Hawaii workers’ compensation and auto insurance carriers say they are seeing a growing number of cases with excessive markups for repackaged drugs dispensed by physicians, sometimes at rates double or triple what the identical medications cost if obtained through pharmacies.

They say the huge markups have accelerated over the past few years and are expected to spread even more if nothing is done.

GEICO, Hawaii’s largest auto insurer, highlighted one case in which a physician prescribed identical pain medications for a patient, and the doctor-dispensed batch cost nearly 75 percent more than the one dispensed through a pharmacy.

Physicians said insurers are highlighting extreme examples to undermine a longstanding practice that leads to better patient compliance with treatment regimens, shorter periods away from work and lower overall medical costs.

A bill that would have placed a cap on prices for repackaged and compound drugs passed the state House last year but died in a Senate committee this year.

The committee was headed by Sen. Clayton Hee, who in the six months prior to the session collected more than half of his $65,000 in campaign contributions from people and companies with ties to the physician-dispensing medication industry, according to campaign spending records and a mainland consultant who works for insurers.

Hee (D, Kahuku-Kaneohe) said he didn’t solicit the funds and any implication that his committee didn’t hear the bill because of political contributions is untrue.

Hawaii physicians have long had the ability to dispense their own drugs, but the problem with excessive markups of repackaged drugs started surfacing within the past three or four years, insurers say.

They emphasize that most Hawaii physicians who treat injured workers and dispense their own drugs do not have huge markups and provide a beneficial service.

"What we are against, and what this legislation seeks to address, is the problem caused by the few who seek to take advantage of the rest, the few who unreasonably inflate the costs of such medications to increase their profits at the expense of everyone else," wrote attorney Paul Naso, general counsel for Hawaii Employers’ Mutual Insurance Co., in testimony supporting the cap bill.

Opponents said changes sought by insurers would effectively cripple physicians’ drug-dispensing practices, and prompt some to stop seeing workers’ compensation patients altogether, further dwindling an already small number. They contend that the changes would also hurt many injured workers who would be unable to afford out-of-pocket charges that pharmacies typically require when filling prescriptions for workers’ comp patients. Injured workers don’t have to pay anything when getting the drugs from their doctors because they are covered by insurance.

The effects of the proposed changes would be especially devastating in rural areas and on the neighbor islands, physicians said.

"If that went through, I couldn’t afford to do workers’ comp," said Dr. Rudy Puana, who runs a pain clinic on Maui and Hawaii island, where the nearest pharmacy is more than 20 miles away.

"This is an underhanded attempt to make it impossible for doctors to dispense," added Dr. Scott McCaffrey, whose Ewa clinic specializes in treating injured workers and who uses a Florida-based company to help with dispensing medication.

Doctors who dispense their own medication typically purchase drugs from so-called repackers, who buy in bulk and sell smaller repackaged quantities to physicians. But because the repackers don’t have the buying power of the national pharmacy chains, they can’t get discounts as good as the chains, which helps explain why physician-dispensed medications typically are slightly higher in price than the identical pharmacy-issued ones, the doctors say.

Hawaii law limits reimbursements for prescription medications to a national average wholesale price as listed in a specific industry publication plus 40 percent. That markup already is the highest in the country, according to the state Department of Human Resources Development.

But when repackers make bulk purchases, they are able to repackage the drugs for sale to physicians and assign a new wholesale price. That loophole has resulted in some extraordinary markups, according to insurers.

The Hawaii Insurers Council compiled several dozen examples from a local physician’s office as part of its 2011 testimony to the Legislature to support the price-cap bill.

In the most extreme example, the council said 30 pills of repackaged Diazepam, an anti-anxiety drug, cost $143.78 from the physician, compared with a pharmacy price of $8.32.

A 2011 study by the Workers Compensation Research Institute found that large price differentials per pill were common on the mainland when comparing the same medications dispensed by physicians and pharmacies.

Injured-worker advocates, however, cite data from the same study showing that prices per prescription and claim on average were higher for pharmacy drugs.

The study also found that the higher per-pill physician prices may serve as incentives for doctors to issue more prescriptions.

In most states where physician dispensing is uncommon, Carisoprodol, a muscle relaxant, was prescribed to less than 5 percent of injured workers, according to the study. But that rate roughly doubled in Florida and Maryland, where physician dispensing is common, the institute found.

In those two states, the physician dispensers were paid an average of $2.55 to $3.33 per pill, compared with 59 to 61 cents for the pharmacy medication, according to the institute.

Janice Fukuda, an assistant vice president at First Insurance Co. of Hawaii, said the insurer is seeing utilization rates increase with some physicians, including cases in which injured workers are getting more than 1,000 pills of various medications each month. Some are controlled substances.

Leila Kagawa, deputy director of the state Department of Human Resources, said in a statement that Hawaii’s 40 percent markup encourages the repackaging and compounding of medications to circumvent the average wholesale price mandated by law.

She said her agency is seeing markups similar to what the insurers council cited, and "this appears to be a growing problem."

But workers’ comp physicians and injured-worker advocates contend that insurers are exaggerating to control the medication market and boost healthy profit margins while diverting attention from a problem of access to quality care.

"All the insurance companies know how to do is deny, deny, deny until the (worker) gives up," said Puana, who runs the neighbor island pain clinic.

What extra a physician may earn through dispensing helps offset the high bureaucratic costs of dealing with an antiquated workers’ comp system, doctors say.

Rep. Karl Rhoads, who heads the House Labor and Public Employment Committee, said he thought the price-cap issue was legitimate enough to advance the bill last year but subsequently had second thoughts after considering the issue in the broader context of the overall system.

"If there’s an injustice here, there’s a dual injustice," Rhoads said. "If workers who are injured at work are being denied care because insurers want to make more money, that’s an injustice."

Angievi Pestana, 47, a Pearl City High School cafeteria worker who injured her finger and shoulder while on the job in October, isn’t following the debate about high markups.

For her, the benefit of receiving her anti-inflammatory medications from her doctor is clear.

"It saves me time and the trouble of having to stand in long lines at the pharmacy," Pestana said.