Physician Dispensing: New Challenges in an Ongoing Battle

Fast Focus

Despite state-enacted reforms aimed at reducing costs associated with physician-dispensed medications, costs continue to increase as new trends arise.

Rates of physician dispensing have continued to rise across the United States, despite state-enacted reforms aimed at discouraging the practice. Increased regulation has made some headway against select cost drivers traditionally associated with physician-dispensed medications, such as drug repackaging and inflated reimbursement rates. However, overall impact of these reforms has been offset by a shift in prescribing habits toward different medications that present new or increased opportunity for revenue. The practice of physician dispensing continues to be a specific challenge in workers’ compensation, and the past year has given rise to some new trends of which payers should take note.



When new pill strengths are manufactured, the average wholesale price (AWP) is often higher than long-standing strengths of the same medication, making them attractive from a profitability standpoint. For example, instead of prescribing the older and less expensive 15mg tablet, a physician may choose to prescribe the new 7.5mg tablets at double the quantity. The medication and combined dose are the same, but the price per pill may be several times the cost.


Some medications, such as proton pump inhibitors used to treat NSAID-related ulcers, are readily available to the patient over-the-counter (OTC) at local pharmacies. However, when these medications are dispensed by a physician, they come at a much higher cost to the payer.


These expensive pain creams share many of the same ingredients as OTC products available on-the-shelf at retail stores, but with a significant price mark-up. See Private-Label Topicals: Over-the-counter analgesics go undercover as pricey prescriptions.


The rate of employer-reported workplace injuries and illnesses has continued to decline over the past decade.1 Despite this, costs associated with workers’ compensation continue to increase. Physician-dispensed medications are a key contributor to the rising costs, with a number of states experiencing rapid growth of physician dispensing in recent years, in some cases doubling or even tripling.2 The Workers Compensation Research Institute (WCRI) conducted a broad-reaching study capturing data from 23 states and nearly two-thirds of total national workers’ compensation claims. In its analysis, WCRI found that prices paid for physician-dispensed drugs were often 60-300% higher compared with the prices paid for the same drugs when dispensed by a retail pharmacy. In some states, overall prescription payments for physician-dispensed medications outweighed the total payments made for pharmacy-dispensed medications.2

Presence of a physician-dispensed medication within a claim also reflects a higher per-claim cost. And reimbursement is not the only factor driving the increased cost of individual claims. Independent studies conducted in the states of California and Illinois demonstrate that increased percentages of medical costs, indemnity costs, and lost-time days were all associated with physician-dispensed medications.3,4 This effect nearly doubled when specifically associated with physician-dispensed opioids versus pharmacy-dispensed opioids.4


As of January 2015, 18 states have enacted reforms aimed at specifically reducing the cost of physician-dispensed drugs, primarily by prohibiting repackaging of medications and setting reimbursement limits based on the original manufacturer’s AWP in an attempt to narrow the price differential between physician and pharmacy reimbursements. The success of these adjustments has been underwhelming, as costs associated with physician-dispensed medications continue to soar. Early-impact data assessing the success of reforms made in the states of Connecticut, Tennessee, and Georgia within 2012 all demonstrate the inability of regulation to sufficiently close the pricing gap between physicians and pharmacies. Although the average price paid per pill decreased for many of the drugs commonly dispensed by physicians within these states, this price still remained significantly higher than prices paid to pharmacies for the same medications — as much as 74%.5-7

As an early adopter, California offers a good case study when assessing the strengths and weaknesses of state regulation in the battle against physician dispensing. Prompted by ballooning rates in which more than half of drugs prescribed to injured workers were physician-dispensed medications, California enacted reforms in 2007 to help discourage the practice. Despite decreases in drug utilization and cost observed following the regulatory change, California’s use of total physician-dispensed drugs is still among the nation’s highest.2 And while the frequency of physician dispensing has lowered, the costs associated with it have not. Prior to the 2007 reforms, claims that included at least one physician-dispensed repackaged drug carried a 16% higher average paid medical benefit than claims without a physician-dispensed drug. After March 2007, the differential jumped to 37%. This was in spite of the limitations placed on physician reimbursement.3


Increasing overall costs associated with physician-dispensed medications can be attributed to a number of prescribing trends that are developing — trends that some have argued are an unintentional result of the reforms. Another study conducted by WCRI examined the sustainability of current reforms and found that physicians and dispensing companies are finding new avenues for revenue. One new trend is the prescribing and dispensing of common medications at uncommon strengths that are ultimately linked to higher AWP reimbursements. 

The muscle relaxant cyclobenzaprine has been commonly prescribed at strengths of 5mg and 10mg for years. Beginning in 2012, prescribing quickly shifted toward the 7.5mg strength, with market share in California moving from 0% up to 47% within a year. This trend coincided with a 5-fold increase in average price per pill for the 7.5mg strength. A similar trend was observed in Illinois, with the more costly 7.5mg strength achieving 21% market share in half a year.8

Increased prescribing of uncommon strengths for additional medications, including tramadol extended-release (ER) 150mg and hydrocodone/APAP 2.5/325mg tablets, has also been observed. Tramadol ER 150mg entered the market in 2012, and Healthesystems data confirm a sharp uptick in prescribing of 150mg ER capsules between 2013 and 2014. During the 1-year period, prescriptions for tramadol ER 150mg rose approximately 40 percent within the analyzed population, moving it toward the top of the list for physician-dispensed medications. During this same timeframe, there was a concurrent decrease in prescribing of tramadol 50mg.9

Are these two trends necessarily linked? As with any new treatment trend, there can be multiple contributing factors; however, it is important to note that the dispensing of these newer and more expensive strengths of common medications is primarily being observed among physicians and not pharmacies. The disparity may indicate that the trend is driven by cost rather than clinical benefit.  

Compounded medications have always been among the ranks of physician-dispensed medications, but recent years have instead seen an uptick in private-label topical analgesics, with several of these products appearing among the top 25 physician-dispensed medications by 2014 year-end.9 Unlike compounded medications, private-label topicals are manufactured and are assigned an NDC. However, they are not FDA-approved and often contain similar ingredients to OTC pain creams found at local retail stores such as BenGay® or IcyHot®. AWPs for private-label topicals can be up to 500x higher than the cost of OTC products, which makes them a strong source of potential profit for the dispenser. For more in-depth information about these products and how they are impacting workers’ comp, see Private-Label Topicals: Over-the-Counter Analgesics Go Undercover as Pricey Prescriptions.


Patients may also be paying a price for physician-dispensed medications, and in the case of the injured worker, that price may be safety. While opinions may be conflicted about the positive and negative impacts of physician dispensing, there is something both sides should agree on: the primary benefactor should be the patient. The American Medical Association underscores this sentiment in its Code of Ethics, noting that “Physicians may dispense drugs within their office practices provided such dispensing primarily benefits the patients.”10

Unfortunately, some trends observed in recent years indicate that, in some cases, financial incentive may be playing a role in influencing prescribing decisions. After the July 2011 Florida ban of physician-dispensed Schedule II and III controlled substances, physician dispensing of opioids was reduced and in many cases replaced with non-narcotic alternatives. While these data mark a positive step in reducing opioid prescribing, it does call into question the medical necessity for many of the opioid prescriptions being written prior to 2011, suggesting that physician dispensing did play a role in driving overprescribing of narcotics.11 Following the 2007 reforms in California, the associated price drop on certain medications had measurable impact on prescribing trends. Carisoprodol, a muscle relaxant known to negatively interact with other medications commonly prescribed in workers’ compensation such as opioids and benzodiazepines, was frequently prescribed in most states where physician dispensing was common. However, following a significant reduction in reimbursement rate for the muscle relaxant, a decrease was observed in the number of carisoprodol prescriptions. Over the course of one year, 6 percent fewer injured workers in California were receiving prescriptions for carisoprodol.2

It was also observed that California physicians began substituting Prilosec® for the less expensive Zantac® to treat their patients with ulcer disease related to nonsteroidal anti-inflammatory drugs (NSAIDs). Prior to 2007, Zantac® had been reimbursed at a higher rate; as the pricing flipped, so did prescribing trends.2 Healthesystems data confirm this trend is continuing, as analysis of data between 2013 and 2014 demonstrate a 15 percent increase in Prilosec® among physician-dispensed medications. The average price per prescription for Prilosec® is nearly $300.9 Meanwhile, both Prilosec® and Zantac® are available to patients at local pharmacies without a prescription and for a fraction of the cost.


The two-man rule: it’s a precaution instituted by various government and military entities in situations where safety is critical, and with good reason. Placing the full onus on the shoulders of a single decision-maker — even when that decision-maker is acting ethically and responsibly — eliminates necessary safeguards. A prescriber can have the best possible intentions for their patient, but errors can still occur. Physician-dispensed medications bypass the traditional drug utilization review process, which identifies safety concerns including drug- or disease-interactions, potential adverse events and incorrect dosage. Dispensing medication at the point-of-prescribing also eliminates the potential for a pharmacist to review the patient’s electronic health record (EHR), an important tool for improving patient safety and reducing medication errors.12

Just as prescribers should not be solely responsible for patient access to medications, state regulation alone should not be expected to control physician dispensing of medication. Regardless of the strategies employed, oversight of drug utilization, prescribing trends, and patient safety requires vigilance on the part of the payer and the pharmacy benefits manager (PBM). While the practice of physician dispensing remains legal in the vast majority of states, there are measures that can be taken to help reduce its financial impact.


  1. Bureau of Labor Statistics. Employer-reported workplace injury and illnesses–2013 [news release]; December 4, 2014. . Accessed March 13, 2015.
  2. Wang D. Physician dispensing in workers’ compensation. Cambridge, MA: Workers Compensation Research Institute; July 2012.
  3. Swedlow A, Gardner LB, Ireland J. CWCI Research Brief: Differences in outcomes for injured workers receiving physician-dispensed repackaged drugs in the California workers’ compensation system. Oakland, CA: California Workers’ Compensation Institute; February 2013.
  4. White JA, Tao X, Artuso RD, et al. Effect of physican-dispensed medication on workers’ compensation claim outcomes in the state of Illinois. J Occup Environ Med. 2014;56(5):459-64.
  5. Wang D, Thumula V, Liu T-C. Early impact of Connecticut reforms on physician dispensing. Cambridge, MA: Workers Compensation Research Institute; November 2014.
  6. Wang D, Thumula V, Liu T-C. Early impact of Tennessee reforms on physician dispensing. Cambridge, MA: Workers Compensation Research Institute; December 2014.
  7. Wang D, Thumula V, Liu T-C. Early impact of physician dispensing reform in Georgia, 2nd edition. Cambridge, MA: Workers Compensation Research Institute; September 2014.
  8. Wang D, Thumula V, Liu T-C. Are physician dispensing reforms sustainable? Cambridge, MA: Workers Compensation Research Institute; January 2015.
  9. Healthesystems clinical findings.
  10. American Medical Association Code of Medical Ethics. . Accessed March 13, 2015.
  11. Thumula V. WCRI Research Bulletin: The impact of physician dispensing on opioid use. December 2014.
  12. American Pharmacists Association. Preventing medication errors: EHRs and the pharmacist’s role. . Accessed March 13, 2015.



Since 2010, the semi-annual RxInformer clinical journal has been a trusted source of timely information and guidance for workers’ comp payers on how best to manage the care of injured worker claimants and plan for the challenges that lay ahead. The publication is an important part of Healthesystems’ proactive approach to advocating for quality care of injured workers while managing the costs associated with treatment.