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LEGAL-EASE: Doctors Repackaging Drugs for Profit |
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by Steve Kline, Esq.
EK Health Services' Legal Counsel
One of the key cost drivers in workers' compensation today is medication. Some doctors have changed their business model to include the repackaging of drugs for dispensing those drugs yielding some significant profit enhancements.
In April of last year, a WCAB Panel issued a decision in Mendoza v J. Buckbinder Industry, Inc. that challenged that practice and restored some order out of the pharmaceutical chaos.
The facts of the Mendoza case are fairly simple. Mr. Mendoza sustained injuries on the job and then resolved his matter through a Compromise and Release (C&R). The lien of California Pharmacy Management (Cal Pharm) for $11,660.14 was not covered by the C&R.
A two day lien trial was held with Cal Pharm claiming to have had an agreement with the injured worker’s treating physician “to administer the doctor’s drug-dispensing program utilizing repackaged drugs which the doctor dispensed to injured workers”. The trial judge issued an Order awarding reimbursement in the amount of $960.05, which was based on the evidence that showed the value of the brand-name equivalents of the drugs involved. The calculations had been provided by the defense that the Judge found to be more credible.
During the time period that these drugs were dispensed (January 2004 through March 2007), the Medi-Cal payment system did not include repackaged pharmaceuticals. Thus, standard was provided by the Official Medical Fee Schedule (OMFS).
OMFS provided that pharmaceutical reimbursement is to be the lesser of the provider’s usual change or the fees established by the formulas for brand name and generic drugs.
What’s the “usual charge”? Some doctors purchase Zantac for $60 a bottle and charge anywhere from $240 to $300. Since that’s what they did usually ... it was the usual charge.
The Panel opinion defined that “usual charge” ambiguity by ruling, “that the provider (the doctor) prove his usual charge, which means the amount that he or she paid for the pharmaceuticals. If the claims administrator does not agree to reimburse the physician that amount plus the dispensing fee required by the OMFS, the claims administrator must prove that the formula set forth in the OMFS rules provides for a lesser reimbursement than the physician’s usual charge.”
Since there was no evidence at the trial as to what the doctor paid for the pharmaceuticals that were dispensed to the injured worker, and the panel’s opinion that the Judge had not based his Order on the appropriate evidence, the WCAB Panel rescinded the Order and returned it back for additional evidence. However, Cal Pharm disagreed with the definition stated and filed a Petition with the Second District Court of Appeal.
On January 5, 2011, the Second District Court of Appeal denied the Writ without comment and upheld the WCAB Panel decision and definition.
With the Panel’s definition supported, a small step has been taken in curbing the excessiveness in the repackaging drug business for the drugs dispensed between January 2004 and March 2007.
Drugs dispensed since that date are covered by the 8 CCR 9789.40 that limits the determination of non-Medi-Cal drug costs with far less ambiguity.
In the coming legislative session, there are many who will be pushing for more cost containment, especially in the area of liens and pharmaceuticals. This may be a leverage point in the negotiations regarding a re-evaluation of the permanent disability schedule.
In the meantime, careful monitoring of the multiple medications being prescribed for injured workers through utilization review is essential. Enabling injured worker medication misuse, diversion and addiction does not get the injured worker back to work.
Thanks for your attention.
--- Stephen L. Kline, Esq.
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V. 2011 
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