White paper: Does the practice of physician dispensing lead to overprescribing of drugs?

Substantial evidence that the practice of physician dispensing leads to overprescribing of drugs.

Substantial research indicates that the practice of physician dispensing leads to overprescribing of drugs. The analysis concludes that allowing payers to direct workers to convenient dispensing locations is the best way to counteract the strong incentives to over prescribe.

This study provides a brief overview of how states regulate the practice of physician dispensing in workers’ compensation. Second, a description of the substantial financial rewards and business model that several firms have used to market to physicians to enlist them to dispense is included. Third, the evidence from studies of the practice of physician dispensing is reviewed and shows a significant motive for dispensing too often appears to be the financial rewards. Patient care does not appear to be the primary driver of prescribing decisions for the average worker who receives physician-dispensed drugs. These financial rewards distort prescribing practices and often lead to prescriptions for unnecessary drugs, including unnecessary opioids. Fourth, the evidence on the benefits of physician dispensing alleged by its advocates is summarized and is found to be largely unsupported. Finally, the analysis concludes with a discussion of policy options for legislators and regulators.

The evidence from studies paints a clear pattern that physician dispensing is too often substantially motivated by the financial rewards to the physician, rather than quality of care for the patient. Physician dispensing adds significant costs for employers, and on average, leads to unnecessary prescriptions, including unnecessary opioids, raising the risk of poorer patient outcomes. The major alleged benefits of physician dispensing superficially sound plausible but do not withstand scrutiny when the evidence is examined.

New regulatory approaches may be needed. Increasingly, recent legislative and regulatory price-focused reforms are being evaded – yielding smaller savings than intended. Hence, one should be skeptical of the success of reforms that are exclusively price-focused.

Taking all of the above into account, one concludes that prohibiting or severely limiting the practice of physician dispensing would reduce costs to employers and not reduce the quality of care to the average injured worker who receives physician dispensed drugs.

There are several principal policy choices to address this problem:

  • Direct prohibitions of the practice
  • Permit physician dispensing but only for a short time period after the first office visit.
  • Give payers the ability to direct patients to sources of pharmaceuticals (these could be local pharmacies, mail order pharmacies, or physician’s offices).

The most effective approach gives payers the ability to direct patients to convenient locations to get prescriptions filled. While the first two approaches seem more direct, they are more likely to simulate evasion. These approaches also exclude physicians and physician organizations who dispense but do not overprescribe nor charge higher prices.