In 2011, workers’ compensation cost employers more than $77 billion, with nearly half of that represented by the cost of medical care, according to the National Academy of Social Insurance. Because of the rise in the kinds of health-care costs that especially hit workers’ compensation, that proportion is likely to have risen in the two years since then.
As CFOs struggle to contain these costs there is one trend that may deserve more attention, and that is the growing issue of physician self-referral. Some examples of self-referral include:
- Physician dispensing of prescriptions;
- Surgeon ownership of surgery centers; and
- Physician ownership of labs and diagnostic machines.
While limited by Medicare and Medicaid, physician self-referral is thriving in workers’ compensation. This is important for CFOs who are watching the bottom line to note, since the issue influences the cost of employer-paid benefits. It can also affect their employees’ health and ability to return to work.
The Workers Compensation Research Institute (WCRI) has conducted several studies on this issue as it relates to surgery centers and the prescribing and dispensing of prescription drugs. The first example of physician self-referral, doctors dispensing prescription drugs from their offices, is permitted in all but six states.
WCRI has done many studies on this issue. One such study, Physician Dispensing in the Pennsylvania Workers’ Compensation System, found the average price paid for physician-dispensed Vicodin®, a commonly dispensed narcotic pain medication, in Pennsylvania was more than three times as high as the price paid for the same drug dispensed at a pharmacy ($1.22 versus 37 cents per pill). (See graph.)
The study also found that prices paid to physician-dispensers in Pennsylvania for many common drugs increased significantly over a three-year period (2008 to 2011) while prices paid to pharmacies for the same drugs changed little or decreased over the same period. For example, the average price paid for physician-dispensed Vicodin® increased 47 percent in Pennsylvania as opposed to 2 percent at pharmacies.
A number of drugs with over-the-counter strengths were commonly dispensed by Pennsylvania physicians at a higher price compared with the price at a pharmacy for the same drug. One such drug was Prilosec OTC®, which costs about $0.67 per pill at Walgreens. However, when Pennsylvania physicians dispensed the drug, they were paid an average of $7.43 per pill.