Physician Dispensing in Workers’ Comp: A Costly Loophole—and How to Close It 

“Up to 50% More Profit” -- BRP Pharmaceuticals 

“Bypass the PBM System” -- A-S Medication Solutions 

Physician dispensing—the practice of physicians providing medications directly from their offices rather than through licensed pharmacies—has evolved into a commercial model that reliably drives higher drug costs while circumventing the utilization controls embedded in the traditional pharmacy channel. What began as a limited convenience has become a material and persistent cost driver within the workers’ compensation pharmacy system.ⁱ 

Physician dispensing companies focus their marketing efforts on workers’ compensation for a reason: that is where regulatory and reimbursement gaps are most easily exploited.ⁱⁱ If physician dispensing were universally beneficial, it would be common across all payer types. It is not. Workers’ compensation presents a unique set of financial incentives that disproportionately favor physician dispensing vendors while undermining cost control and oversight within the system.ⁱⁱⁱ 

At its core, physician dispensing enables physician clinics to profit directly from markups on prescription medications. Because patients—or their insurers—must purchase medications regardless, dispensing at the point of care keeps those dollars “in-house” rather than inuring to retail pharmacies.^iv Physician dispensing companies frame this arrangement as a convenience and improved access play. In practice, the model is explicitly marketed as a financial strategy rather than a clinical one. 

Dispensing vendors reinforce this message openly. Companies such as BRP promote physician dispensing as a means for practices to retain more patients and increase revenue per visit, advertising to physicians that they can “[s]tart earning more revenue today with physician dispensing,” and get “Up to 50% more profit.”^v These claims make clear that the primary value proposition is economic, not therapeutic. 

The Financial Incentives 

The price premium is one of the main reasons physician dispensing remains so pernicious. The fact is that these incentives translate into significantly higher costs. The Workers’ Compensation Research Institute (WCRI) found that physician-dispensed drugs cost, on average, between 60% and more than 300% more than identical medications dispensed through retail pharmacies.^vi In states where physician dispensing is permitted, it can account for as much as 20% to 45% of total workers’ compensation drug spend.^vii While limited in-office dispensing may occasionally benefit injured workers immediately following an injury or in remote settings, industry analyses show that the practice more often results in substantially higher costs, reduced clinical oversight, inappropriate utilization, and poorer overall claim outcomes. 

Not only has the WCRI determined that physician dispensing is more expensive, but subsequent findings have also shown that this cost gap persists and that the problem has become even more complex. This is driven primarily by private-label topicals, repackaged products, and out-of-network channels.^viii For example, one of the largest third-party administrators in the workers' compensation space recently reported that doctor-administered topical medications account for only a small share of all topical prescriptions but constitute almost 40% of all topical drug spend.^ix This level of financial imbalance can't be explained by clinical need alone. 

A 2014 Illinois study, published in the Journal of Occupational and Environmental Medicine, found that workers' compensation claims involving doctors prescribing drugs had higher pharmaceutical costs, higher overall medical and indemnity costs, more prescriptions per claim, and more extended disability periods than matched controls.^x Subsequently, the correlation between in-office dispensing and adverse outcomes has since been validated across various industry datasets. 

A 2024 white paper makes this point clear: a 1.5% diclofenac topical solution—chemically identical whether dispensed by a physician or a pharmacy—can cost several hundred percent more when dispensed through physician-dispensing channels, with markups of more than $1,300 per prescription in some places without fee-schedule parity.⁹ Optum recently released a study on private-label topicals, which also found that formulations that appear exotic or branded are often made with inexpensive over-the-counter ingredients but are charged higher prices when dispensed through physician channels.^xi 

The financial incentives for doctors to prescribe cannot be ignored. Many studies have shown that repackaged or private-label products are often much more expensive than the same products sold in pharmacies. According to WCRI, many drugs that doctors prescribe, like acetaminophen and NSAIDs, have been repackaged with new National Drug Codes (NDCs) to make the prices significantly higher.^xii Industry leaders have stated that many doctors who prescribe these products receive direct payments or share in profits based on the sale price.^xiii This financial alignment blurs the distinction between clinical judgment and economic incentives, allowing the choice of dispensing channel to be based on revenue rather than therapeutic need. 

Bypassing the PBMs 

Visibility and oversight are critical considerations in fighting this practice. Although pharmacy benefit managers (PBMs) are frequently criticized, they perform essential functions in real-time utilization management and cost control.^xiv When prescriptions are dispensed through retail pharmacies, PBMs can apply immediate utilization edits, screen for drug–drug interactions, enforce evidence-based formulary compliance, and adjudicate claims using negotiated unit pricing. As noted above, a feature rather than a bug of physician dispensing is that PBM utilization and other controls are bypassed through the practice.  

Physician-dispensed medications, by design, bypass PBM networks entirely.^xv A 2025 report by Enlyte stresses that this out-of-network dispensing makes it hard to tell if a treatment is appropriate, makes it hard to manage use, and makes it harder to find out about the risk of opioid or polypharmacy early on. ⁹ Enlyte's national review of out-of-network dispensing channels shows that, in many states, most of the money spent on dermatologic drugs now goes to physician dispensers rather than pharmacies.  

The companies that exacerbate the problem. 

The commercial ecosystem that aggressively sells, enables, and financially engineers the practice of physician dispensing is a big reason why the practice is growing. PD-Rx Pharmaceuticals and BRP Pharmaceuticals are among the leading companies driving these price increases.^xvi They do this by promoting in-office dispensing as a means for physicians to generate revenue rather than as a clinical service. Their ads make it clear that doctors can significantly increase their revenues by working with them: For instance, BRP Pharmaceuticals sells point-of-care dispensing systems that claim to "increase profits by up to 50% without adding patients or staff."^xvii This means practices can increase revenue simply by moving medications from the pharmacy to their in-office model. PD-Rx Pharmaceuticals also promotes in-office dispensing as a "new revenue stream" that helps practices "capture income lost to retail pharmacies."^xviii They do this by providing ready-to-use software, prepackaged medication supplies, and reimbursement support to maximize the profit margin on each product they dispense. A-S Medications, with over 3,600 provider dispensing sites claims to “helps your practice keep a fair share of pharmacy revenue.”^xix 

These companies that sell drugs to doctors are the real cause of the doctor-dispensing problem. They sell repackaged drugs with inflated NDCs, push private-label topical medications that cost hundreds or thousands of dollars more than retail equivalents, and set up billing workflows designed to avoid PBM oversight and circumvent price-cap rules. They profit by exploiting regulatory loopholes, changing product codes, and impeding patient care. In many states, increases in dispensing volume and costs are directly attributable to these companies' marketing efforts rather than to changes in clinical practice guidelines. In this way, these third-party dispensing companies, rather than doctors themselves, make in-office dispensing more expensive and unstable. 

The Regulatory Landscape 

The rules and regulations significantly affect physicians' prescribing practices. Some states have taken strong steps to limit or get rid of doctors giving out drugs in workers' compensation cases. New York, New Jersey, Massachusetts, Texas, Utah, Wyoming, Montana, and Ohio (through the state fund) mostly ban or severely limit the practice.^xx From a payer's perspective, these states are the "easy" ones because the rules make it difficult for most abusive dispensing patterns to occur. 

^xxi 

A second, much larger group of states permits physicians to dispense drugs, but they have made changes explicitly aimed at controlling repackager pricing, NDC substitution, or supply limits. California, Arizona, Georgia, South Carolina, Tennessee, Pennsylvania, and Illinois are among the states that require physician-dispensed drugs to be reimbursed under their respective state pharmacy fee schedules. They also require that repackaged drugs be billed under the original manufacturer's NDC to stop fake markups.^xxii WCRI's analyses across multiple states consistently demonstrate that these reforms reduce both the unit price and the overall volume of physician-dispensed prescriptions, as economic incentives vanish when reimbursement is linked to the actual manufacturer and benchmark price of the underlying product.^xxiii Some states in this group also limit the number of days' worth of medication that can be dispensed in the office, typically to five to seven days. This reduces the financial impact of long-term dispensing. 

Other states have focused on opioids and controlled substances given by doctors, knowing that providing opioids in the office is riskier and has worse results. For example, Florida and Louisiana don't let doctors give out most Schedule II and III opioids in workers' compensation.^xxiv This reduces one of the most dangerous and expensive dispensing categories. In these states, doctors still prescribe a significant number of uncontrolled topicals and other products. 

Payers have the most difficulty in states where the law is either too lenient or unclear. Florida, Maryland, and Pennsylvania have all been mentioned in earlier WCRI summaries and commercial market scans as places where, at different times, there were very high levels of physician dispensing due to aggressive marketing by repackagers and weak statutory controls.^xxv Even after reforms, the market in these states often shifts toward new product classes, particularly private-label topicals, for which prices remain substantially higher than those of therapeutic alternatives.  

Enlyte's recent national dispensing analyses indicate that physician-dispensed dermatology products continue to account for the majority of spending in that category in more than a dozen states.^xxvi This confirms that these patterns remain strong. Healthesystems' 2024 state-by-state overview shows that this is true.^xxvii It states that only a few states restrict physician dispensing, whereas most permit it with varying levels of oversight. Because of this patchwork of rules, payers need to think of physician dispensing as a strategic, multi-layered cost and risk category, not just a strange pharmacy cost.  

The Solution 

The solution to the problem of physician dispensing is multifaceted. Effective control requires a coordinated, multi-layered strategy that combines legal analysis, network management, utilization oversight, and direct engagement with injured workers. We propose a five-part framework. 

Step One: Know the Law (State-by-State Authority Mapping) 

The foundation of any physician-dispensing strategy is a precise understanding of state law. Payers must conduct a state-by-state review to identify jurisdictions where they can direct care, deny out-of-network pharmacy bills, enforce fee-schedule parity, or otherwise limit physician dispensing through statutory authority. 

High-resolution analytics are essential at this stage. Payers should identify which states, providers, and product categories are driving the highest dispensing costs. This segmentation allows organizations to distinguish between jurisdictions in which statutory rules provide strong leverage and those in which internal controls, utilization management, or network strategies must play a larger role. 

Step Two: Know your Data 

Payers cannot manage what they cannot see. Before any network, pricing, or utilization strategy can succeed, all pharmacy-related spend must be captured, normalized, and analyzed within a single, unified data environment, regardless of whether medications are dispensed through a retail pharmacy or directly from a physician’s office. This requires that every pharmacy bill—retail claims, physician-dispensed medications, repackaged products, and private-label formulations—be routed through a common intake and reporting framework. 

Equally important is understanding how those bills enter the system. Payers must know whether pharmacy charges are submitted electronically or via paper bills, whether they bypass PBM adjudication entirely, and whether they are processed through medical or pharmacy benefit workflows. Visibility must extend beyond the transaction itself to encompass the dispensing provider’s identity and contractual status. Payers should be able to determine whether physician dispensers participate in PPO or other provider networks, which specific networks they belong to, and whether dispensing activity is permitted, restricted, or prohibited under those agreements. 

Contract intelligence is a critical component of data governance. Payers must understand who holds the underlying physician contracts—whether the carrier, TPA, PPO, or managed-care vendor—and what those contracts explicitly allow with respect to in-office dispensing, pricing, and utilization controls. Without this level of clarity, organizations risk fragmented oversight, inconsistent enforcement, and blind spots in pharmacy spend. Comprehensive, end-to-end data visibility is therefore not a technical exercise but a prerequisite to any effective physician-dispensing control strategy. 

Step Three: Manage the Pharmacy Network (PBM Alignment and Pricing Controls) 

Where permitted by law, payers should deny out-of-network pharmacy claims and require physician-dispensed drugs to flow through the same pricing and formulary frameworks that govern retail pharmacy claims. This is where identification, tracking, and reporting of physician-dispensed medications are critical. Knowing the data is key.  

Fee-schedule parity rules should be fully enforced. When physicians submit repackaged or relabeled products—such as NDC18 codes—the statutory reimbursement ceilings must still apply. Payers must require NDC11 codes that drill down to each component of a dispensed medication. Physician-dispensed drugs must be subject to the exact reference pricing, evidence hierarchies, and formulary standards applicable to pharmacy-dispensed medications whenever regulations permit. 

At the author’s PBM (ScripNet), for example, all medications were required to be submitted through a point-of-sale system with ingredient-level NDC reporting. This prevented the aggregation of compounds into a single inflated billing code and required justification for each component of a dispensed medication. The result was greater transparency and a sharp reduction in abusive pricing. 

Utilization management programs should flag physician-dispensed medications for heightened scrutiny. High-cost private-label topicals, repackaged analgesics, and atypical strength formulations should automatically trigger medical review. Advanced analytics and AI models can be used to identify outliers in pricing and utilization for further evaluation. Where clinically equivalent, lower-cost alternatives are available, payers should require clear documentation of medical necessity or, where permitted, deny reimbursement for the excess price differential. 

Step Four: Manage the Physician Network (Contracting and Credentialing Leverage) 

Physician networks represent a critical control point. When payers rely on PPO networks, they should communicate clear expectations regarding dispensing behavior. Physicians who engage in aggressive or non-compliant dispensing practices should be subject to corrective action, up to and including removal from preferred networks. In 36 states—comprising 20 employer-choice and 16 hybrid jurisdictions—employers and payers can exercise varying degrees of control over the selection of treating physicians. Let us use that to eliminate physicians who dispense medications from their offices to circumvent PBM controls and incur financial losses for the system.  

Early physician dispensing can also serve as a triage signal. Claims involving immediate in-office dispensing are often correlated with poorer outcomes and higher costs. These cases may warrant prompt nurse case management, physician outreach, or pharmacy intervention to mitigate downstream risk. 

Step Five: Manage the Injured Worker (Education and Point-of-Care Intervention) 

Education and communication with injured workers and employers are equally important. Payers should proactively provide injured workers with pharmacy cards and clear guidance: a broad retail pharmacy network is available, and in-office medications are not required. Workers should be informed—simply and directly—that physician-dispensed drugs can cost 60% to 300% more than the same medications at a pharmacy. 

This messaging should be reinforced at the employer level and during early claim touchpoints; when injured workers understand that they are fully covered at retail pharmacies and that higher-cost in-office drugs offer no clinical advantage, acceptance of physician dispensing declines.^xxviii 

Provider education also plays a role. Many treating physicians are unaware of the magnitude of the price differentials between in-office products and retail equivalents. When payers share comparative pricing data—especially where private-label topicals cost thousands of dollars more without evidence of superior outcomes—prescribing and dispensing behavior often changes. 

Conclusion 

The data make clear that physician dispensing in workers’ compensation is not a benign convenience but a structurally entrenched cost escalator. Price differentials of several hundred percent, reduced PBM oversight, and misaligned financial incentives combine to drive higher costs and poorer claim outcomes. 

To control physician dispensing, payers and employers must understand where state law already provides leverage, where payer-driven interventions are viable, and where more aggressive internal strategies are required. Organizations that deploy disciplined analytics, robust contracting, strict utilization controls, and proactive provider and worker engagement can materially reduce both the financial and clinical impact of physician dispensing—even in jurisdictions with permissive regulatory frameworks. In many cases, payers already have the tools available to them to mitigate physician dispensing. The key now is to implement the solutions and put an end to the practice.  

About the author 

Dennis Sponer serves as fractional general counsel and advisor to several healthcare companies and VC firms through his consultancy, SRX Advisors. He is licensed as an attorney in California and Nevada and is a senior advisor to Connected Capital, a London-based UK FCA-regulated advisory firm. He is a thought leader in the legal, health-tech, biotech, pharmaceutical and startup worlds.  

Before founding his consultancy, Sponer co-founded ScripNet, a uniquely designed pharmacy benefit management (PBM) company. After serving as in-house counsel for one of Las Vegas’s largest healthcare conglomerates, he devised ScripNet as a payer-based technological solution to the pharmaceutical payment and remittance challenge. Sponer sold ScripNet to Optum Healthcare Solutions in 2012. His latest venture, HSARx, was a consumer-facing pharmacy benefit manager serving health savings account owners. He sold HSARx to SwiftScript in October of 2023.  

Sponer obtained his Juris Doctorate from Brigham Young University and his Master of Laws in Taxation (L.L.M.) from the University of San Diego. He earned his MBA through TRIUM, a program jointly administered by New York University’s Stern School of Business, the London School of Economics, and HEC Paris. 

Sponer can be reached at dsponer@srxadvisors.com. 

Endnotes 

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