Do Financial Incentives Spur Unneeded Medical Care?

Doctor dispensing of addictive drugs and surgeon referrals to their own ambulatory surgical centers may be driving up workers' compensation costs.

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.)

WCRIThe 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.

One thought on “Do Financial Incentives Spur Unneeded Medical Care?

  1. When the system is skewed to use financial incentives, when the churning of injured workers through directly owned establishments, when addictive medication is prescribed is all the accepted “normal” then the costs are artificially driven up because the financial incentives are far more enticing than allowing the injured worker to be well and return to work.

    Here in Australia doctors don’t dispense medication, that has to be done via a chemist, however doctors do write up ever increasing dosages of highly addictive opiate based medication.
    For one injured worker that meant a lady with bi-lateral bursitis required the removal of her teeth as the dry-mouth caused by the medication simply destroyed her teeth, she needed to go into a drug rehab centre in order to reduce the medication till she was able to be free of it, then impact on her liver and renal system was (is) massive.

    Yes CFO’s should get involved, everyone should be involved.
    For far too long the workers compensation system has gotten away with very little scrutiny from outsiders because the system has told everyone that it is complex and people need to be trained to understand it.
    My response to that is simply, even monkeys can be trained to peel a banana but not eat it.


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