Capitol Alert

California doctors use loophole to raise drug prices, study finds

Some California physicians who treat workers with job-related injuries and dispense drugs to their patients are exploiting a loophole in state regulations governing drug costs to increase their reimbursements by as much as 400 percent, a new study has found.

Three researchers for the Massachusetts-based Workers Compensation Research Institute discovered the loophole’s impact while studying the effects of reforms aimed at reducing costs of treating workers’ injuries, which are borne by employers.

In 2012, the Legislature and Gov. Jerry Brown enacted a slew of reforms that would, they said, save enough money to give disabled workers a boost in their cash payments while stabilizing or reducing employers’ costs.

Much of the savings came from tightening up controls on medical care, which providers criticized at the time, and one reform was to strictly limit reimbursements for physician-dispensed pain relievers and other drugs via regulations issued by the Department of Industrial Relations.

Those rules tied workers’ compensation drug reimbursements to those for patients under the state’s Medi-Cal program.

While a number of other states have adopted similar restrictions to control costs, the Workers Compensation Research Institute study focused on California and Illinois and found a similar syndrome in both states.

Initially the drug rules reduced costs of the physician-dispensed drugs, but doctors “sometimes find new ways to retain the high revenues they had prior to the reforms.”

One of those ways is to order drugs in dosages different from those listed on federal schedules for limited reimbursement and then shift patients to the new dosages with much higher markups.

The study focused on three commonly used pain relievers that had been dispensed in 5- and 10-milligram dosages previously at low cost, as little as 35 cents a pill. When physicians began dispensing 7.5-milligram dosages, they soon accounted for about half of all prescriptions for the painkillers with prices as much as five times as high.

The study said, “it is likely that financial incentives drove some physicians to choose the strength for their patients.”

The study is available only by purchase at the institute’s website.

Call The Bee’s Dan Walters, (916) 321-1195. Back columns, Follow him on Twitter