by Timothy W. Rose –
In the world of Workers’ Compensation, medical treatment is provided with traditional methods as well as current medicine trends or “fads”. “Reasonable and Necessary” medical treatment afforded under the Labor Code can steer off course when popular/trendy medical treatment and procedures replace time-tested and proven forms of medical care. One such unproven trend is that of compound medications. Compound medications do have their advantages and can be considered reasonable medical care. However, they have evolved from a useful medication alternative into multiple problems that require expensive and needless litigation. Why? The answer is simple: money.
It is the opinion of the author that compound medications made their entrance on a large scale due to the demise of another trendy medication phenomenon, repackaged generic medications. In 2007, California instituted a change to their fee schedule which largely eliminated differential pricing on repackaged drugs. As a result, repackaged drug prices dropped sharply, resulting in a rapid decline in their use. Shortly thereafter, compound medications began to appear as an alternative to other medications use. Compounds are not a new modality for providing pain management and other needs though their use has exploded in the past few years.
The Overall Cost
Pharmacy and medication treatment already constitute a large percentage of all costs in Workers’ Compensation medical care. With the addition of compound medications, the problem has expanded to epic proportions. A recent study by Rand Corp., at the request of the California Commission on Health and Safety and Workers’ Compensation (CHSWC), found that payments for these medications accounted for 12% of all drug costs in the first quarter of 2009 alone. Payments from 2006-2009 totaled $29 million over three years. State Compensation Insurance Fund (SCIF) payments in 2009 totaled $28 million. 1 Further CHSWC analysis also found that approximately 25% of all treatment liens at all WCAB offices involve pharmacies and/or dispensed drugs. 2 The numbers continue to increase over time. The amount of liens clogging the WCAB was a large enough problem to force Judge Frank of the L.A. WCAB to hold conferences in late 2010 to address the possible mass consolidation of liens involving these medications, in an attempt to control lien filings and litigation.
The California State Assembly has also become involved in an effort to reign in the rapidly expanding use of these medications and the problems associated with their billing. Assemblyman Jose Solorio (D- Santa Ana) recently introduced AB 378, which has been signed by Governor Brown. AB 378 adds pharmacy goods and compound medications to the list of medical services for which it is unlawful for a physician to refer a patient for treatment if they or immediate family members have a vested financial interest in the facility that receives a referral. The bill also establishes maximum reimbursement amounts for compound medications and would require billing be done at the ingredient level. Further, the bill places limits on reimbursement for physician-dispensed pharmacy goods.
The overall cost of these medications is not limited to the cost of the actual medication. Health risks, issues with billing and distribution and physician compensation make compound medications an expensive and often unreasonable modality of medical care.
Compound Medications Defined
“Compounding” includes combining drug ingredients to meet specific medication needs of patients that may not otherwise be available to them. Compound medications are designed to be customized on a patient-by-patient basis for multiple reasons including specific dosage strength requirements, ease of application, issues with the intake and digestion of pills, and various allergic reactions to other medications. Medications are most common in cream or lotion form due to ease of application and alleged absorption into the skin like regular lotion. Compounds most often use a base “active” medication, and at least one other additive for a cooling or heating sensation. As the active medication(s) may constitute only a small portion of the total ingredient, inert or “inactive” ingredients are also included based on needs and strength. For example, a common lotion known as Amitriptyline T includes Amitriptyline at 4%, Tramadol at 20% and the compound “agent” Pencream.
It is important to note that most medications used in compounds are not recommended for use based on the Medical Treatment Utilization Schedule (MTUS) Chronic Pain Guidelines. For example, Gabapentin and Baclofen do not have peer-reviewed literature to support their use. Capsaicin is only recommended for individuals who have already tried other forms of medication and have not had successful results. Stronger doses of Capsaicin are not proven to be more effective than lower doses. Lidocaine is only recommended for localized, peripheral pain and for use after anti-convulsants or depressants have been tried. 3 Many of these medications have origins vastly different than pain management. Gabapentin was originally developed for treatment of epilepsy. Clonidine was developed as an anti-hypertensive drug for treatment of high blood pressure. The “off-label” use of these medications makes them a less than desirable choice for their intended purpose.
Hidden Health Risks
Unlike other drugs, compound medications are not approved by the Food and Drug Administration (FDA). Instead the State pharmacy board oversees and regulates their manufacture and distribution. 4 Due to the lack of FDA oversight, compounding pharmacies are able to take advantage of lax regulations and oversight by stocking large quantities of these medications. Although recommendations to alleviate this problem include the introduction of at least one FDA-approved drug into a compound mix, they have not been implemented. Further, the science available does not support the contention that these medications are even effective. The author of this article is not aware of any double-blind testing having been completed on compound medications to document their efficiency in bringing about their alleged benefits. There are also questions as to if ingredients are timely and properly absorbed into the body from application on the skin.
California regulations require pharmacies to ensure that these products are being properly stored, mixed, packaged and labeled. But do we really know if these pharmacies are following through with their monitoring? Do we have any idea who is actually mixing the compounds together, and if they are licensed and trained to do so? These issues have been a concern in the past as information pertaining to the integrity of pharmacy practices is not widely available due to the limited amount of data available. 5
Issues with Billing
It is common to see a large invoice attached to a single compound medication prescription. The high price and subsequent denial for payment or reimbursement at a much lower amount is perhaps the biggest reason liens are piling up at the WCAB. The average wholesale price (AWP), which is the self-reported price by the manufacturer, serves as the base for fee schedule assessment. Unfortunately, multiple providers equal multiple AWP’s. Uniformity in AWP’s is not found amongst various providers. Fee schedule for compound medications is based on allowances found in the Medi-Cal fee schedule. 6 The Medi-Cal fee schedule is limited to companies in their drug rebate program, thus, not all medications appear in the database. Despite recommendations from the DWC on pricing, their recommendations have not been codified.
Even with a single location for assessment of billing (Medi-Cal fee schedule), the OMFS is vulnerable to fraud and excessive payments as the allowances for compound medications are based on the particular manufacturer. Simply put, when not taking advantage of multi-source pricing to find the lowest AWP, higher figures equal higher payments. Further complicating matters is providing allowances for ingredients not found in the MediCal database. Compounds can include rarely used or uncommon medications, and many of these drugs lack actual NDC codes.
Invoices that arrive for review and processing are often largely incomplete. At minimum, the billing should include a breakdown of the compounds used and quantity of each component. NDC codes should be accurate and should be listed for active and inactive ingredients. As discussed above, these medications do not have their bulk pricing listed on invoices. Thus, a medication which would be reimbursed for hundreds of dollars could be processed for a fraction of the price. While billing has improved over time, the issues around bulk pricing and AWP remain unresolved.
Issues with Quantity and Distribution
It is difficult to determine the quantity needed to constitute a day’s worth of medication, as an amount needed per individual is incredibly subjective. Therefore, current medication distribution could be for amounts much larger than are needed, resulting in waste, as well as an increased price in medications based on quantity. Shipping and handling creates yet another problem. Included with the reimbursement price of a medication is a dispensing fee, which is a set rate depending on if the medication is name-brand or generic. There is no fee schedule or even recommended reimbursement for shipping and handling. Shipping and handling are generally only seen when medications are mass produced from pharmacies out of the area (mail order) and then shipped to injured workers based on prescriptions.
How are these prescriptions making their way to pharmacies not accessible by the injured worker? The likely source is from the prescribing doctor, which raises ethical questions. Does the doctor have a fee agreement or financial interest in the pharmacy? Does the pharmacy conform to California state law and have a current license to dispense medications? Are the employees of the pharmacy properly trained and approved to package and ship medications? Answers to these questions are difficult to answer, and pharmacies do not want to answer them.
As previously stated, one need only to trace most medical “fads” back to one single item: money. Who can make money from the medical treatment, and more importantly, who is making money from the medical treatment? California Labor Code § 139.3 precludes physicians from referring patients for certain services if the physician or his immediate family has a financial interest with the entity that receives the referral. These “self referrals” are nothing new to the industry. For example, the introduction of surgical centers for outpatient procedures into the Workers’ Compensation arena brought with them a plethora of doctors who grouped together or invested in various surgical centers. Within a short amount of time, surgery centers were found in all major metropolitan areas throughout the entire State. Fortunately, assemblyman Solorio’s bill goes to great lengths to address this problem, adding prescription and pharmacy services to the growing list of items not allowed to be referred out when there is a financial interest.
What are some of the recommendations we can demand be implemented to reign in some of the problems discussed above? There is no single fix, other than the elimination of compound medications altogether. As this does not appear to be possible, some recommendations include:
- Establishing ceilings on reimbursement for medications including percentages of reimbursement from MediCal payment schedules or documented cost of providers who are filling medications. It appears AB 378 accomplishes some of this recommendation.
- Setting maximum reimbursements allowed based on bulk ingredient purchases, a set percentage for mark-up and a set maximum dispensing fee.
- Requiring use of NDC codes if available. If not, billing must include additional information including a description and/or invoice showing the price and related quantity of the ingredient. Otherwise a $0 reimbursement will issue. AB 378 will accomplish some of this recommendation.
- Encouraging carriers and TPA’s to participate in a pharmacy benefit management (PBM) company. These companies handle billing, create pharmacy networks and even help control costs. PBM’s can often establish protocols for timely review within UR parameters. Case law allows for PBM’s.
- Reviewing the current requirement for AWP’s as discussed above and requiring payment based on the lowest available price from all manufacturers.
- Preventing physicians from referring services pertaining to compound medications to locations where the physician or immediate family member has a financial interest. AB 378 will result in adding compound medications to the list of goods under Labor Code § 139.3.
- Preventing liens from being filed for more than the statutory amount allowable under the fee schedule or set price amounts. Additionally, requiring lien claimants to provide all documentation needed to support their position at the time of the initial filing.
- Amending Labor Code § 4906.3 to require that liens cannot be filed until a medical bill is actually in dispute.
- Preventing the use of bulk ingredients that are not components of FDA approved drugs.
- Removing compound medications from use until they are subject to double blind testing and FDA approval.
The options for defense of compound medications are relatively simple to use and implement. Most require few steps beyond normal practices in the claims process and all can be quite effective. In implementing a strategy for defense, it is important to focus on your particular case, and choose the argument options best suited for your set of facts.
- Use the Labor Code
- Labor Code § 4604.5(e) requires “other evidence-based medical treatment guidelines [be] recognized by the national medical community and that are scientifically based.” When paired with Labor Code § 4600, treatment that is not supported by “a preponderance of evidence establishing that a variance from the guidelines is reasonably required”, should be argued to not be substantial medical evidence.
- Labor Code § 4600.1 requires the use of generic medications unless the physician demonstrates they are not available or notes why the name brand medication is necessary. Make the doctor explain why compound medications are necessary.
- Verify if the doctor comments on the effectiveness of medications to support ongoing use as is required. Most of the time, this does not occur.
- When reviewing billing, ensure your bill review company/department checks to ensure all NDC codes are proper. Those that are not receive a brief explanation and $0 reimbursement.
- Request copies of all prescriptions. Due to submission to the pharmacy directly, we often do not know the exact medication prescribed, the dosage and the number of re-fills, if any. We frequently see multiple pharmacies ship the same medications on a schedule – Are they correct in doing so?
- Ask for receipts or invoices on purchases for bulk medications and inactive ingredients- What are they paying for the medications and what is the mark-up they are asking for? This is discoverable information and can be used to argue price.
- Insist all prescriptions are dispensed through a pharmacy benefit management (PBM) program and encourage clients to participate in one. See the Brambila decision.
- Inquire about the prescribing doctor’s financial interest or relationship with dispensing pharmacies. Most doctors use the same pharmacy, regardless of location of the applicant.
- Never pre-approve medications. Always insist they be submitted to UR.
- Request licensing information of the facility performing the services. Are they up to date? Are they complying with State regulations?
- Ask for qualifications/training/certificates of the people creating the medications.
The more information you demand, the more likely pharmacies will be willing to negotiate, and the more information you will have for trial. They do not want you to know their bulk pricing and mark ups. Many may have staff that are not properly trained and some may have licensing issues. In order to not release this information, they will often drop demands for lien settlement by significant amounts and become much more reasonable in settlement discussions.
Compound medications are here to stay. However, just like any other “fad” in medical treatment, the more we become aware of the risks of the product and the defenses against use and reimbursement, the easier the claims process will be.
With over 85 attorneys practicing in 12 offices throughout California, Bradford & Barthel, LLP is the industry leader in the aggressive defense of Workers’ Compensation, Subrogation, Employment and Labor matters.
*Special thanks to Juan Pedroza and Steve Napolitano
1 Lifsher, Mark. “Compounded Drugs bring big profits to California doctors, study finds”. Web. 29 January 2011. http://articles.latimes.com/2011/jan/29/business/la-fi-compound-drugs-20110129
2 California Commission of Health and Safety and Workers’ Compensation. Liens Report. 5 January 2011. From http://www.dir.ca.gov/chswc/allreports.html.
3 California Division of Workers’ Compensation. Medical treatment utilization schedule regulations. Title 8, California Code of Regulations Sections 9792.20-9792.26. p. 18, 28, 30-34, 40. May 2009. From http://www.dir.ca.gov/dwc/DWCPropRegs/MTUS_Regulations/MTUS_Regulations.htm
4 www.fda.gov. See search terms “Compound Medications”, “California”.
5 United States Food and Drug Administration. “The Special Risks of Pharmacy Compounding” Consumer Health Information. May 31, 2007.
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