Unusual coalition pushes for restrictions on compounded drugs

An unusual coalition of corporations, insurance companies and labor groups is pushing for legislation that would put restrictions on the customized medicines known as compounded drugs, saying the prescribing of these drugs has become rife with abuse.

Compounded drugs are medications whose ingredients have been tailored to meet a patient’s individual needs. Proponents say they improve treatment, but critics say they are typically made with many of the same ingredients found in over-the-counter pills and generic prescription drugs and simply boost profits for doctors and pharmacies.

Proposed legislation by state Sen. Mark DeSaulnier (D- Concord), former chairman of the Senate Labor Committee, and Assemblyman Jose Solorio (D- Santa Ana), chairman of the Assembly Insurance Committee, would limit prices of medically necessary compounded drugs by adding them to the government’s fee schedule.

“This is one we’re getting out ahead of early,” said Jason Schmelzer, a lobbyist for the California Coalition on Workers’ Comp, which includes Walt Disney Co., Marriott International Inc., Costco Wholesale Corp. and more than 200 other employers in the public and private sectors.

And labor is siding with business on this fight. The bill is needed “to make sure that bottom-feeders and cheaters of the system aren’t rewarded,” said Angie Wei, a Sacramento advocate for the California Labor Federation.


“When people excessively profit from the system, it oftentimes comes out of the hide of injured workers,” Wei said.

Critics of the use of compounded drugs point to a sharp rise in the bills submitted to the State Compensation Insurance Fund, the state’s biggest workers’ comp insurer. Billings for compounded drugs reached $28 million, or 24% of the fund’s total prescription billings last year — from a number so low the previous year that State Fund didn’t bother to track it.

“There’s no doubt about it that there are people gaming the system,” said John Duncan, director of the California Department of Industrial Relations. “The fine line in this, of course, is to identify where legitimate medicine is being applied and abuse is beginning.”

Beyond a rise in billings, however, neither state nor insurance industry officials could point to systematic evidence of widespread abuse. The state Legislature has, however, asked the state Commission on Health and Safety and Workers’ Compensation to examine the issue.

Rand Corp. in Santa Monica is helping with the research, and a report on the use of compounded drugs is expected to be released early next month.

Doctors who prescribe and hand out such compounded painkillers and analgesic salves as KetoLido and Lidorub said their patients need them.

By removing certain nonessential elements or turning pills into ointments and salves, pharmacists can develop medicines that, for instance, avert drowsiness, allergic reactions, problems with swallowing pills or damage to the kidney or liver.

“The good thing about compounding is it’s individualized for patients,” said Hootan Melamed, a pharmacist at New Age Pharmaceuticals in West Los Angeles.

Doctors and pharmacists latch onto that point as a key reason they should be allowed to charge higher prices. Dr. Lee Snook, a Sacramento pain specialist and chairman of the California Medical Assn.'s technical advisory committee, said doctors should be able to get “reasonable compensation for reasonable services.”

But higher prices have turned into huge mark-ups, catching the attention of government authorities, according to one person interviewed by California investigators. State and federal officials declined to comment.

One bill that a doctor submitted last month to an insurer sought $1,058 for a prescription compound containing Ketoprofen powder, a non-opiate pain medicine, said the person, who spoke on condition of anonymity because the bill could become part of a confidential state investigation.

The insurer paid the physician $36, the value listed for the active ingredient on the state pharmaceutical reimbursement schedule, the person said. A similar, 30-day supply of Ketoprofen powder in prescription capsule form sells for $15.79 at Costco pharmacies.

At Employers Compensation Insurance Co., compounded drugs soared to 44% of all prescription claims last year from 9.6% the previous year, said Jim Werbeckes, a vice president at the Reno firm, which also is licensed in California.

“This is one of our big issues to get this under control,” he said. “It’s something I think you’re going to see across the country eventually if we don’t get a handle on it.”

A recent effort to discourage the use of compounded drugs — especially those concocted by pharmacists, given free by doctors to their patients and billed to insurers — failed to get through the state Legislature.

In August, a hasty attempt to legislate restrictions on the use of compounded drugs in workers’ comp cases was denied a final vote in the state Senate. Doctors were among those lobbying against it.

The original version of the bill “would have killed compounding across the board and made it impossible for patients to get access to this stuff,” said Snook, who prescribes compounded drugs.

Melamed agreed that the legislation could have limited the tools available to doctors. But he acknowledged that part of the jump in workers’ comp prescriptions for compounded drugs could involve something more than pure medical necessity.

“Third parties are trying to make a buck by promising things that are not appropriate,” he said.

Suspicions of abuse have been fueled by advertisements for compounded drugs on Craigslist two years ago that offered “doctors who see work comp patients … $20K a month dispensing meds.”

“There are no legal issues, no billing — we do the billing, no costs or risks to the doctor,” the ads said. “We have over 400 doctors in California.”

The ads boasted that “we have a great product an Anti-Inflammatory Cream that’s compounded and has spectacular results” and that doctors could make a $141.60 profit on every prescription.

One leading compounding pharmacist is Robert Nickell, president of HNP Pharmaceuticals in Torrance. Nickell and HNP have been part of a network of dozens of related pharmacies and third-party medical billing companies, many registered at the same Torrance address as HNP, state business records show.

In a letter to state regulators two years ago, Nickell said the drugs were an essential part of the healthcare system.

“Compounded medicines involve an intimate relationship between the prescriber, patient and pharmacist that is predicated on an individual patient’s needs,” Nickell wrote. He did not return calls from The Times.

Veteran workers’ comp specialist Dr. Paul Papanek of Kaiser Permanente in Los Angeles said he’s seen “little evidence that these compounds are effective” during his two decades of treating on-the-job injuries.

“This is an area that needs to be tightened,” said Papanek, who also is president of the Western Occupational and Environmental Medical Assn.