Explained: Price Spikes and Ill-Gotten Gains

In general, when there is an otherwise unexplained price spike, it can ultimately be traced back to criminal behavior, or in the least, manipulative behavior.

One of the big cost drivers in the past few years, especially in California, has been compound drugs.

The California Workers’ Compensation Institute (CWCI) identified compound drugs as a huge prescription drug cost driver in 2010, saying that compound medications, co-packs and medical foods accounted for nearly $1 out of every $8 paid for injured worker prescriptions in California.

The amount paid for such drugs and medical foods during the study period totaled $28,910,769, or 10.1% of the $284,662,536 paid in the total sample, according to CWCI.

The average amount paid for compound drug prescriptions went from $468 in the first quarter of 2006 to $551 in the first quarter of 2009; the average paid for co-packs went from about $300 in the first quarter of 2006 to $420 in the first quarter of 2009, and medical foods went from $160 to $233 in the same time period.

Repackaged drugs represented nearly 60% of all money spent on workers' comp prescriptions in 2006, but the Division of Workers' Compensation closed a loophole that allowed higher payments for repackaged drugs dispensed at physicians' offices. The division added repackaged drugs to its official fee schedule effective March 1, 2007, and by the third quarter of 2008, repackaged drugs were down to just 5.8% of total prescriptions.

The CWCI study showed a swift spike in prescriptions for compound drugs, co-packs and medical foods shortly after the DWC change, moving from 2.7% in the first three months of 2007 to a high of 6.6% in the final quarter of the year. That percentage eased to 4.7% by the first quarter of 2009.

CWCI offered three theories about the increased use of compound drugs, medical foods and co-packs

• Successful marketing of the medicinal value of these substances by compounding pharmacies and distributors who assert that pain medication is better tolerated and produces fewer side effects. Those marketing co-packs and medical foods make similar claims, maintaining that their products address issues of nutritional insufficiency caused by underlying injury or disease.
• The application of less-invasive medical treatment for back pain has prompted greater use of pain medications — including those found in compound drugs and co-packs.
• Some medical providers, manufacturers, labelers, third-party billers and pharmaceutical distributors are using compounded drugs, co-packs and medical foods to circumvent the medical fee schedule by marketing, prescribing, and dispensing these products when less costly, safer and possibly more effective means of delivering needed medication are available.

They forgot about crime.

WorkCompCentral this morning reports that a whistleblower complaint alleging a scheme to defraud the federal government, State Compensation Insurance Fund and other workers' compensation carriers by billing for compound drugs that were not dispensed names as defendants 201 California doctors, many of whom are also qualified medical evaluators.

The complaint, filed by the owners of a medical billing company in the U.S. District Court in New Hampshire, alleges that Cyrus Sorat is a part owner of Health Care Pharmacy and Deutsche Medical Services in Tustin, Calif., and paid 208 doctors to prescribe compound drugs to injured workers needing topical analgesics. Sorat promised to pay the doctors an unreported fee for each prescription they wrote, and also agreed to handle billing and recover receivables on behalf of the physicians, according to the complaint.

Seven of the doctors named are in Florida, Arizona, South Carolina and Puerto Rico, with the rest in California.

The original complaint was filed in October 2008 under seal because of an ongoing federal criminal investigation. The complaint says the scheme yielded fraudulent bills worth tens of millions of dollars (seems that figure is supported by the CWCI study).

The complaint describes a complex scheme that I won't get into here - suffice to say that the doctors named were allegedly paid kickbacks to prescribe the drugs, and the receivables for those prescriptions were then "handled" by the mastermind through several collection/management agencies and bill review companies that were created in a sophisticated scheme of fraud.

Remember what your mom used to tell you about lying? That eventually you'll get caught in the lie because you can't remember everything you tell everyone and the details will trip you up?

That's what happened - eventually someone billed for a prescription on a patient after they died. Also, many prescriptions did not match dates of office visits. When the perpetrators were advised of the issues, they set about attempting to correct these details - rather than just letting these go they pursued collections, which became their undoing.

There's more work to be done other than the civil and criminal charges reported. WorkCompCentral found the names and addresses of 40 doctors named as defendants in the civil suit matched names and locations of qualified medical evaluators (QME) in the Division of Workers’ Compensation (DWC) online database. The names for an additional 37 defendants were also found in the QME database, but with different addresses.

DWC has lots on its hands with the implementation of SB 863, but it should move aggressively towards the investigation and discipline of the QMEs named in the complaint.

In the 2010 story Joe Paduda, president of CompPharma, a consortium of pharmacy benefit managers and industry critic, and system critic with his blog, Managed Care Matters, was interviewed and he quipped, "I think it's a highly likely driver that people are trying to make money off the comp system."

You forgot illegally Joe. Illegally.

Trust me, there's a whole lot more of this going on than just compound drugs...

On Thursday, November 8, 2012, Joe, Bob Wilson, Peter Rousmaniere, Rebecca Shafer, Mark Walls and I will be part of a panel discussion at the 21st Annual National Workers' Compensation and Disability Conference & Expo in Las Vegas at 3 pm. "Front and Center: Bloggers Speak Out on the State of Workers’ Compensation" will cover what's wrong with workers' compensation and how to fix it. Ill-gotten gains will be part of the discussion.