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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.

System Solutions
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 pharmacies.

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 accurately.

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.

Naysayers, Yea-sayers
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 dispensing argue.

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 physician dispensing.

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 health plans).

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 record.
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



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PracticeOptions - March 2002


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