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Physicians find ways around state laws aimed at reducing cost of dispensed prescriptions, report says

By Taryn Phaneuf | Apr 13, 2016

Despite laws passed to reduce the cost of physician-dispensed prescriptions, a new report from the Workers Compensation Research Institute found that the dispensing of new drug products in several states, including Illinois, has led to higher prices.

According to the study, physicians have found ways around reforms, allowing them to charge higher prices for new formulations and strengths of drugs commonly prescribed to injured workers.

“The price-focused reforms were aimed at reducing the costs associated with physician dispensing. This new trend of physician dispensing higher-priced new strengths resulted in increased costs in several reform states, inconsistent with the goal of the reforms,” Dongchun Wang, an author of the report and an economist at WCRI, told the Record. “In a way, it hurts the payers.”

WCRI describes itself as an independent, non-profit research organization and is based in Cambridge, Mass. Its report is based on data collected from payers that represented 31 to 70 percent of all medical claims across 22 states. The data is from the first quarter of 2012 through the first quarter of 2014.

In 2011, Illinois passed legislation to stop the practice of repackaging, which occurs when a repackager buys the original drug in bulk and sells it in smaller quantities. Prior to reforms, the repackager could assign a new, higher average wholesale price to the drug. The law required doctors to sell drugs at the same prices as pharmacists, which is based on the average wholesale price set by the original manufacturer.

However, the study found that labels on drugs offering new strengths and formulations indicate they’re made by generic manufacturers, not repackagers, which puts them outside the scope of the state regulations.

The study looked at several drugs commonly dispensed by physicians in 20 states. 

In Illinois, as well as California, Florida, Tennessee and Pennsylvania, the authors found that after reforms passed, physicians started dispensing new strengths and formulations of certain drugs that were previously not seen — or rarely seen — on the market. The variations were sold at a higher cost-per-pill than existing versions.

A muscle relaxant, cyclobenzaprine, demonstrates the phenomenon, the report says. On average, physicians in Illinois dispense 5 and 10 milligram dosages for $1.55 and $1.25 per pill, respectively. In the first quarter of 2014, 22 percent of physician-dispensed prescriptions for the drug came in its 7.5-milligram strength, which was rarely prescribed prior to state reform. On average, physicians got $3.86 per pill for the new strength.

A new strength of hydrocodone-acetamenaphine (or Vicodin) that was practically non-existent prior to state reform made up nearly a third of all prescriptions of the drug in 2014. Physicians could get $0.49 to $0.89 per pill for existing strengths — and $3.09 per pill for the new strength, according to the study.

“Frequent physician-dispensing of higher-priced new drug products was evident immediately after Illinois’ reform,” the study states. “Although substantial price reductions were seen in post-reform Illinois for the existing strengths of these drugs and other drugs frequently dispensed by physicians, more frequent physician dispensing of these new strengths and formulation outweighed post-reform price reductions, driving up drug costs in Illinois.”

Physicians may opt for these new strengths and formulations for clinical reasons, such as benefits over existing products, but the study doesn’t address the safety or clinical benefits or risks of the drugs, Wang said. It does state that, based on their findings, the authors concluded that physicians didn’t mainly dispense these new drug products because of clinical benefits or patient preferences.

Studies performed outside the U.S. found that economic incentive is one of the “major factors” that leads a physician to dispense certain drugs. Other studies, including one in California, have concluded that behavioral changes following price reductions are motivated by the the desire to maintain revenue.

The study refrains from recommending alternative policy that would again reduce prices for these drugs.

“As a non-partisan research organization, we do not take positions on the issues for which we provide evidence and we do not make recommendations,” Wang said.

Because the trend identified by the study came about in response to policy changes, the results call into question the “effectiveness and sustainability” of those reforms, the report stated.

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