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<div class="timestamp">July 11, 2012</div>
<h1>Insurers Pay Big Markups as Doctors Dispense Drugs</h1>
<h6 class="byline">By
<span>
<a href="http://topics.nytimes.com/top/reference/timestopics/people/m/barry_meier/index.html" rel="author" title="More Articles by BARRY MEIER">BARRY MEIER</a></span> and <span>
<a href="http://topics.nytimes.com/top/reference/timestopics/people/t/katie_thomas/index.html" rel="author" title="More Articles by KATIE THOMAS">KATIE THOMAS</a></span></h6>
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<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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 <a href="http://topics.nytimes.com/top/reference/timestopics/subjects/p/private_equity/index.html?inline=nyt-classifier" title="More articles about private equity." class="meta-classifier">private equity</a> firms are buying stakes in the businesses, and political lobbying over the issue is fierce. </p>
<p>
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. </p>
<p>
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. </p>
<p>
In Florida, a company called <a title="Its Web site." href="http://www.ahcs.com/site/index.aspx">Automated HealthCare Solutions</a>,
a leader in physician dispensing, has defeated repeated efforts to
change what doctors can charge. The company, which is partly owned by <a title="A news release from Abry Partners." href="http://www.abry.com/home/news/10-05-24/ABRY_Invests_in_Automated_HealthCare_Solutions_Inc.aspx">Abry Partners</a>,
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. </p>
<p>
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. </p>
<p>
“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.” </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
“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.” </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
Warren G. Moseley, the president of a company in Tulsa, Okla., <a title="The Web page." href="http://www.physicianstotalcare.com/index.php">Physicians Total Care</a>, that repackages drugs for office sale by doctors, said it charged physicians $2,863 for 360 patches. </p>
<p>
Dr. Loev, who uses Automated HealthCare’s services, declined to be
interviewed and did not respond to specific written questions from The
Times. </p>
<p>
Dr. Charles Thorne, a principal at Multi-Specialty HealthCare, another
Maryland-based chain of clinics that dispenses drugs, also declined to
be interviewed. </p>
<p>
Dr. Zimmerman, the co-founder of Automated HealthCare, said that drug
prices are set by companies that repackage medications for office sales.
</p>
<p>
He added that Automated HealthCare referred doctors to about a dozen
repackagers. But the company has a relationship with one repackaging
company called <a title="A marketing document from Quality Care Products. " href="http://www.qcprx.com/qcprx/pdf/QCPStartUpPacket.pdf">Quality Care Products</a>,
based in the Midwest. The two firms have exhibited their services
together and jointly sponsor a charity golf tournament. </p>
<p>
The president of Quality Care, Gene Gunderson, declined to be
interviewed and the company did not respond to written questions.
</p>
<p>
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 competitor. </p>
<p>
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.
</p>
<p>
“I see it as corruption,” he said. “I think it is horrible.” </p>
<p>
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. </p>
<p>
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.
</p>
<p>
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 HealthCare. </p>
<p>
Mr. Haridopolos said he didn’t believe the bill had a chance of winning.
“It seemed like a big political food fight,” he said. </p>
<p>
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.”
</p>
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