Physician Dispensing:
An Old Idea Is New Again

By J. Scott Nystrom, MD, FACP, Business Development, Great Lakes Cancer Management Specialists, Grosse Pointe Woods, Mich., ascensys.t echnology@comcast.net and Roxanne L. Clark, MPA, FAAMA, chief financial officer, Great Lakes Cancer Management Specialists, Grosse Pointe Woods, Mich.

Faced with declining reimbursement for infusional therapies, Great Lakes Cancer Management Specialists (GLCMS) turned to physician dispensing to offset the loss. We quickly discovered that the dispensing-vendor landscape was limited, and few guidelines existed for product line development.

Regulatory, Legal, Ethical Issues

Most states permit physician dispensing, as long as providers adhere to state and federal regulations. Some states require a modest additional licensing process. Typical regulations:

• Limit physician dispensing to practice patients.
• Require adherence to labeling, record- keeping, packaging and secure storage requirements of good pharmaceutical practice.
• Mandate patients’ freedom to choose where to fill a prescription.
• Mandate that the physician provide a written prescription.

In addition, pharmacy benefit managers (PBMs) may require that prescriptions be filled by mail.

An on-site pharmacist is not required for physician dispensing. A doctor may designate an employee such as a nurse or pharmacy technician to manage the task. Nevertheless, some payers deny physicians provider-class status for dispensing medications.

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GLCMS leaders worried that physician dispensing might create a liability risk. However, our malpractice carrier saw no problem with our physicians dispensing unopened, prepackaged, single-unit-dose medications.

Physicians may believe that office dispensing presents a potential conflict of interest or even an ethical dilemma. American Medical Association (AMA) guidelines do not preclude office dispensing as long as state and federal regulatory requirements are fulfilled, the doctor prescribes only to his/her patients and allows them to fill prescriptions where they want.¹ (Many practices want to dispense free samples but often fail to realize that regulations governing dispensing also apply to free medications.) Recent AMA and Food and Drug Administration (FDA) recommendations discourage free sample distribution.^2,3,4

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Hidden Costs of Prescription Writing

Physicians are blind to the hidden costs of prescription writing. Phoning or faxing prescriptions to the pharmacist, call-backs for nonformulary drugs, inquiries because of illegible handwriting and mandated prior authorization for refills are great time wasters.

The average physician spends up to 60 minutes a day dealing with pharmaceutical issues for no revenue.⁵ For every three physicians, there is usually one employee dealing exclusively with pharmaceutical issues. This employee is often a nurse whose salary and benefits may reach $100,000 annually. While electronic prescribing may ease legibility and calls to the pharmacy regarding nonformulary prescriptions, the physician does all the work and receives none of the revenue — while often paying for the e-prescribing system.⁶

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Cost Savings

Making dispensing physicians aware of drug costs creates an incentive to reduce them with generic substitution. Remember: Only physicians possess the ability to substitute therapeutically equivalent generic or brand-name medications. As a consequence, their generic use rates reach levels not attainable by any industry strategy. In 2004, the average generic prescription cost was $28.84; the national average brand-name retail prescription cost was $63.59.^7,8 GLCMS’ vendor achieved a 75 percent generic substitution rate in 2004.

Payers and PBMs have long recognized that generic medications save money. Promotional activities have increased generic substitution nationally to 53 percent,^9,10  yet no program has attempted to align physician cooperation. Without direct physician involvement, increasing generic prescription rates is problematic, since current rates almost equal available generic substitutes.^11,12,13  

Think about it: With physician- dispensing prescription costs 50 percent below the national average and generic substitution 50 percent higher than the national average, the potential cost savings for payers and consumers is staggering.¹⁴

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Revenue Center

Physician drug-dispensing’s impact on revenues reveals a different and unfamiliar dynamic. Dispensing oral medications is not a high-margin business. The net revenue generated depends on the number of scripts filled. The impact that low-volume, high-margin drugs have on profitability is nominal in comparison to high- volume, low-margin generic medications. Revenue generation depends more on the process (volume) than price (profit).

A typical physician can expect to net $6 to $8 per script from office dispensing. Forty patients a day and 1,000 scripts per month works out to $70,000 to $100,000 in additional annual income.

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Implementation & Execution

Implementation of physician dispensing requires attention to detail before, during and after start-up. In general, the larger the practice, the more complicated the process. Location of the dispensing service mandates that it’s visible and accessible to both patients and staff. Involve information technology staff for fax access and placement of computer connections, router lines and firewalls.

Your vendor will suggest a provisional formulary. While most practices have a good idea of the medications they prescribe, they may not track the number of scripts written or unit sizes. To help define your preliminary formulary, designate an employee to register all scripts written in a two- to four- week period. Limit the initial inventory in number of medications and unit doses. Most vendors can supply reorders within 24 hours, so a lean inventory improves your profitability and lowers start-up costs. You can adjust your formulary based on the volume and type of prescriptions written.

Staff preparation starts with physicians. They must embrace this patient service and diligently refer all scripts to the dispensing staff. Large practices must agree on the formulary and common unit of use. Physician variance in script writing translates to higher inventory costs. Put a physician leader and an administrative leader in charge of the implementation process.

Inform patients of this new service. Launch a marketing campaign using letters, newsletters, office signage and pamphlets to announce it.

Success in physician dispensing rises when doctors write as many generic medications as possible. Because the majority of generics sell for less than the patient’s deductible, dispensing becomes a cash-and- carry business. Patients are often willing to pay a premium over their deductible to avoid going to the drugstore. Success also depends on volume, rather than high-margin drugs ordered infrequently.

The competitive landscape for primary care physicians includes national retail pharmacies, many offering mainstream primary-care services on a walk-in basis. Community physicians should take notice. Physician dispensing can present a competitive response to the changing health care landscape.

notes

1. Code of medical ethics 8.06 drugs and devices: Prescribing 1998-99. American Medical Association Council on Ethical & Judicial Affairs, www.drugnet.com.hk/ spd/spd_ethicusa.htm. Accessed 12-24-05.
2. Troyen AB, et al. Health industry practices that create conflicts of interest, JAMA 2006;295:429-433.
3. Morin K. LLM American Medical Association ethical guidelines on gifts to physicians from industry. www.ama-assn.org/ ama/pub/category/8405.html. Accessed 1-15-06.
4. Meadows M. Saving money on prescription drugs. FDA Consumer September-October 2005. www.fda.gov/fdac/ features/2005/505_save.html. Accessed 3-12-06.
5. Noffsinger R, Chin S. Improving the delivery of care and reducing healthcare costs with the digitization of information. J Healthc Inf Manag 2000;14(2):23-30.
6. Schneck LH. E-prescribing can be a new tool in quality-care arsenal. MGMA Connexion 2006;6 (1):32-36.
7. Generic Pharmaceutical Association: Statistics 2004. www.gphaonline.org/ Content/NavigationMenu/
   AboutGenerics/Statistics/Statistics.htm. Accessed 1-21-06.
8. Watson T. Strategies for maximizing generic opportunities in payer populations. Drug Cost Management Report: Atlantic Information Services Inc. Aug. 8, 2003, www.findarticles.com/ p/articles/mi_m0NKV/is_9_4/ai_106566970/print. Accessed 1-16-06.
9. Wosinska M, Huckman RS. Generic dispensing and substitution in mail and retail pharmacies. Health Aff 28 July 2004, http:// content.healthaffairs.org/cgi/content/full/hlthaff.w4.409/ DC1. Accessed 1-15-06.
10. Generic Pharmaceutical Association: Statistics 2004 www.gphaonline.org/ Content/NavigationMenu/
    AboutGenerics/Statistics/Statistics.htm. Accessed 1-16-06.
11. Ibid.
12. Johnsen M. Generic substitution efforts may yield diminishing returns — Generic drugs: special report. Drug Store News: Feb 16, 2004, www.findarticles.com/p/articles/mi_m3374/ is_2_26/ai_113640455/print. Accessed 1-16-06.
13. Watson T. Strategies for maximizing generic opportunities in payer populations. Drug Cost Management Report: Atlantic Information Services Inc. Aug. 8, 2003, www.findarticles.com/ p/articles/mi_m0NKV/is_9_4/ai_106566970/print. Accessed 1-16-06.
14. Moseley W. Presentation operations, challenges and opportunities. July 29, 2005, Blue Cross Blue Shield of Michigan.

Reprinted with permission from the Medical Group Management Association, 104 Inverness Terrace East, Englewood, Colorado 80112-5306; 303.799.1111. www.mgma.com. Copyright 2006.

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