Compounded medications escalating drug plan costs

By Chris Hanson-Ehlinger
Wed, Dec, 03, 2014 @ 10:12 AM

describe the imageThree or four years ago, you never heard much talk about compounded medication claims. Yet, in 2013 and 2014, compounded prescriptions crept their way in to many plan sponsors’ top claims by dollars. For example, one plan with 10,000 members saw annual compounded prescription claims rise from $75,000 in 2012 to more than $1 million in 2014. If you don’t have a strategy for controlling compounded prescription costs, you need to get one.

Compounded medications have been around forever and play a vital role in treating patients. However, several factors recently contributed to skyrocketing prices for certain types of compounded prescriptions.

  • A new HIPAA mandated billing process implemented in the prescription claim industry in 2011 allowed for more specific ingredient pricing and reimbursement, which meant pharmacies could bill compounded medications with exorbitant per-ingredient costs.

  • Unethical practices by a small number of compounding pharmacies took advantage of this new pricing logic and used it to bill for ‘manufactured’ (not compounded) prescriptions.

  • Bulk ingredient manufacturers supplied these compounding mills with extremely high margin products by establishing unique average wholesale prices, knowing the new pricing logic would produce massive profits for manufacturers and their pharmacies.

  • “Ready to dispense” compounded prescriptions are aggressively marketed to prescribers, most commonly with preprinted prescription tablets provided by the compounding pharmacy. Authorization from inattentive prescribers left patients and plans on the hook for the overpriced medications.

There are many legitimate, professional pharmacies that specialize in compounding prescriptions and do not participate in abusive marketing and pricing practices. Plans need to manage or exclude less scrupulous pharmacies, however, to prevent compounded prescriptions from driving benefit expenses.

The most abused medications found in compounded prescriptions today are powders such as anti-inflammatory agents, muscle relaxants, anesthetics and pain blockers. The ingredients for these are mixed together in bulk and provided to patients as creams. Specifically, oral or injectable ingredients are converted to topical ointments with ‘special’ bases or diluents. In many cases, the ingredients in compounded medications have never been approved for topical use. And because compounding pharmacies are not regulated by the FDA, such medications may not meet quality or consistency standards or even offer therapeutic value. Diligence is necessary curtail use of these products, especially when there are many lower-cost FDA-approved alternatives.

Review your plan design

There are several ways you can manage compounded medication costs. You can set up your plan to totally exclude compounds, limit claims up to a certain dollar amount, limit use to one compounded claim per month or year, exclude the highest volume pharmacies or exclude the bulk ingredients being abused in the above scenarios. Plans use these tactics effectively to block payment for inappropriate prescriptions. In fact, one client recently implemented compound prescription controls and saw expenses decline by 90 percent in the first quarter. 

Importantly, most of the above controls do not interfere with traditional prescription compounding, which includes cases where pharmacists flavor medication for children, mix tablets into liquids so they are easier for a patient to ingest or prepare a medication that excludes certain agents to avoid patient allergies. Compounding by community pharmacies is often necessary and does not significantly impact medication costs.

Class action litigation and criminal charges will likely be pursued in the coming months or year. In the meantime, it’s up to plan sponsors to curb their losses with effective plan design controls for compounded medications.

Phil DeNucci, RPh, is a managing consultant working with Burchfield’s key self-funded employer and coalition accounts to help them manage their pharmacy benefit programs. For more information please call 800-778-1359 or send us a note (

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