[Top] [All Lists]

[e-drug] Some Doctors Cash In by Being Their Own Pharmacist

E-DRUG: Some Doctors Cash In by Being Their Own Pharmacist

[Donald provides an example of doctor dispensing from the USA. Some readers 
will be aware of similar practices in developing countries where patients have 
to pay directly, not through a health insurance company. 
Warning - long message. DB]

Dear All

Here is another way that drug prices can be increased 10-fold, by violating a 
classic prohibition against doctor-dispensing that was common until the early 
20th century. 

Insurers Pay Big Markups as Doctors Dispense Drugs
[Copied below as fair use; please fix URL in browser if broken - moderator]

Donald W. Light
Cell: 609-216-0071
Professor, UDMNJ-SOM
Visiting Researcher, Center for Migration & Development, Princeton University  
Network Fellow, Safra Center for Ethics, Harvard University 
Senior Fellow, Center for Bioethics, University of Pennsylvania


Insurers Pay Big Markups as Doctors Dispense Drugs
Published: July 11, 2012, NYTimes.com

When a pharmacy sells the heartburn drug Zantac, each pill costs about 35 
cents. But doctors dispensing it to patients in their offices have charged 
nearly 10 times that price, or $3.25 a pill.

The same goes for a popular muscle relaxant known as Soma, insurers say. From a 
pharmacy, the per-pill price is 60 cents. Sold by a doctor, it can cost more 
than five times that, or $3.33.

At a time of soaring health care bills, experts say that doctors, middlemen and 
drug distributors are adding hundreds of millions of dollars annually to the 
costs borne by taxpayers, insurance companies and employers through the 
practice of physician dispensing.

Most common among physicians who treat injured workers, it is a twist on a 
typical doctor?s visit. Instead of sending patients to drugstores to get 
prescriptions filled, doctors dispense the drugs in their offices to patients, 
with the bills going to insurers. Doctors can make tens of thousands of dollars 
a year operating their own in-office pharmacies. The practice has become so 
profitable that private equity firms are buying stakes in the businesses, and 
political lobbying over the issue is fierce.

Doctor dispensing can be convenient for patients. But rules in many states 
governing workers? compensation insurance contain loopholes that allow doctors 
to sell the drugs at huge markups. Profits from the sales are shared by 
doctors, middlemen who help physicians start in-office pharmacies and drug 
distributors who repackage medications for office sale.

Alarmed by the costs, some states, including California and Oklahoma, have 
clamped down on the practice. But legislative and regulatory battles over it 
are playing out in other states like Florida, Hawaii and Maryland.

In Florida, a company called Automated HealthCare Solutions, a leader in 
physician dispensing, has defeated repeated efforts to change what doctors can 
charge. The company, which is partly owned by Abry Partners, a private equity 
firm, has given more than $3.3 million in political contributions either 
directly or through entities its principals control, public records show.

Insurers and business groups said they were amazed by the little-known 
company?s spending spree. To plead its case to Florida lawmakers, Automated 
HealthCare hired one of the state?s top lobbyists, Brian Ballard, who is also a 
major national fund-raiser for the Mitt Romney campaign.

?I consider the fees that these people are charging to be immoral,? said Alan 
Hays, a Republican state senator in Florida who introduced a bill to bar 
physicians from dispensing pills that was defeated. ?They?re legal under the 
current law, but they?re immoral.?

Physician prescribing works like this: Middlemen like Automated HealthCare help 
doctors set up office pharmacies by providing them with billing software and 
connecting them with suppliers who repackage medications for office sale. 
Doctors sell the drugs but they do not collect payments from insurers. In the 
case of Automated HealthCare, the company pays the doctor 70 percent of what 
the doctor charges, then seeks to collect the full amount from insurers.

The number of doctors nationwide who dispense drugs in their office is not 
known and the practice is prevalent only in states where workers? compensation 
rules allow for large markups.

Dr. Paul Zimmerman, a founder of Automated HealthCare, said that insurers and 
other opponents of doctor dispensing were distorting its costs by emphasizing 
the prices of a few drugs, rather than the typical price spread between 
physician- and pharmacy-dispensed drugs.

Both Dr. Zimmerman and physicians who sell drugs also said the workers? 
compensation system was so bureaucratic and complex that an injured employee 
could wait days before getting a needed medication through a pharmacy.

?We did not institute this because of the money,? Dr. Marc Loev, a managing 
partner of the Spine Center, a chain of clinics in Maryland, testified last 
year at a public hearing in Baltimore. ?We instituted it because we were having 
significant difficulty providing the care for workers? compensation patients.?

The loophole that raises the price of physician-dispensed drugs often involves 
a benchmark called ?average wholesale price.? The cost of a medication 
dispensed through a workers? compensation plan is pegged in some states to that 
benchmark, which is supposed to represent a drug?s typical wholesale cost.

But doctor-dispensed drugs can undergo an ?average wholesale price? makeover. 
It happens when firms that supply doctors with medications buy them in bulk 
from wholesalers and repackage them for office sale. These ?repackagers? can 
set a new ?average wholesale price,? one that is often many times higher than 
the original.

For example, in 2010, a physician associated with the Spine Center, Dr. Loev?s 
practice in Maryland, gave a patient a prescription for 360 patches containing 
a pain-numbing drug, lidocaine. The worker?s insurer was charged $7,304, 
according to a copy of that bill provided to The New York Times by a lawyer, 
Michael S. Levin, who represents insurance companies.

A similar number of patches dispensed by a doctor in California, which changed 
its regulations in 2007, is about $4,068, according to the California Workers? 
Compensation Institute, a research group.

Warren G. Moseley, the president of a company in Tulsa, Okla., Physicians Total 
Care, that repackages drugs for office sale by doctors, said it charged 
physicians $2,863 for 360 patches.

Dr. Loev, who uses Automated HealthCare?s services, declined to be interviewed 
and did not respond to specific written questions from The Times.

Dr. Charles Thorne, a principal at Multi-Specialty HealthCare, another 
Maryland-based chain of clinics that dispenses drugs, also declined to be 

Dr. Zimmerman, the co-founder of Automated HealthCare, said that drug prices 
are set by companies that repackage medications for office sales.

He added that Automated HealthCare referred doctors to about a dozen 
repackagers. But the company has a relationship with one repackaging company 
called Quality Care Products, based in the Midwest. The two firms have 
exhibited their services together and jointly sponsor a charity golf tournament.

The president of Quality Care, Gene Gunderson, declined to be interviewed and 
the company did not respond to written questions.

Data collected by Florida insurers who handle workers? compensation claims 
shows that Quality Care supplies about 40 percent of the drugs sold by doctors 
in the state, a market share three times as high as that of its closest 

Robert M. Mernick, the president of Bryant Ranch Prepack, a company in North 
Hollywood, Calif., that repackages medications for office sale, said he found 
it extraordinary that lawmakers in other states like Florida and Maryland were 
allowing such drug markups to continue.

?I see it as corruption,? he said. ?I think it is horrible.?

In 2010, Abry Partners, a private equity firm in Boston, bought a stake in 
Automated HealthCare for $85 million. Officials of Abry also declined to be 
interviewed for this article.

That same year, Florida lawmakers tried to clamp down on how much doctors could 
charge for drugs. Automated HealthCare responded with a major lobbying and 
spending campaign, focusing its efforts on state leaders like the president of 
the Florida senate, Mike Haridopolos.

When the bill was reintroduced this year, Mr. Haridopolos declined to allow a 
vote. The state?s insurance commissioner had backed the move, saying it would 
annually save firms and taxpayers $62 million, a figure disputed by Automated 

Mr. Haridopolos said he didn?t believe the bill had a chance of winning. ?It 
seemed like a big political food fight,? he said.

Mr. Hays, the legislator who introduced the measure, said he found that hard to 
believe. ?The strategy of the people that were opposed to this bill was to put 
the right amount of dollars in the right hands and get the bill blocked,? he 
said. ?And they were successful in doing that.?

A version of this article appeared in print on July 12, 2012, on page A1 of the 
New York edition with the headline: Drugs Dispensed By Doctors Cost Insurers 

<Prev in Thread] Current Thread [Next in Thread>
  • [e-drug] Some Doctors Cash In by Being Their Own Pharmacist, Donald W. Light Jr. <=