Blogger and South Florida Health Care Firm Battle Over Workers Compensation Drug Costs
FlaglerLive | September 30, 2010
By John Dorschner
Health News Florida
Automated HealthCare Solutions, a growing private firm in Miramar, is suing a solo blogger who accused the company of being part of a workers’ compensation system that benefits from “rampant greed.”
The defamation suit was filed last week in federal court in South Florida against Joseph Paduda of Madison, CT, a workers’ comp consultant who blogs on health policy issues in a column called “Managed Care Matters” at www.joepaduda.com.
AHCS accuses Paduda of “false and defamatory” remarks for suggesting that it plays a role in Florida’s unusually high drug spending in workers’ compensation. The suit accuses Paduda of conflict of interest because his clients include insurers and other payers.
Paduda’s online remarks became widely known in the workers’ compensation field, the suit says, causing AHCS to lose “a significant amount of business.”
This lawsuit may be a forerunner of legal battles over new media. It could show what happens when a lone blogger faces a multimillion-dollar company backed by venture capitalists, attorneys and the politically well-connected Tallahassee public relations firm Ron Sachs Communications.
Paduda knows what he’s up against, he said in his blog: “The AHCS folks are plenty mad, and have lots of money – my guess is Ron Sachs doesn’t come cheap.”
But AHCS may be taking a risk as well by reopening the fight over doctor-dispensing of drugs in workers’ comp, which pits employers against medical interests. The Legislature could see the issue pop up next session.
It raises uncomfortable questions, such as: Why is Florida’s workers’ compensation system so expensive? Who’s profiting?
Costs 38% above average
The defendant, according to his bio at Bloomberg Businessweek, worked for UnitedHealthcare and Traveler’s before starting his own consulting company, Health Strategy Associates. He advises insurers, managed-care organizations and employers nationwide – including four clients in Florida — on reducing costs of health care.
In his posts, Paduda often mentions Florida’s workers’ compensation system because of its high costs. In a 16-state study released in April, the Workers Compensation Research Institute found Florida’s drug claims were 38 percent above average. It also found that workers were getting more drugs than those in other states, especially painkillers and muscle-relaxers that can be abused.
The study linked the high costs in Florida primarily to physicians writing and then filling patients’ prescriptions there in the office through “direct dispensing.” The rationale for saving them a trip to the pharmacy? Doctors say the convenience makes it more likely that injured workers will comply with treatment.
Paduda says much of the extra expense comes from a loophole in Florida law that allows companies called “repackagers” to supply the drugs to dispensing physicians at higher rates than those charged to pharmacies.
The “repackagers” can remove tablets from wholesale containers, put them in new containers and then establish a wholesale price far higher than the original, Paduda wrote.
In a Sept. 9 column, the consultant wrote: “In theory, AHCS, and other repackagers for that matter, could set their prices at a million bucks a pill. Given the rampant greed exemplified by some (again, not all) of these folks, it’s a bit surprising this hasn’t happened yet.”
AHCS sent a letter soon after that column appeared, demanding a retraction. On his site, Paduda described the letter as “demanding. Strident. Threatening – really threatening.”
Paduda said he offered to retract any misinformation, as long as AHCS provided materials that would support its assertion. He never got any, he said.
“AHCS attempted to bully me into retracting my statements on the basis of nothing more than their say-so,” he wrote.
‘We are not a repackager’
AHCS’ co-chief executives, Paul Zimmerman and Gerald Glass, said in an interview last week with Health News Florida that Paduda misunderstood their role in the workers’ compensation business.
“We’re not a repackager. We don’t sell drugs. We don’t set the price on drugs,” Zimmerman said.
The executives said the company buys the unpaid claims for workers’ comp drug sales from doctors and some pharmacies at 70 percent of the claim price. It then processes the claims and submits them to insurers, they said.
Because it’s paid on a percentage, AHCS makes more money when drug prices are high. But the executives said they have no relationship with those who set drug prices, that they in fact try to keep prices low.
Zimmerman noted that Paduda is president of CompPharma, which describes itself as a “consortium of pharmacy benefit management firms.” Zimmerman said these firms, often owned by insurance companies, are competitors of AHCS because the PBMs try to steer patients to pharmacies and away from doctor-dispensed drugs.
Zimmerman berated Paduda for not disclosing that relationship in his postings about AHCS. In a telephone interview, Paduda called that accusation “ludicrous.”
He said his connection with CompPharma was well known. “I’ve never tried to hide it.”
The AHCS executives said their company provides “healthcare IT” (information technology), not repackaging. “My mistake,” Paduda wrote later. “From reading their website they sure sounded like a repackager to me.”
Indeed, last week the company’s website, AHCS.com, said it had a “technology platform called ezDispense for point of care dispensing applications that enable [the company] to remove traditional barriers associated with physician dispensing.
“The company also provides [a] mail order program for physicians for certain medications; point-of-care drug testing procedure for the qualitative portion of the test; and custom-compounded topical solutions for patients whose pain cannot be controlled with oral therapy alone.” ?
When Health News Florida pointed out what was on the website on Friday, Zimmerman said it was incorrect, that the company does not provide doctors with any drugs. He did not explain how the website error occurred.
By mid-day Saturday, the section about providing some mail order and compounded drugs had vanished from the website.
School report fingers billers
Paduda isn’t the only one to raise questions about the high prices of drug-dispensing doctors in Florida workers’ comp.
Last November, an AHCS subsidiary was mentioned in a critical report of workers’ compensation costs in the Miami-Dade Public Schools. The report followed an audit of the program, which is managed by third-party administrator Gallagher Basset.
The Miami-Dade Office of the Inspector General (OIG) said one factor in the high cost of workers’ comp in the school system was doctor-dispensing of drugs. The report called it “a particularly troublesome issue.”
A related factor in the high costs, the report said , is that claims for the doctor-dispensed drugs were going through “third party billing services,” which had a wide variation in charges.
One of the billing services listed was Prescription Partners LLC, a division of AHCS. In the audit report, a chart on p. 56 offers examples of the high costs.
OIG showed three prescriptions for pain medications: 30 tablets of 15 mg meloxicam cost $227.10 through Prescription Partners, while the cost through school’s pharmacy benefit manager (PBM) would have been $111.07.
For 30 tablets of 15 mg Tramadol, Prescription Partners charged $43.78, compared to $24.67 through PBM. For 60 tablets of 500 mg Naproxen, the Prescription Partners charge was $135.88, compared to $56.29 for the pharmacy program.
In a response to the OIG report, Gallagher Bassett gave some figures of its own. It reported that the average payment in 2008 to Prescription Partners was $423.25, considerably higher than the others. The PBM, used to keep schools’ costs down, had an average price of $188.52, the firm said.
Paduda mentioned the cost difference in his blog, which led to one of the counts in the lawsuit against him. AHCS said he erroneously attributed the numbers to the auditor, when they in fact came from Gallagher Basset’s response.
AHCS executives told Health News Florida that the Gallagher Bassett numbers don’t make for a fair comparison, because they are measuring claims, not prescriptions. One claim might be for 10 prescriptions, while another might be for one.
In any event, Scott Clark, risk and benefits officer for Miami-Dade schools, told Health News Florida that he started working on the physician-dispensing problem when he noted drug costs were often “300 to 400 percent” higher than those sold through pharmacies.
After getting approval from the Florida Division of Workers’ Compensation, Scott said, the school system issued the doctors an ultimatum: From now on, Dade schools would pay for drugs based only on what pharmacies charged, not the repackagers’ rates.
Scott said he feared the doctors might complain to the school board, but none of them publicly objected. “I guess they didn’t want to be caught in public saying we charged 300 to 400 percent more than pharmacies for years.”
Scott said he expects his moves to save the school board about $700,000 this year. For his effort, he was given an award for innovation this month by Risk and Insurance Magazine.
AHCS’s Investments in Politics
Automated HealthCare Solutions is little-known. But it’s powerful. And it stands at the center of a major battle that embroiled the last legislative session and is likely to do so again.
The issue is the cost of doctor-dispensed drugs in workers’ compensation, a practice that some say inflates costs to Florida businesses.
AHCS, related entities, executives and family members contributed about $1.7 million to political committees, parties and candidates over the past two years, according to a Health News Florida analysis of campaign and state corporate records.
Alex Sink, who as state chief financial officer led the fight during the last session to curtail physician dispensing in workers comp, is now the Democratic candidate for governor. AHCS is strongly backing her opponents.
A large part of the AHCS-related political contributions went to entities that supported Attorney General Bill McCollum in the Republican gubernatorial primary, according to the Florida Independent. Since then, AHCS leaders have shifted their support to the Republican primary victor, Rick Scott.
Green Solar Transportation LLC, another venture of AHCS executives, gave $100,000 this month to a committee supporting Scott. Five companies linked to AHCS leaders also each sent $500 checks to Scott’s campaign account, state records show.
The physician-dispensing issue came up during the final days of the session. The Florida Insurance Council and Associated Industries of Florida, representing the state’s large business interests, demanded quick action to help cut down workers comp costs by requiring that doctors charge no more than pharmacies for drugs they sold. They modeled their effort on California, which had passed a similar law.
Many legislators were told of a 70-page report from the Workers Compensation Research Institute, a nonprofit group that studied 900,000 prescriptions in 16 states that showed Florida far more expensive than the others.
One example: Carisoprodol, a muscle relaxant, cost an average of $3.05 dispensed through Florida doctors, compared to 62 cents per tablet at a pharmacy.
Another example: The pain killer Vicodin cost 96 cents per tablet through a doctor – double the pharmacy’s 46 cents.
On the final night of the 2010 legislative session, the Republican-dominated House and Senate passed a measure that included an amendment targeting physician-dispensing costs in workers comp.
The Florida Medical Association cried foul, saying there had been no debate and that the measure would hurt many doctors.
Gov. Charlie Crist vetoed the bill. In his explanatory letter, Crist wrote that he supported lowering healthcare costs, but “this is a complicated issue that was not fully vetted during the legislative process. I am concerned that implementing this bill without additional review could result in numerous unintended consequences that could ultimately adversely impact injured workers.”
AHCS executives and family members have contributed at least $24,000 to Crist’s U.S. Senate campaign this year.
Sink blasted the governor for rejecting the measure: “This legislation was an important step in holding state agencies accountable and reducing workers’ compensation costs, and I am very
disappointed that Governor Crist chose today to favor special interests instead of Florida taxpayers.”
The analysis of the $1.7 million in contributions by AHCS, related entities, executives and family members shows $615,000 has gone to the Freedom First Committee, linked to incoming Senate President Mike Haridopolos and $600,000 to the Florida Liberty Fund, linked to incoming House Speaker Dean Cannon. Another $200,000 went to the Florida Chamber of Commerce Alliance.
Yet another $18,500 went to state House candidates, $8,500 to state Senate candidates, and $15,000 to gubernatorial and cabinet candidates. At least $39,000 went to U.S. House and Senate candidates, including the contributions to Crist.
AHCS Co-Chief Executives Paul Zimmerman and Gerald Glass told Health News Florida that they made the donations out of concern for many of their business ventures, not just the billing of physician-dispensed drugs. One of them, Green Solar Transportation, cuts fuel costs by putting solar panels on large trucks. Such a technology can benefit from state and federal subsidies.
Zimmerman said the company supports politicians who “understand the risks employers go through and how we create jobs.”
The executives say studies show workers’ comp drug costs in Florida went down, not up, from 2006 to 2008. AHCS, which employs about 300 in Miramar and handles physicians’ dispensing claims in 40 states, helps keep overall healthcare costs down, they say, adding that in Florida, 89 percent of the drugs the company bills for are generics.
“The proof’s in the pudding. When physicians dispense, patient compliance is 100 percent,” Zimmerman wrote in an e-mail. When patients have to go to pharmacies to get prescriptions filled, he said, about 30 percent don’t do it.
Still, much research, including a report last year from the Miami-Dade Office of the Inspector General, says physician-dispensed drugs are a reason for high medical costs.
Andrew Sabolic, assistant director of the Florida Division of Workers’ Compensation, says these high costs remain “a growing issue.” He says he’s not certain whether a new bill will be introduced in the upcoming legislative session to curb doctors’ drug dispensing, but “it’s a possibility.”
John Dorschner covers the health-care industry for the Miami Herald; he reported this project for Health News Florida as a free-lancer while on furlough. Questions or comments can be directed to HNF Editor Carol Gentry at 727-410-3266.