February 15, 2002
Will Dispensing Make a Comeback?
By Richard L. Reece, MD, editor in chief
Among the factors currently causing an increase in the number of
prescriptions written and filled each year are the aging of the
population and the proliferation of new and more effective medications
for a wide variety of conditions. This increase in prescription
volume is creating an opportunity for physicians who are seeking
to increase profit by dispensing medications from their offices.
A survey by Scott-Levin, researchers in Newtown, Pa., shows that
in 1999 physicians wrote an average of 2,060 prescriptions each,
and primary care doctors were writing an average of three prescriptions
per patient. Last year, pharmacists were filling 3.1 billion prescriptions
per year, and they are expected to fill 4.0 billion by 2003.
Prescription drugs have become one of the fastest growing segments
of medical costs. Princeton University health economist Uwe Reinhardt,
PhD, writing in the September-October issue of Health Affairs, says
that prescription drugs accounted for 8.2% of total national health
care spending in 1999, or 1.4% of the gross domestic product. He
expects such spending to account for 14% of national health expenditures,
and 2.2% of GDP, by 2010.
Necessity and Invention
The increased prescription load and the leveling off of pharmacy
school graduates are causing shortages of pharmacists, reducing
the number of hours that drug stores are open, and causing concern
about dispensing errors being made by overworked pharmacists. As
a result, there has been a movement toward more cooperation and
collaboration among physicians and pharmacists, as well as toward
making pharmacists part of the treatment teams in larger medical
institutions and in nursing homes.
This new environment has led to innovative approaches to prescribing
and reducing errors. Many e-health prescribing companies are lauding
the benefits of handheld computers for writing prescriptions, for
checking drug interactions, and for routing prescriptions electronically
to pharmacies. Another approach to physician prescribing, which
has the potential to create economic and turf conflicts between
pharmacists and physicians, features software systems that enable
physicians to dispense prepackaged drugs at the point of care.
This new software actually revives an old tradition. In the 1880s,
80% of doctors dispensed prescribed drugs in their offices; in the
1920s, 20% of physicians were dispensing. Several trends changed
that tradition. Sharp increases in the number of new medications
made it impossible for physicians to maintain drug inventories,
states imposed regulations forcing physicians to meet pharmacy requirements,
managed care brought in pharmacy benefit managers, and organized
medicine raised ethical concerns about exploiting patients for profit.
But many current technological, consumer, and health system forces
are reviving an interest in office prescribing. User-friendly and
affordable software has been developed to make it practical for
physicians to manage inventory, to track their own prescribing habits,
to maintain patient medical records, to check for drug interactions,
and, in many instances, to route prescriptions electronically to
For some physicians, dispensing medications makes sense. Doctors
are complaining of a squeeze on reimbursements from managed care,
Medicaid, and Medicare; and of various administrative hassles that
are increasing overhead, decreasing profitability, and reducing
productivity. Primary care physicians, who prescribe 53.5% of all
medications, perceive themselves to be in a low-margin business.
To increase margins, physicians are hiring nurse practitioners and
physician assistants, seeing patients in groups, using computer
technology to increase the number of patients seen, and turning
to ancillary services (such as dispensing) to enhance revenue.
What’s more, there is a looming shortage of physicians, particularly
specialists, to care for an aging population. The AMA says the number
of applications to medical schools has dropped 27% since 1994. Medical
schools say managed care, a wider range of job opportunities in
other fields, and medical school debts averaging $100,000 have pushed
students away from medical careers.
A New Paradigm
“Point-of-care medicine” (which includes office dispensing)
involves using new software and the Internet in physicians’
offices to meet the needs of the patient, to satisfy the needs of
the physician, to meet and satisfy the needs of both the patient
and the physician during the office visit; and to access the latest
scientific evidence and document the office visit completely and
The current system for prescribing and dispensing drugs does not
fit this paradigm because the prescription is not filled during
the office visit. Instead, the process of filling a prescription
now generally requires approval by an insurer or pharmacy benefit
manager (PBM) and the patient must travel to a pharmacy to pick
up the prescription. Briefly, the current pharmacy system and distribution
paradigm works like this:
• The manufacturer sends the drugs to the distributor
• The distributor sends the drugs to the pharmacy
• The patient sees the physician and gets a prescription
• The insurer or PBM 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 new dispensing paradigm is simpler and more straightforward:
• The manufacturer sends prepackaged drugs to the distributor
• The distributor sends the drugs to physician clients
• The physicians dispense medication to patients.
Paradigm shifts often create controversy, and office dispensing
is no exception. A paradigm is a philosophy or a pattern that forms
a generally accepted conceptual framework within which social and
scientific tasks are carried out. A paradigm shift occurs when one
goes outside of the framework, which is what dispensing drugs from
the physician’s office rather than through retail outlets
is. Naysayers argue that physician dispensing for profit is unethical
and results in overutilization. Some charge that dispensing physicians
are guilty of lining their own pockets.
What’s more, having physicians dispense medications raises
difficult turf issues, since some pharmacists view office dispensing
as physician trespassing. They argue that physicians will prescribe
only the drugs they stock in their offices, thereby limiting patient
access to newer and better drugs. In fact, this is already happening
at managed care firms that limit access to brand-name drugs. And,
as a practical matter, most physicians who do not carry an indicated
drug will simply refer patients to retail pharmacies.
Then there are those who argue that office dispensing gives physicians
too much control over patients. This argument, however, does not
give enough credit to assertive baby boomers and the consumers who
often insist on receiving the drugs they have seen advertised or
evaluated in the media or on the Internet, and who may even switch
physicians if they are denied those drugs.
The yea-sayers argue that physician dispensing increases patient
compliance. Since 21% of patients never get their prescriptions
filled (according to a survey by AARP, formerly the American Association
of Retired Persons) and 30% fail to get refills (according to a
survey published in The Internist), when patients leave the office
with medication in hand, compliance soars, proponents of office
Champions of office dispensing also say that it ends the risk of
errors from illegible handwriting or sound-alike drugs, that it
reduces prescription costs by as much as 50%, that it helps to avoid
the $100 billion cost per year of noncompliance and medical errors,
and that it increases physician revenue.
A Rocky Road
Currently, only about 7% of practicing physicians dispense drugs
in their office. Among the reasons is the established tradition
of using retail pharmacies as the central distribution point for
prescription drugs. But also, physicians have ethical concerns,
and they may be worried that the rising number of new drugs means
they would need to keep large inventories on hand. They may also
worry about the lack of sophisticated software for managing inventory.
In addition, there are regulatory and legal barriers to contend
with. Some states—including Massachusetts, New Jersey, New
York, and Texas—either ban the practice or make it difficult
for physicians to dispense drugs in the office. (The Federal Trade
Commission, however, has indicated that it regards laws against
physician dispensing as an illegal restraint of trade.) But some
shift from retail to office dispensing is likely to occur because
15% per annum increases in prescriptions drug costs are politically
and economically unsustainable; and because noncompliance and prescription
errors lead to drug reactions and deaths.
Once physicians buy their own drug inventories, they become acutely
aware of prescription costs and cut back on the volume of drugs
they dispense. But the quick and widespread use of office dispensing
will be hindered by a number of factors. Many physicians will be
unable to keep a large number of drugs on hand simply because they
do not have the room for them. What’s more, physicians are
generally slow to change and have been particularly reluctant to
install the new computer systems needed to manage the information
and inventory for such an undertaking. Many physicians also will
be concerned about turf issues that surely rankle pharmacists. For
some physicians, however, dispensing medications may make sense
because it can increase profit while also helping to serve today’s
demanding patients.--Edited by Paula Grant, in Lincoln, Va.
Two Approaches to Office Dispensing
Even among proponents of office dispensing, there are variations
in approaches. Physicians Total Care Inc., in Tulsa, Okla., and
Allscripts Healthcare Solutions Inc., in Libertyville, Ill., are
two companies that market prescribing systems, yet each has a different
approach to physician prescribing and dispensing services.
Physicians Total Care
Physicians Total Care facilitates immediate dispensing of medications
directly to a patient in the physician’s office by purchasing
prescription medications in bulk and repackaging them into individual
prescription sizes for physician clients, who then dispense the
medications by using the company’s software.
PTC’s software, says Warren Moseley, president of PTC, provides
convenience for patients, lowers prescription costs, and allows
physicians to earn $4 to $6 in profit per prescription. The software
also processes refills. PTC provides all generic and brand pharmaceuticals,
including over-the-counter products.
Physicians need the software, Moseley contends. “In any practice,
you can find doctors who are spending 30 minutes to an hour each
day on pharmacy issues alone,” he says. “For every three
doctors, one full-time equivalent is devoted totally to pharmacy
issues at no additional revenue. Doctors are doing the work. They
might as well deliver the product and get paid for it.” PTC’s
system, he says, will help them to do just that. PTC focuses on
the dispensing function and on having a high percentage of pharmacy
benefit managers that process physicians’ claims.
PTC charges a one-time licensing fee of $4,000 per site, which
can be paid back at $1 per prescription. This fee does not include
equipment costs—a handheld bar code scanner ($150), a laster
printer ($300), and a PC, which most practices already own. There
is also a $175 monthly support fee.
Allscripts Healthcare Solutions
Allscripts Healthcare Solutions, a leader in the market for physician
dispensing with 12,000 users and $55 million in annual revenue,
has a larger and more ambitious vision that extends beyond just
Over the last few years, Allscripts has acquired MasterChart (for
handheld dictation and voice capture technology), Medifor (for customized
patient education and care plans), and ChannelHealth (for clinical
and productivity solutions for large physician practices and integrated
Allscripts has a series of physician productivity software applications,
called TouchWorks, which are accessed using a wireless handheld
device or desktop workstation. These applications automate the most
common physician activities—including prescribing, capturing
charges, dictating, ordering lab work and viewing results, providing
patient education, and taking clinical notes—and enable a
physician to take a modular approach to creating a complete medical
Allscripts charges an installation fee of $2,000 per practice and
about $100 to $350 per month for subscription fees, which depend
on whether the practice already owns a handheld prescribing device,
a desktop computer, and a printer.
A Return on Investment?
Measuring the return on investment for physician investment in dispensing
is not easy; doing so involves looking at both profits on individual
prescriptions and intangibles, such as the efficiency and productivity
that result from the complex practice system changes required.
So, will the efficiencies and potential revenue promised by companies
such as PTC and Allscripts lure physicians into office dispensing?
Perhaps. Squeezed by managed care and medicare, physicians are seeking
additional sources of revenue. What’s more, if the new software
makes it easier to handle inventory, label prescriptions, and manage
patient medications, as proponents claim it does, it may also make
serving assertive baby boomers and other patients who demand more
value-added services easier, too
Edited by: Paula Grant