Pharmacy issues critical in controlling workers’ comp costs

News Currents

Both labor and employers agree that workers’ compensation reforms generally have improved California’s business climate. However, some controversial issues still remain that likely will be addressed in 2007, according to William Zachry, vice president of corporate workers’ compensation for Safeway and chair of California’s Workers’ Compensation Fraud Assessment Commission.

Zachry, who was the keynote speaker at the Golden Gate Chapter of the Risk and Insurance Management Society Inc.’s recent meeting in San Francisco, said one of the problems he expects to be addressed in the near future is pharmacy costs.

“Medicine has changed and pharmacy has changed for our generation,” Zachry said. “It used to be that pharmacy was used for pain.” Now, people take medications regularly, such as to control cholesterol or other conditions. “Did your parents take any regular medication?” he asked. “The next generation is going to take a pill for genetic and reconstructive reasons. So what happens in pharmacies is very crucial.”

However, Zachry said pharmacy costs currently are being abused in California’s workers’ compensation system. While workers’ compensation costs overall have decreased, “pharmacy costs in California haven’t dropped because of repackaging abuse,” he said of drugs sold directly through physicians. “Repackaging costs more than all the fraud in California — it’s all of your dollars — but you don’t see it,” he said. The profits are being shared by repackagers and doctors who distribute the drugs, he told the room full of risk managers.

Currently, most medical provider network contracts do not address not allowing doctors to dispense drugs. As a result, doctors on the front lines who haven’t had increases in rates in two years and are not properly paid are making up the money through profits on drugs sold directly to patients, Zachry said. Pharmacy costs used to be 14 percent of medical costs. He predicted now pharmacy costs represent 23 to 24 percent of medical costs.

Zachry said he expects new regulations to control costs on drugs dispensed through doctors “will be coming down the pike.”

Another problem that needs to be corrected in California’s workers’ compensation system deals with permanent disability, Zachry noted. Doctors are not documenting permanent disability properly, he said. “People don’t know how to write PD. Reports literally say ‘no PD’ under the guidelines but that the employee can’t return to work. That makes it a bit awkward.” he commented.

Consequently, Zachry said he expects legislators to address this issue and try to improve PD education in the coming year. He noted legislators would be unlikely to bring up controversial workers’ compensation issues during 2006, an election year.

In the meantime, the commission is conducting a survey to help determine whether there are over- or under-payments in California’s workers’ compensation system, Zachry said.