State seeks to keep prices in check

When the state received a workers’ compensation bill for an anti-anxiety drug prescribed to an injured worker, the invoice was flagged because of a hefty price.

Had the diazepam been dispensed by a pharmacy, the tab would’ve been around $1.41. That was the average national wholesale price for the 30 5-milligram pills, plus a 40 percent markup allowed under state law in workers’ compensation cases, according to the state.

That 40 percent markup is the highest permitted in the country.

Yet the bill the state received for the physician-dispensed diazepam was $164.32 — more than 160 times greater than what the pharmacy price would have been.

The state paid Prescription Partners, the billing company, the $1.41. The company filed a challenge with the Department of Labor and Industrial Relations, which oversees workers’ compensation cases, contesting the lower payment.

The dispute is one of more than 2,000 pending before the agency, and the vast majority of those were filed within the past year and involve what employers and insurers say are excessive prices for so-called repackaged or compound medications.

Several measures advancing at the state Legislature would address this growing problem, one that potentially can cost taxpayers millions of dollars in higher workers’ compensation expenses.

The higher pricing for repackaged medications also can more quickly exhaust motorists’ personal injury protection dollar limits from their auto insurance policies, increasing consumers’ out-of-pocket expenses, and add upward pressure to premiums, insurers say.

Repackaged drugs, like the diazepam prescribed to the state worker, are dispensed directly from the physician to the patient, rather than through a pharmacy. They show up mostly in workers’ compensation and auto injury cases, and only a small number of Hawaii doctors — one estimate was less than 30 statewide — dispense medications in this fashion.

But with substantial markups, repackaged drugs can quickly drive up medical costs and are one of the main factors in rising workers’ compensation expenses in recent years, employers say.

The city, for instance, was billed about $53,000 for repackaged drugs in 2005, the first year repackagers emerged in the Hawaii market. In 2012, the tab hit nearly $700,000.

The dramatic increase in the use of repackaged drugs has led to a dramatic increase in medication billing disputes before the labor agency.

Until several years ago, such challenges were unheard of, according to employers and insurers.

Today, the 1,800-plus repackaging disputes have overwhelmed the department’s staff, leading the agency this year to support a legislative measure, House Bill 1176, to streamline the resolution process.

Several other bills being considered by lawmakers would tackle the problem from another angle: establishing a price cap to rein in excessive charges. One measure, HB 891, is part of the Abercrombie administration’s legislative package and is advancing in the House.

Although state law already regulates drug prices in workers’ compensation and auto injury cases, a loophole basically allows repackagers to set virtually any wholesale amount, resulting in markups ranging from 100 percent to more than 1,000 percent, employers and insurers say.

"These charges are so far out of line," said Kris Kadzielawa, director of operations for Solera Integrated Medical Solutions, which assists clients, including the city, in reviewing workers’ compensation and auto injury claims. "When they started popping up on our radar, they didn’t just pop up. Our radar almost blew up."

Although several repackagers currently operate in Hawaii, the vast majority of the disputes involve Prescription Partners, an affiliate of Florida-based Automated HealthCare Solutions and a major player in the local market, according to employers and insurers.

The city alone has more than 500 disputes pending, and all but a few involve Prescription Partners, according to Kadzielawa and a city spokesman. The contested tab: $826,000.

The city and insurers say the company has refused to provide sufficient documentation to justify the high prices.

Asked about the numerous disputes, an Automated HealthCare spokeswoman told the Star-Advertiser that the company for several months attempted to work with insurance carriers to resolve outstanding unpaid and underpaid claims.

"It quickly became clear that the carriers were unwilling to cooperate with AHCS/Prescription Partners — in some instances paying zero dollars on a claim," spokeswoman Alia Faraj-Johnson said in a written response. That prompted the company to file formal disputes with the Labor Department.

"We believe injured workers should have access to immediate care, receiving appropriate medications and treatment — allowing them to get back to work faster," Faraj-Johnson wrote. "This results in better outcomes for the injured workers and reduces overall costs to businesses and the workers compensation system."

Failing to reimburse the company for services rendered is not an appropriate option, she added. "Simply said, physicians have been upholding their responsibility to help the workers compensation system work for patients," Faraj-Johnson wrote. "It is the carriers who, by nonpayment of claims, threaten the stability of this system."

Automated HealthCare last year opposed legislative attempts to establish a price cap for repackaged drugs. The House adopted a cap bill but it died in the Senate.

Price-cap opponents argued that employers were highlighting extreme cases to present a misleading picture and that a cap could shrink an already limited pool of Hawaii physicians willing to treat injured workers.

Opponents also highlighted the many benefits to injured workers, including convenience and better adherence to medication regimens, when the employees get drugs directly from physicians.

But this year, Automated HealthCare is supporting a price cap, saying aspects of the bills before the Legislature are fair to all parties. Others who also opposed last year’s bill are voicing general support for a cap. One version allows doctors to charge a dispensing fee, raising concerns among some insurers.

Sen. Josh Green, an emergency room physician who chairs the Senate Health Committee, believes a combination of capping prices and streamlining the dispute process is needed to protect consumers from what he agrees are pricing abuses in the repackaged drug market.

"I’ll certainly do my part to get a resolution that is fair to both sides," said Green, who supported SB 876, a streamlining measure, that was referred to and approved by his committee.

George Waialeale, executive director of the Work Injury Medical Association of Hawaii, which represents mostly people in the medical field, said his group supports separate caps for brand and generic drugs — an approach insurers tend to dislike.

Waialeale said his organization opposes attempts to limit physician dispensing to the initial patient visit and to a 30-day supply, as one bill does. "In a state where access to care is already an issue, such additional restraints should not be allowed," he said in a written statement to the Star-Advertiser.

The rapid rise in medication billing disputes in workers’ compensation cases is all the more noteworthy because until several years ago, few if any were reported.

Michael Golojuch Jr., spokesman for the Department of Human Resources Development, which handles such cases for most state agencies, said it had no medication billing disputes four years ago.

Today, the department has roughly 250 potential disputes, Golojuch said.

City officials similarly could not recall having any billing disputes until three or four years ago, when the repackaging cases started to surface, according to Jesse Broder Van Dyke, a city spokesman.

Kadzielawa, the city consultant, said he has been reviewing workers’ comp and auto insurance claims for various clients for 20 years and has never had to challenge prices for pharmacy-dispensed drugs.

At a recent legislative hearing, Tim Dayton, who heads the Hawaii operation for GEICO, the state’s largest auto insurer, held up a bottle of a homeopathic topical spray for which a customer was charged $416 by a repackager.

A similar product online costs about $18, Dayton said.

Reimbursements for medications in workers’ comp and auto injury cases in Hawaii are tied to national average wholesale prices as listed in what’s called the American Druggist Red Book. The wholesale price is linked to the original manufacturer’s so-called national drug code and is set by the manufacturer.

Asked why there can be huge price disparities between pharmacy-dispensed and physician-dispensed drugs, Faraj-Johnson, the Automated HealthCare spokeswoman, told the Star-Advertiser that the company fully abides by Hawaii law and uses the average wholesale prices and drug codes for repackaged drugs, not the manufacturers’ ones.

Asked to explain why repackaged and manufacturer prices can vary by such huge amounts, she would not elaborate.