1. general considerations involved in physicians dispensing prescription medications.
2. legal considerations involved in dispensing medications
3. published evidence on physician dispensing of medications, ethical considerations and historical aspects of dispensing.
Who Is Dispensing Prescription Medications in Practice?
While dispensing might be a possible profit center, it is still not a practice being widely used. In a 1989 report from the Office of the Inspector General titled “Physician Drug Dispensing,” it was estimated that 5% of the physicians in their states were dispensing for profit.1 In 2002, about 7% of practicing physicians dispensed drugs in their office.2
It is not known how many dermatologists dispense prescription medications or cosmeceuticals. While many dermatologists sell cosmeceuticals (for example, glycolic acid products, moisturizers, sunscreens, and alpha-hydroxy acid products other than glycolic acid), it appears that fewer are dispensing prescription medications.
Kenneth Beer has stated that significant growth in the dispensing of cosmeceutical products is driven by consumer demand and has taken the place of dispensing prescription products as the mainstay of the dermatologist's dispensing practice.3
Perhaps the most widely dispensed medication is Triluma, for which Galderma has a special distribution program in place (B.E.S.T Program) for dispensing by physicians.4
How the System Works
This is a brief summary of the current pharmacy system and distribution system:5
• The manufacturer sends the medications to the distributor.
• The distributor sends the medications to the pharmacy.
• The physician examines the patient and writes a prescription.
• The insurer or prescription benefits manager approves or denies reimbursement for the prescription (either in the doctor’s office or later at the pharmacy).
• The patient travels to the pharmacy to get the medication.
The system involving physician-
dispensed medication has fewer steps:
• The manufacturer sends prepackaged medication to the distributor.
• The distributor sends the medication to the physician/dispenser.
• The physician dispenses medication to a patient.
Doctors can sell medications within the legal system of the practice of medicine or can register to have their own pharmacies. Registering as a pharmacy entails additional fees and can involve additional regulations regarding labeling, but it does avoid any legal limitation that might be imposed on a doctor. It should be clear that dispensing is not the same as being a pharmacy; physicians who are not operating as pharmacies usually distribute only pre-packaged medicine.
Following Prescription Requirements
Prior to dispensing, doctors should always offer the patients a written prescription so they have the option of having it filled by an outside pharmacy.
In most states, complying with prescription requirements is not arduous. Many of the states allowing physician dispensing for profit have regulations relating to licensure, storage, labeling, record-keeping and the degree of supervision required by the physician over support personnel who assist in the non-medical judgment related tasks associated with physician dispensing, such as retrieving medication bottles and affixing labels.6
Setting Up the Formulary
The job responsibilities and training required of those who actually dispense the medications differ by state, but generally office staff can help in preparing and dispensing prescriptions.
Limiting your formulary. It is probably best for dispensing doctors to keep their formularies as simple as possible. In reviewing the prescribing patterns of physicians, it is apparent that 80% of all scripts that a physician writes are for 20% of the total number of drugs that the physician prescribes. To cover this 20%, most physicians need to carry only 15 to 30 medications.7
A limited formulary that still captures the drugs that account for most of the prescribing revenue is pivotal to a successful dispensing system, as drugs that are most used sell quickly and make the most profit. Most wholesalers to doctors recommend that only generic medications be dispensed as they are cheap and their cost is often more than covered by the patient’s prescription card copayment. Thus if the copayment is $15, the patient would be charged $15.
Start-up Costs. The start-up costs for dispensing are not high; they generally range from $500 to $10,000 to set up a system. Payments for medications can be made either by credit card or on terms minimizing out-of-pocket costs for a dispensing doctor. A dispensing doctor can start with a manual dispensing system, and a wholesaler that sells the medications can often custom print medication labels. Computerized dispensing systems, tracking software and monthly maintenance fees increase costs, but if the volume of prescriptions is significant, these costs are made up by better inventory control.
Issues of inventory and pricing. Generally, in-office dispensing works best for an initial prescription because patients may have mail-away plans that give 3-month supplies at low cost for maintenance. There are some physicians who profitably dispense maintenance drugs, but this is more challenging.
Physicians must also be mindful of inventory control so that they stock products that sell and do not just sit in boxes undispensed generating income expense and approaching expiration. Simply put: Having the wrong inventory can lead to financial loss. Inventory management takes time and attention —and there is, of course, a cost associated with time and attention.
Setting prices. Medication prices can be set by calling local pharmacies, reviewing Web site prices, or by asking the dispensing drug wholesaler.
Storing prescription medications. This presents important considerations of which physicians should be aware. To be compliant with FDA and DEA regulations, you’ll need a locked cabinet or drawer. Approximately 50% of physicians put the prescription medications that they will sell in the same place as they now keep their samples.
If a physician plans on carrying controlled medication (e.g., narcotics such as Valium to give to a patient before liposuction), these medications must be stored in a double-locked storage area. A locked cabinet behind a locked door satisfies the double-lock requirement for controlled medications.
Billing patients. A system can be set up to bill the insurance company paying for prescription medications for any additional payments due. Medicare Part D keeps a tight lid on reimbursements for medications and in particular generic medications. Still, by saving seniors’ time, selling generic medications for just a few dollars above cost could still benefit elderly patients and the practice. Finally, having medications to sell can allow a practice to get rid of, or substantially decrease, the time, effort and space devoted to samples.
Workers’ Compensation patients. If your practice treats many patients in the context of the workers’ compensation system (as do dermatologists who are experts in contact dermatitis), dispensing can be lucrative. California pays the highest reimbursement for prescription medications given to patients cared for as part of workers’ compensation insurance.
The state of California takes the average wholesale price of the generic form of the drug, then multiplies it by a factor of 1.4 and adds onto that a $7 dispensing fee.8 Profits can range form $10 to $80 for a prescription.9
Manufacturers’ Specifications Must Be Heeded
Care must be taken with oral medications that are dispensed. Wholesalers often specify that their antibiotics must be re-packaged in a separate building with negative airflow because, according to the FDA, penicillin and cephalosporin contamination of nonantibiotic drugs causes approximately 50% of all U.S. drug reactions. Penicillin molecules are invisible but can cause anaphylactic shock in an allergic patient. It is virtually impossible to get a drug that is not contaminated with penicillin/cephalosporin pore particles.
If you are interested in selling oral medications, insure that the wholesalers are taking adequate care in packaging the oral medication.
Legal Obstacles to Dispensing In Brief
Legal obstacles to dispensing do exist. (These will be discussed more fully in the next article.) If the physician dispensing fails to comply with legal requirements, the state or federal regulating agencies can impose fines and/or medical license sanctions, suspension or revocation. Physician dispensing can be a red flag to Medicare and Medicaid and prompt audits to investigate overcharging for prescription drugs.
It is imperative that samples not be sold. One dermatologist reported the following story to me. The dermatologist was talked into selling product X by a sales representative who stated that the dermatologist would receive an additional case of 12 tubes if the dermatologist bought and sold several cases of product X. The product came in cases of 12 tubes, with each tube inside an individual box.
The dermatologist did not open each box to review the contents or labeling of the tubes. The cases all appeared to be identical from the outside. However, when the first person who bought a boxed tube opened up the box, the tube inside had a sticker stating “sample not for sale.” Angry about being sold samples, the patient called the office and threatened to report the dermatologist to the authorities unless the cost was refunded.
The dermatologist refunded the cost immediately and then contacted the sales representative concerning the issue. The dermatologist returned all of Product X and received a refund of his initial payment 6 months later.
Is It Worth It?
Dispensing prescription medication can be profitable and enhance the care of patients. However, dispensing is a business, and to create an effective dispensing system takes planning, business acumen and legal knowledge.
It could be that a dermatology practice can serve its patients better and be more profitable with a psoriasis treatment center, a dermatopathology lab, a medical spa, more dedicated resources for providing Botox and filler substances, and/or a Mohs treatment center.
Some online drug wholesalers promise profits of $50,000 for doctors who dispense. While this might be a substantial source of revenue for a family practice doctor making $120,000 annually, it is a less-substantial bump in profitability for a dermatologist making $300,000 a year. Being aware of practice options is the place to start considering what services to provide.
In the next part of this series, I will discuss the legal framework surrounding in-office dispensing of prescription medications.