Published 6/1/2011
D. Kay Kirkpatrick, MD

In-office pharmaceutical dispensing

Orthopaedic practice shares lessons learned

A few years ago, our orthopaedic practice established an in-office pharmaceutical dispensing program for the convenience of our workers compensation patients. We had two goals: to improve medication compliance among patients, and to provide the practice with an additional ancillary revenue stream.

With the help of an outside partner, we developed a program that allowed us to own and dispense the medication. We purchased the medications through a pharmacy repackager, and all inventory was bar-coded and kept under lock and key. Each drug dispensed was logged and documented by staff into our electronic medical record system.

The medication claims were assigned to the outside partner through a secure interface. As required by the Health Insurance Portability and Accountability Act (HIPAA), we maintained a business associate agreement with the outside partner. The outside company submitted claims for payment under the Georgia State Board of Workers Compensation fee schedule formula, which initially was 1.2 times the medication’s average wholesale price (AWP) as registered by the National Drug Codes, plus $1.00.

Once a month, the outside company paid the practice a percentage of each accepted claim. For the occasional unpaid claims, the company recouped the money from the practice.

Initially, from both cost and functional responsibility standpoints, the biggest problems were related to the interface, which involved a manual process that required significant personnel involvement.

A changing market
For the first couple of years, this program worked relatively well for us and was indeed a convenience for the patients. We did not have any significant problems with overutilization or medical necessity; however, some of our providers were not very involved with the program, and we were not very successful in changing their level of dispensing.

Due to the wide variability in AWP prices among companies, the majority of workers’ compensation insurers in our state thought that the program was too costly. As a result, the state board changed the fee schedule formula. The new formula was 1.0 times the original manufacturer’s AWP, which, although a small change, would likely have a big impact on the program’s profitability.

The pharmacies were obviously unhappy about this program as well. Increasingly, the Workers’ Compensation insurance companies issued instructions not to dispense medications. As a result, we have a lot of inventory sitting on our shelves that is not being used; some drugs are beyond their expiration dates.

Our board recently decided to wind this program down, and we are currently trying to decrease our inventory. The change in the formula, which established a “standard” AWP and eliminated pricing variability, may encourage some insurers to change their positions and become more tolerant of in-office dispensing, since the cost of the drugs will decrease. However, the new formula also greatly decreases the profitability of the program.

Laws and rules regarding billing and reimbursement for in-office medication dispensing programs vary from state to state, and federal laws regarding privacy, security, and other issues also apply. It is critical, therefore, for practices considering similar programs to understand all the applicable laws and to obtain legal advice.

An important lesson we learned is that decisions about ancillary services do not occur in a vacuum. The market adapts to change, as illustrated by the reaction of the carriers and the subsequent response of the state board. Although we still believe the in-office pharmaceutical dispensing program would be beneficial for our patients, its continuation has become impractical. We hope our experience can help other practices avoid the pitfalls we encountered.

D. Kay Kirkpatrick, MD is a member of the AAOS Practice Management Committee. She can be reached at KirkpatrickDK@resurgens.com