Customized service. It’s the buzz in many industries, and considered absolutely necessary for success in the delivery industry. So it might seem strange to hear about one area where customized service is both expensive and, sometimes, dangerous: the compounding pharmacy business.

Compound drugs are created when licensed physicians or pharmacists (or someone acting under the supervision of a licensed pharmacist) combine, mix, or alter ingredients of drugs to tailor them to individual patients. The Food and Drug Administration does not monitor or approve compound drugs, nor test their effectiveness nor safety.

There are, indeed, legitimate reasons for using compound drugs. But our recent audit report highlighted the huge increase in the U.S. Postal Service’s workers’ compensation costs for compound drugs – an expense that jumped from $30 million to almost $99 million in charge-back year 2015 (July 1, 2014, through June 30, 2015). Also, administrative costs for compound drugs increased by $3.6 million to reach $5.1 million. During that time, more than 50,000 Postal Service employees had compound drug prescriptions — nearly three times the number in the previous year.

“These unprecedented increases were due to the higher costs of compound drugs, the rising number of compound drug prescriptions, and fraud,” our report said.

Compound drugs cost more than other drugs because pharmacies are permitted to bill separately for each ingredient. As more pharmacies began compounding drugs, it created shortages in ingredients, which also increased the drugs’ costs.

In response, many government agencies and private entities began to examine the costs and implement best practices. For example, TRICARE, the military’s health insurance program, restricted compound drugs. But the Department of Labor (DOL), which administers the workers’ compensation program, did not implement best practices to manage these costs.

Our report also noted that DOL has no incentive to use best practices, despite the Postal Service’s repeated calls for DOL to fix the problem. Indeed, the Postal Service is so concerned about rising drug costs and DOL’s inaction that it initially withheld nearly $69 million of its workers’ compensation payment, which it estimated represented compound drug cost increases potentially due to fraud and abuse. The Postal Service argued DOL has a duty to prevent fraud and abuse.

We estimated that if DOL does not implement best practices to control compound drug costs, these costs and the related administrative fees could accumulate to over $1.2 billion and over $60.3 million, respectively, over the next 3 years.

Do you have concerns about the safety or effectiveness of compound drugs? Should DOL only allow reimbursements for drugs, including compound drugs, the Food and Drug Administration has approved? What best practices should DOL follow to control both costs and use of compound drugs?

Comments (2)

  • anon

    Nice discussion . I was enlightened by the analysis , Does someone know if my assistant would be able to get a fillable a form example to edit ?

    May 18, 2016
  • anon

    The Postal Service should separate from the DOL and self administer the Workman's Comp program and take over pharmacy payments or seek damages from the DOL for failure to provide services. Given the volume of the prescriptions, restricting prescriptions to a single large scale pharmacy or pharmacy network would provide easier oversight. The prescriptions could always be mailed. The Postal Service spends considerable funds duplicating or conducting the functions for which a premium is paid to the Department of Labor. The Postal Service should be utilizing agencies with jurisdiction over the compound pharmacies and taking action to ensure the USPS is not paying for services not rendered.

    Apr 01, 2016

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