When a pharmacy sells the heartburn drug Zantac, each pill costs about 35 cents. But doctors dispensing it to patients in their offices have charged about 10 times that price, or $3.25 a pill.
The same goes, insurers say, for a popular muscle relaxant known as Soma. From a pharmacy, the per-pill price is 60 cents. Sold by a doctor, it can cost more than five times that, or $3.33.
At a time of soaring health care bills, doctors, middlemen and drug distributors are adding hundreds of millions of dollars annually to the costs borne by insurance companies, employers and taxpayers, experts say, through a little-known practice called physician dispensing.
Efforts to limit the practice in Florida have failed.
Most common among physicians who treat injured workers, physician dispensing is a twist on a typical doctor's visit. Instead of sending patients to drugstores to get prescriptions filled, doctors sell the drugs in their offices to patients who walk out the door with them. The practice has become so profitable that private equity firms are buying stakes in the businesses and political lobbying over the issue is fierce.
Doctor dispensing can be convenient for patients. But rules in many states governing workers' compensation insurance contain loopholes that allow doctors to sell the drugs at huge markups. Profits from the sales are shared by doctors, middlemen who help physicians start in-office pharmacies and distributors who repackage medications for office sale.
Alarmed by the costs, some states, including California and Oklahoma, have clamped down on the practice. But legislative and regulatory battles over it are playing out in other states.
In Florida, a company called Automated HealthCare Solutions, a leader in physician dispensing, has defeated repeated efforts to change what doctors can charge. The company, which is partly owned by Abry Partners, a private equity fund, has given more than $3.3 million in political contributions either directly or through entities its principals control, public records show.
Insurers and business groups said they were amazed by the little-known company's spending spree. To plead its case to Florida lawmakers, Automated HealthCare hired one of the state's top lobbyists, Brian Ballard, who is also a major national fundraiser for the Mitt Romney campaign.
"I consider the fees that these people are charging to be immoral," said Alan Hays, a Republican state senator from Umatilla who introduced a physician dispensing bill that was defeated.
Physician prescribing works like this: Middlemen like Automated HealthCare help doctors set up office pharmacies by providing them with billing software and connecting them with suppliers who repackage medications for office sale. Doctors sell the drugs but they do not collect the bills. Automated HealthCare pays the doctor 70 percent of what the doctor charges, then seeks to collect the full amount from insurers.
Dr. Paul Zimmerman, a founder of Automated HealthCare, said that insurers and other opponents of doctor dispensing were distorting its costs by emphasizing the prices of a few drugs.
The loophole that raises the price of physician dispensed drugs often involves a benchmark called "average wholesale price." The cost of a medication dispensed through a workers' compensation plan is pegged in some states to that benchmark, which is supposed to represent a drug's typical wholesale cost.
But doctor dispensed drugs can undergo an "average wholesale price" makeover. It happens when companies that supply doctors with medications buy them in bulk from wholesalers and repackage them for office sale. These "repackagers" can set a new "average wholesale price" for the drug, one that is often much higher than the original.
In 2010, Florida lawmakers tried to clamp down on how much doctors could charge for drugs. Automated HealthCare responded with a major lobbying and spending campaign, focusing its efforts on state leaders like the president of the Florida Senate, Mike Haridopolos.
When the bill was reintroduced this year, Haridopolos declined to allow a vote. The state's insurance commissioner had backed the bill, saying that it would annually save businesses and taxpayers $62 million, a figure disputed by Automated HealthCare.
Haridopolos said he didn't believe the bill had a chance of winning. "It seemed like a big political food fight," he said.
Hays said he found that hard to believe. "The strategy of the people that were opposed to this bill was to put the right amount of dollars in the right hands and get the bill blocked," he said. "And they were successful in doing that."