Confounded About Compounded Medications? A Primer for Claims Management

4.30.2019 Blog

Compounded Medications and Their Uses: Compounding is when a licensed pharmacist combines, mixes or alters at least two ingredients to create a medication tailored to an individual patient. Compounding pharmacies are not regulated by the Food and Drug Administration and thus, compounded medications are exempt from FDA approval. There are legitimate reasons to use compounded medications – like allergies or the inability to ingest oral or traditional formulations. Sometimes, they are used in pediatric cases or with learning-disabled individuals. However, research indicates that generally, compounded medications provide no additional clinical benefit or value over what is more commonly available. Often, there are acceptable FDA-approved and even over-the-counter alternatives.

Despite the limited legitimate uses, compounded medications are marketed for many kinds of pain management. The number of compounding pharmacies has multiplied and mobile compounding pharmacies operating out of physician offices or even parking lots now exist. Increases in the number of ingredients in compounded formulations and in individual ingredient pricing have also been seen.

Target on Workers’ Compensation: The use of compounded medications has been trending in the workers’ compensation claims arena for several years. Workers’ compensation is particularly vulnerable to abuses of compounded medications and compounding pharmacies. Other systems, such as Medicare, regulate costs and/or do not cover non-FDA-approved ingredients, but most state workers’ compensation laws have not addressed this issue. In fact, state fee schedules typically allow billing for each ingredient in a compounded medication while others only allow the most expensive one.

Driven by compounding pharmacies taking advantage of workers’ compensation patients and payers and not by actual patient need, overall costs associated with compounded medications skyrocketed. High pricing for low-value compounded medications – which are directly marketed to doctors and then physician-dispensed – is the tactic. A common example in workers’ compensation claims involves doctors prescribing compounded topical pain creams or lotions. Charges in the thousands of dollars for a small tube of compounded pain cream are not unusual.

Pushback and Strategies: Efforts to curb compounded medications have taken many forms. Identifying unnecessary and overpriced ingredients along with assessing the availability of similar commercially available and FDA-approved alternatives including over-the-counter preparations is key. On an individual case basis, Utilization Review or other bill review measures are essential tools to uncover less expensive, clinically appropriate alternatives. Compounds with four or more drugs and/or multiple active ingredients should be questioned and efficacy and risks to patients highlighted. Additionally, compounded medications should not be the first choice for treatment except for patients with unique needs. Initial physician visits where compounded medications are dispensed on-site should be immediately challenged. The efficacy, associated risks, and need for such medications and available alternatives may be addressed by examining physicians, too. The credentials of compounding pharmacies or pharmacists might be vetted by searching the FDA website and contacting state pharmacy boards.

Pharmacy benefit managers have been proactive in several ways. Beginning with non-reimbursable ingredient lists and reimbursement limits per script or per ingredient, strategies also include preauthorization requirements using evidence-based medicine guidelines and pre-approved pharmacy lists.

State-by-state legislative efforts have also taken on compounded medications and compounding pharmacies. From provisions for pre-approved drug lists to prescribing guidelines and pricing controls, state legislatures are tackling the increase in compounded medication scripts and the exorbitant costs. Notably, these efforts dovetail with those combatting the opioid crisis and regulation of medical marijuana for both workers’ compensation and other pain management patients.

Takeaway: Prescriptions for compounded medications should be red-flagged and quickly assessed for more appropriate and cost-effective alternatives. Don’t wait until trial or settlement to address unnecessary use of these medications. Consider consulting with review specialists and medical treatment experts to control the exorbitant compounded medication costs and communicate clearly the basis for their denial to patients and providers.


The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.