December 2, The Honorable Marguerite Quinn The Pennsylvania General Assembly 159A East Wing PO Box Harrisburg, PA

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1 December 2, 2013 The Honorable Marguerite Quinn The Pennsylvania General Assembly 159A East Wing PO Box Harrisburg, PA Dear Representative Quinn, On behalf of PMSI and the national trade association CompPharma, I am seeking your support for House Bill1846. PMSI specializes in the provision of pharmacy services for the workers' compensation market. Providing both retail and mailorder pharmacy services to injured workers for over 37 years, PMSI is concerned about the impact physician dispensing and the utilization of repackaged drugs has in Pennsylvania. Our concerns not only focus on the rapidly rising costs paid by private employers and taxpayers in the state, but also the marked decrease in injured worker safety. PMSI and CompPharma support your efforts to control the often unnecessary cost driver of physician dispensing and repackaged drugssimilar to public policy changes adopted in numerous states. For these reasons, and others outlined below, PMSI and CompPharma support passage ofhb Background and Cost Impact of Physician Dispensing The purpose of HB 1846 is to reduce workers' compensation system costs by preventing inflated prices by entities that "repackage" the more commonly prescribed drugs and physicians who dispense these medications from their office. HB 1846 makes a simple and sensible change in the existing statute concerning reimbursement for drugs dispensed by doctors to injured workers and does not interfere with the doctor's ability to dispense from their offices in situations deemed as medically necessary. The bill establishes a fair reimbursement for these medications based upon the underlying (or original) National Drug Code for the drug, which is the same process pharmacies use for reimbursement when dispensing the same drugs to injured workers. The practice of physician dispensing involves two parts: the repackager entity and the dispensing physician. First, a drug repackager purchases the drugs from a wholesaler in a fashion identical to retail pharmacies and then repackages them in convenient, "office dispense" sizes for distribution or sale to the dispensing physician. By repackaging a drug, the repackager is able to assign a new NDC to the medication. Along with the newly created NDC, a new Average Wholesale Price (AWP) point is assigned that is often priced by the repackager or dispensing physician well above that of the underlying (same) medication as dispensed by a licensed retail pharmacy provider. At this point, the treating physician will dispense the repackaged medication to the injured worker and charge an amount often ranging from 25% to 300% (NCCI Research Brief Workers' Compensation Prescription Drug Study September 2013) more than the same prescription filled at the retail pharmacy. Additionally, in order to receive future prescriptions or refills, the injured worker must see the doctor who often charges an additional office visit charge to the employer/payor. Allowing such practices to continue unchecked will continue to escalate medical costs.

2 emsi) Retail Dispensing Process Compared to Physician Dispensing and Repackaging Source PMSI RETAIL DISPENSING Pharmacy Standard NDC AWP x FS + f NatiOnal A\W SOurce iaiocai!i!iz"" NDC) PHYSICIAN DISPENSING Phvslcian Office, :n 40 Unique NDC Newly Created AWP x FS + t National AWP Source IOoca n:jii'oc:o8lll0 NOC) Repackaged drugs dispensed in doctors' offices to workers' compensation patients cost significantly more than prescriptions dispensed by a retail pharmacy. In short, some doctors in Pennsylvania are legally charging 5.00 per pill for a drug that (based upon the state fee schedule) costs 5 per pill when billed by a dispensing retail pharmacy. In some states, the practice of physician dispensing prior to cost controls often exceeded 20% of dispensed prescriptions, the practice in other health marketplaces is minimal to nonexistent. A recent National Council on Compensation Insurance (NCCI) Drug study (WCRI WC1339 The Prevelance and Cost of PhysicianDispensed Drugs September 2013) indicates the share of total pharmacy costs for physician dispensed drugs has increased from 6% in 2003 to 1 7% in 2011, with repackaged drugs comprising more than 66% of physician dispensed drug costs, from 5% of total costs in 2007 to 12% in 2011, or an increase of 140%. Even outside the NCCI study, data from companies such as PMSI and organizations like CompPharma tells the same story. Drugs dispensed at the retail pharmacy level, that in workers' compensation are commonly used to control and treat pain remain, are just as common in physician dispensing with a huge differencecost. Drugs such as hydrocodone/ acetaminophen, which cost (on average) per prescription at a retail pharmacy, increase to over 61 per prescription (on average) when repackaged and provided by a physician dispenser. Another commonly prescribed/dispensed drug, oxycodone/acetaminophen, costs (on average) at a retail pharmacy, but explodes to an average of over 197 when dispensed via the repackaging processan increase of202%.

3 si) However, when PMSI was engaging in a similar public policy debate in Florida over Senate Bill 662, it was discovered that Omeprazole, commonly known as Prilosec, was being billed for over 192 per prescription by a dispensing physician yet anyone could purchase a package of 42 pills (brand name) at a retail pharmacy for just As an example of this data, the following was compiled by CompPharma in October of2012. CompPharma Comparison of A WP and Repackaged Drug Pricing Drug Name Avg Tran Cost Avg Paper Cost Difference Percentage HYD~CODON E~ ETAMINOPHEN E~~~~~~A:c~NOPHEN ~ IBUPROFEN CELEBREX GABAPENTIN LYRICA CARISOPRODOL MELOXICAM 1 NAPROXEN LIDODERM CYMBALTA TIZANIDINE HCL OXYCONTIN PROPOXYPHEN EN/ ACETAMI NOP OXYCODON E HCL ZOLPIDEMTARTRATE ALPRAZOLAM DIAZEPAM METHOCARBAMOL lskelaxin [AMITRIPTYLINE HCL CLONAZEPAM I FENTAN_Y_L r =ij rl ~ = [L.=_ ~ ~ ~ '' ' _L ~ ~ ,_j _ ~ ~ _L _ _L % % % % % % % % % % % % % % % % :' % % (1.41) 2.09% % ' % ' (59.30) 30.01% ' % Avg Transaction Cost= Prescription cost using original AWP Avg Paper Cost= Prescription cost using a markedup AWP dispensed from a physicians office 1 AWP =Average Wholesale Price of drug l Note: Payers using a PBM receive a discount on the average transaction cost that is no!_reflected a % r %

4 P.msi) A Clear Need for HB 1846 in Pennsylvania It is undeniable that physician dispensing is impacting system costs in Pennsylvania's workers' compensation marketplace and directly impacting employers and tax payers who pay workers' compensation premiums. This fact is clearly revealed in conversations with not only research organizations such as Workers' Compensation Research Institute (WCRQ and NCCI, but in talking with representatives from the Pennsylvania Bureau of Labor and Industry (BL&I), who are keenly aware of the recent and rapid increase in physician dispensing in Pennsylvania. Just this year, WCRI released a study focused directly on the impact of physician dispensing and repackaged drugs in Pennsylvania (WCRJ WC1323 Physician Dispensing in the Pennsylvania Workers' Compensation System September 2013). The study's findings confirmed that the practice of physician dispensing, specifically repackaged drugs, had reached over 23% of all prescriptions paid and 38% of the total pharmacy spend for injured workers in Pennsylvania. This was an increase of 17% of all prescriptions and 18% of total prescription costs from just three years earlier. The WCRI study examined not only the prevalence of the practice, but the costs to the system, ultimately highlighting higher and rapidly growing prices paid to dispensing physicians for drugs commonly dispensed to injured workers in Pennsylvania. In the time frame of , prices for all drugs were significantly higher per pill when dispensed by a physician than at a retail pharmacy. For example, the average price per pill paid for Vicodin was three times higher, at 1.22 versus 37 per pill at a retail pharmacy. Additionally, the study showed that these price "differences" were not consistent, but varied from physician to physicianfrom 24 to 1.45 per pill when dispensed by a physician versus 6 to 43 per pill when dispensed by a retail pharmacy. Finally, the same study cited above study again showcased an interesting difference specifically for Pennsylvania in the price charged by dispensing physicians for Omeprazole (Prilosec) versus the price charged when dispensed by a retail pharmacy. At present, the Pennsylvania fee schedule for pharmacy transactions sets the maximum reimbursement amount at 110 percent of A WP, which is a reasonable and middleoftheroad reimbursement calculation, given that workers' compensation prescriptions cost more (see CompPharma Study on Workers' Compensation Dispensing in California Rand Study) o dispense and process than a nonworkers' compensation prescription. However, physicians in Pennsylvania, like in other states before implementation of controlling regulation/legislation, continue to dispense repackaged drugs at inflated cost(s) and thus continue to drive up pharmacy costs for all employers in the state. What Can and Should Pennsylvania Do? This issue is not unique to Pennsylvania. The issue of physician dispensing and repackaged drugs remains a pervasive cost driver, fortunately in a shrinking number of states. In recent years, more and more states moved to cap reimbursement associated with the practice, but this has caused acceleration of raising costs in a few states without such controls. After experiencing double digit increases in their drug spend associated with physician dispensing and repackaged drugs, Florida implemented cost certainty controls for physician dispensing and repackaged drugs through Senate Bill 662. In recent years, states such as California, Michigan, Ohio, Tennessee, Indiana, and Delaware adopted regulation/legislation capping reimbursement for physician dispensing and repackaged drugs, using nearly identical language to that in House Bill 1846.

5 Another WCRI study from July 2013 on physician dispensing in the state of Georgia (WCRI WC13 21 Impact of Reform on Physician Dispensing and Prescription Prices in Georgia July 2013) (both pre and post implementation of cost controls) provides good insight into what Pennsylvania may experience. Prior to reform implementation in April of 2011, the state of Georgia had no cost controls or reimbursement caps on physician dispensing and repackaged drugs. According to an NCCI study, in this time period, the average price per pill of the common pain medication hydrocodone/acetaminophen was 1.05 when dispensed by a physicianmore than double the average cost of 46 per pill when dispensed by a retail pharmacy. In the time since reforms were adopted, the average price paid for physician dispensed drugs fell as expected, with prices paid for the most commonly dispensed drugs falling on average between 22% and 36% per pill. Hydrocodone/acetaminophen decreased 36%, from 1.05 per pill to 67 per pill on average. Finally, the number of physicians dispensing and the number of physiciandispensed drugs dropped from 35% prereform to 28% of all prescriptions dispensed by physicians post reform. HB 1846 is not draconian, but simply proposes that prices of repackaged medications be capped at the cost of the original drug used in the repackaging process to bring them more in line with reimbursement for the same medications dispensed by a retail pharmacy. By passing HB 1846, Pennsylvania will join a growing list of states that acknowledges the necessity of physician dispensing and repackaged drugs when medically necessary, but disagrees with the wildly exorbitant cost structures. HB 1846 will align Pennsylvania with the legislative views of 16 other states, including neighbors, Delaware and Ohio. Opponents of the Bill Tout Safety Even with 16 states taking action to cap reimbursement for physician dispensing and repackaged drugs and the lack of statistical evidence proving that injured workers in these states are suffering post reform the debate over the need and efficacy of physician dispensing continues. Advocates for physician dispensing continue to express concerns that the reduction in prices paid to dispensing doctors will lead to scores of physicians discontinuing their dispensing practices, thus creating barriers to patient access to care and ability to obtain medications. Additionally, these same proponents claim that receiving a prescription at a treating doctor's office is more convenient, improves access to medications and drives up patient compliance with their medication therapies. PMSI and CompPharma believe that in the vast majority of cases where a physician dispenses to injured workers, the above "concerns" lack validity. First and foremost, especially in workers' compensation, there is no better protection for patient safety than to have the injured worker receive all of their prescriptionsgroup health and workers' compensation from the same pharmacy. The industry is highly aware that injured workers often see a separate doctor for their general healthcare than the doctor who is treating them for their workrelated injury. In addition, many injured workers will also see one or more specialty doctors such as orthopedics or surgeons. Each one of these doctors can, and often will, write several prescriptions for the injured worker, many of which may be pain medications, muscle relaxants and, as seen often in workers' compensation, narcotics or opioids. When a doctor is dispensing from their office, their knowledge of the injured worker's drug therapies by all of the other "treating" doctors is limited at best, and more than likely nonexistent. Considering that one of the most commonly provided drugs in workers' compensation is hydrocodone/acetaminophen, patient safety is at risk.

6 emsi) Second, in most instances, only the pharmacy has insight and tools necessary to identify dangerous (and unintended) over prescribing or utilization of specific drugs or dangerous drugtodrug interactions. Pharmacies and PBMs have a near complete picture of the patient's drug therapy/usage and are much better prepared to identify these safety issues and engage in early intervention when drug abuse, diversion or duplicative therapy is suspected. Additionally, when it comes to the potential for abuse or diversion of narcotics/opioids, the pharmacy, having connectivity to the state PDMP and ability to view all prescribed/dispensed drugs, can quickly identify and report (to law enforcement, the PBM and potentially the employer) suspected cases of diversion or abuse and hopefully prevent the injured worker from future pain and suffering related to opioid/narcotic abuse or addiction. Finally, access to medications has not been an issue in states that have enacted reimbursement controls. Injured workers who are covered by a PBM contracted with their employer/carrier have a myriad of tools and options at their fingertips. These injured workers are sent pharmacy cards which contain an 800 number and website to help them locate the nearest pharmacy and many are often given the option of utilizing a mail order pharmacy for added convenience. A California Workers' Compensation Research Institute report on California physician dispensing dispels the myth that physicians will "discontinue" dispensing when price caps are put in place by showing that in postreform California, nearly half of all prescriptions were still being dispensed at doctors' offices. PMSI and CompPharma Join the Overwhelming Support for HB 1846 PMSI and CompPharma support passage of this legislation for the many reasons listed here today. PMSI and CompPharma urge the Pennsylvania legislature to join numerous other state policy makers who have implemented similar positive cost controlling measure( s) such as New York, Massachusetts, Texas, Ohio, Illinois, Florida, Michigan and Delaware. Additionally, support for this bill comes from numerous diverse sources such as the American Insurance Association, the Pennsylvania Chamber of Commerce and many Labor groups who are concerned with the safety of their injured workers. Simply put HB 1846 calls for a proven and much needed public policy to control costs of physician dispensing and repackaged drugs. For these reasons, for the employers and tax payers of the state, and with the support ofthese groups, PMSI, CompPharma and I urge your support of House Bil Sincerely, Kevin C. Tribout Executive Director of Government Affairs, PMSI