Physicians and Drug Companies Strike Back at Attempts to Curb Drug Costs

Are reform efforts aimed at controlling the costs of physician-dispensed drugs having the desired effect? It appears not, at least in California, Florida, Pennsylvania, Illinois, and Tennessee.

In recent years, at least 20 states have made legislative or regulatory changes attempting to control the cost of drugs dispensed directly by physicians, which have often cost consumers much more than the same drugs dispensed by pharmacies. Drugs dispensed by physicians have often had higher average wholesale prices (AWP) because physicians were dispensing “repackaged” drugs, that is, drugs that had been purchased in bulk by an intermediary, repackaged in smaller quantities, and assigned a new National Drug Code with a new AWP that was noticeably higher than the manufacturer’s AWP. Reform efforts in states seeking to eliminate this discrepancy have generally focused on limiting the amounts that can be charged by physicians for repackaged drugs to the original manufacturer’s AWP.

However, drug manufacturers and physicians who dispense drugs have found ways to recoup and even exceed the revenue lost because of the recent reforms. In “Physician Dispensing of Higher-Priced New Drug Strengths and Formulation,” a report published in April 2016 by the Workers Compensation Research Institute (WCRI), researchers have identified that for some commonly-prescribed drugs, the path around the reform efforts has been the creation of new drug-strength doses and new formulations for existing drugs. Like repackaged drugs, these new doses and formulations are given new AWPs that are not tied to the AWPs for the older doses and formulations, but because these new products are considered generic drugs and not repackaged drugs, they are not subject to the newer reform provisions.

Scope of Study

Researchers in this new WCRI study studied workers’ compensation claims data generated between the first quarter of 2012 through the first quarter of 2014 from 22 states in which physician dispensing of drugs is common, although they narrowed their focus on the effects of post-reform changes to highlight only five: California, Florida, Illinois, Pennsylvania, and Tennessee. For the purposes of this study, physician-dispensed prescriptions were those prescriptions that were filled “at the offices of independent practitioners, physician groups, or medical centers or clinics which may or may not have had an on-site pharmacy,” although medications “dispensed at a hospital or administered by a medical provider (e.g., injections received at a physician’s office) were excluded” from the definition. In California, Florida, and Illinois, about 40% of all prescriptions were made by physician dispensers, and those prescriptions accounted for anywhere from 48 to 61 percent of total prescription payments.

They also narrowed their focus within these states to three specific common drugs that were recently given new strengths that were released between 2011 and 2013: 7.5-milligram cyclobenzaprine HCL, a muscle relaxant; 150-milligram tramadol HCL extended release, an opioid drug for pain relief; and 2.5-325-milligram hydrocodone-acetaminophen, also an opioid drug used for pain relief. In California, Florida, Illinois, and Tennessee, these common drugs made up between 24 and 27 percent of physician-dispensed prescriptions. The study also included a lidocaine-menthol topical pain relief patch, a drug that was given a new formulation.

With an exception for the pain relief patch, the study focused on generic versions of these drugs, given that physicians who dispense generally dispense generics rather than brand-name drugs, and more specifically because generic versions of these drugs are generally dispensed regardless of who is doing the dispensing.

Drug # 1: Cyclobenzaprine HCL

Their study found that despite state reform efforts, the average price for drugs dispensed by physicians continued to rise. For cyclobenzaprine HCL, the new 7.5-milligram dosage was added to the existing available dosages of 5 and 10 milligrams. However, while the average price paid for the older dosages was between $.38 and $1.77 per pill, the new 7.5-milligram dosage had an average price that ranged from $3.01 to $4.11 per pill. While not all states in the study showed a noticeable physician prescription rate for the new, more expensive dosage, several did. As a percentage of all physician-dispensed cyclobenzaprine HCL, the dispensing rate by physician dispensers in California for this new dosage in the first quarter of 2014 was 55%, while Florida followed closely behind with 49%. Illinois (22%) and Tennessee (19%) also had a sizable dispensing rate for the more expensive new dosage.

The authors of the study note that while in some cases adoption of the newer dosage of cyclobenzaprine HCL followed after price reforms were implemented in the state, as was the case in California and Illinois, in at least one state, Florida, the increased adoption of the new dosage occurred before price reforms were adopted, suggesting a more general desire to increase revenue from the more expensive drug regardless of any local reform efforts. The authors also note that while prescriptions for the intermediate 7.5-milligram strength might in some cases be the result of the patient who desires a dosage that is stronger than 5-milligrams but weaker than 10-milligrams, “if the new strength was seen mostly in physician-dispensed prescriptions, rarely dispensed at pharmacies, and dispensed at a higher price, it is unlikely that the prescribers who dispensed the new strength were motivated only by the concerns of their patient.”

Drug # 2: Tramadol HCL

Similar results were found for the newly-released 150-milligram tramadol HCL extended release pain reliever. Among all physician-dispensed prescriptions for tramadol HCL in the first quarter of 2014, 47% in California were for the newer dosage, 41% in Illinois, 26% in Florida, 21% in Tennessee, and 9% in Pennsylvania. The price difference from older dosages? The most common dosage prescribed and dispensed by physicians had been a 50-milligram regular release dosage, at an average price between $.24 and $1.62 per pill, while the newer dosage pills cost between $8.05 and $11.66 each.

Evidence in the study suggests that almost all of the prescriptions for the newer 150-milligram dosage are being made by physicians who dispense, with very low adoption by pharmacies or physicians who do not dispense. Moreover, while extended release dosages of the drug at 100-, 200-, and 300-milligram strengths were available before, physicians who dispensed rarely prescribed these products. The fact that the AWP for those older products was noticeably lower than that of the newer 150-milligram dosage, with only the 300-milligram dosage carrying a price tag similar to the new 150-milligram pill, suggests that rapid adoption of the new pill by physician dispensers is motivated more by price than by concern for patient needs.

Drug # 3: Hydrocodone-Acetaminophen

The prescription rates among physician dispensers for 2.5-325-milligram hydrocodone-acetaminophen in the first quarter of 2014 were perhaps less drastic, with Illinois the highest at 32%, while the next highest was California at a relatively modest 11%. No other state was above about 4%. However, the preexisting dosages were all noticeably stronger, at 5, 7.5, and 10 milligrams per pill. But despite being the weakest dosage, the new pill costs between $2.59 and $3.09 each, while the stronger, preexisting pills only cost between $.61 and $.72 each.

There are several reasons why the adoption numbers for this drug may be lower than for the others. The researchers note that the recommended daily dose of hydrocodone-acetaminophen for an adult for pain relief is 20 milligrams, normally prescribed as four pills of 5 milligrams daily, and the new 2.5-325-milligram pill is too weak for effective pain relief for adult patients. They also note that many states have made changes that effectively limit the ability of physicians to dispense Schedule II and III opioids.

Drug # 4: Lidocaine-Menthol Patch

As noted, the researchers also studied prescriptions for one “new formulation” drug, the lidocaine-menthol topical pain relief patch. Although topical pain medications are rarely dispensed by physicians in many states, in the first quarter of 2014 physician dispensing of this new product accounted for 24% of topical analgesic prescriptions by dispensing physicians in Illinois, 21% in Florida, 14% in California, and 11% in Pennsylvania. The average price paid per patch was $28 in Florida and $31 in Illinois. Other comparable pain patches generally ran around $13 to $16 per patch.

The researchers noted that there are other lower-cost alternatives for topical analgesia that physicians may suggest for use, including ice and heat, and that menthol such as used in these patches has not been shown to provide any pain relief other than as a “distraction mechanism.” The researchers also noted that these new lidocaine-menthol patches were not showing up on pharmacy-dispensed prescriptions.

Reform Redux?

The report provides much more detail about the adoption rates and costs of these drug products in the target states, but just from the data described above it seems clear that the economic benefits for self-dispensing physicians are almost certainly driving the adoption of many of these higher-priced new drugs. The researchers noted finding little clinical evidence that these new products were any better than lower-priced existing products, and they found much higher prescription rates for these products for physicians who dispense than for those physicians who do not.

These findings should be troubling, as it does not appear that anyone is benefitting from this but physicians and drug companies. Patients are paying more than necessary, whether from their own pockets or through their insurance carriers, and although this study focused on workers’ compensation claims data, it seems unlikely that these drugs are only being prescribed to injured workers. It seems clear that state reform efforts to contain physician-dispensed drug prices tied to AWP are not necessarily having the desired effect and policy makers should take a second look at the problem.

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