to stock drugs that are less commonly prescribed. It is possible that doctors would be more likely to prescribe the drugs they carry, and less likely to prescribe others, equally necessary drugs.
What Happens When Pharmacists Are Not Involved in Prescriptions?
Pharmacists believe that their responsibility is to make sure that doctors do not make prescribing errors for their patients, but some doctors say that including another person in the process only increases the chance that a prescription error will occur. While both sides have a point, pharmacists serve a valuable role because they are third-parties that potentially know most or all the drugs prescribed to a patient (if the patient receives many or all drugs from the same pharmacy). This means that pharmacists can warn patients about potentially dangerous interactions between drugs and even prevent prescription drug abuse among patients.
Additionally, pharmacies compete with each other to get patients, so they have an incentive to keep prices low. Pharmacies also give patients many locations to choose from when ordering refills, which might be more convenient than going to the doctor’s office each time a refill is needed. Patients may also be on multiple drugs from different doctors at the same time, and pharmacies can provide them with these all of these drugs in one location and check for drug interactions at the same time.
All articles on our website have been approved by Dr. Diana Zuckerman and other senior staff.
- Wang, D. (2012). Physician Dispensing in Workers’ Compensation.
- Meier B. and Thomas K. Insurers Pay Big Markups as Doctors Dispense Drugs. The New York Times. July 11, 2012. Available at http://www.nytimes.com/2012/07/12/business/some-physicians-making-millions-selling-drugs.html?pagewanted=all. Accessed August 6, 2012
- Gitlin, M. (2007). Repackaged Pharmaceuticals in the California Workers ‘ Compensation System : From Distribution and Pricing Options to Physician and Retail Dispensing, 315, 303-315. doi:10.1002/ajim.20448.
- Lipton, B., Laws, C., & Li, L. (2010). Workers compensation prescription drug study: 2010 update.
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