New York Times by Andrew Pollack –

August 14, 2014:

It may be the biggest thing in diaper rash treatment, a custom-made product to soothe a baby’s bottom at the eye-popping price of $1,600.

This is no Desitin or Balmex, or any other brand found in stores. This cream is blended to order in a pharmacist’s lab.

Does it work better than the common treatments? There is little evidence either way. But the sky-high prices commanded by such compounded medicines are drawing the ire of health insurance companies that must pick up the bill. They say the industry is profiteering at their expense.

Compounded medicines are the Savile Row suits of the pharmacy, made to order when common treatments will not suffice. Pharmacists say it is the doctors who decide what to prescribe. But many pharmacies have standard formulations and some promise six-figure incomes to sales representatives who call on doctors.

Besides the $1,600 ointment to treat diaper rash, there was the $8,500 cream to reduce scarring and the $2,300 salve to relieve pain recently billed to Catamaran, a pharmacy benefits manager. Alarmed that its spending on compounded drugs has quintupled in just two years, Catamaran has begun to review such claims more carefully.

Pharmacy benefit managers owned by UnitedHealth and Blue Cross and Blue Shield plans are also reining in spending on compounded drugs, as are insurers like Harvard Pilgrim and various state workers’ compensation plans.

Express Scripts, the largest pharmacy benefits manager, has said it will stop paying for more than 1,000 ingredients used in compounding, cutting spending by its health plan clients on such medicines by 95 percent. It said such spending had grown to $171 million in the first quarter of this year from $28 million in the first quarter of 2012.

“There are absolutely situations where compounded medicines are appropriate,” but other cases in which the products are “unsafe and overly expensive,” said Dr. Sumit Dutta, chief medical officer at Catamaran, which is based in Schaumburg, Ill. “If you remove the profit motive, what is the base-line appropriate use of these products?”

Exhibit No. 1 for those who contend that profiteering is at least part of the reason for the proliferation of compound medicines is the indictment in June in Southern California of 15 doctors, chiropractors, pharmacists and financial brokers, including a major donor to President Obama. They are charged with engaging in a kickback scheme that billed workers’ compensation for millions of dollars in such medicines and led to the death of a baby exposed to a compounded pain cream his mother was using.

But the compounding industry is fighting back.

“Millions of people benefit from compounding,” said Jay McEniry, executive director of a coalition formed hastily in June to fight the cuts by Express Scripts and others. “For the most part, people who take compounded medications have no alternatives.”

The coalition is called Patients and Physicians for Rx Access, though it was started mainly by compounding pharmacists.

Compounding, which dates from the ancient days of medicine, involves a pharmacist making medicines for a patient who cannot be helped by mass-manufactured drugs. For instance, patients might need a special formulation because they are allergic to an ingredient in a commercial product, or a liquid formulation if they cannot swallow pills.

But compounding has grown well beyond that, and has gotten black eyes in the process. Two years ago, about 750 people were sickened and 64 of them died from injections of a fungus-tainted steroid made by the New England Compounding Center, a company that was essentially mass manufacturing.

Congress last year passed legislation to improve federal oversight of compounding, particularly such large operations.

The new controversy centers on medicines that are not injected, mainly topical creams to treat pain and scarring. People in the compounding business say that spending on such drugs is growing because doctors are turning away from the maligned painkillers known as oral opioids out of concern about abuse. A cream delivers relief more directly to painful joints or muscles, with less entering the bloodstream to cause side effects.

They also say the cost of ingredients has risen because of increased regulatory scrutiny of overseas chemical manufacturers. Even so, they say, compounded drugs account for less than 1 percent of pharmaceutical spending. Another factor appears to be a change in an industry standard for how such medicines are billed, which took effect in 2012.

Before that, pharmacists submitted claims listing just the main ingredient, usually with some markup. Under the new system, each ingredient is listed, with its cost.

This is something pharmacy benefit managers wanted. But they now say that compounders, knowing they can bill for each ingredient, have begun adding more of them.

While creams typically contain about four ingredients, the $8,500 scar cream contained 13 ingredients, and the $2,300 pain cream had 18 ingredients, according to Catamaran. The $1,600 diaper rash ointment had only two ingredients, one an organic floral extract.

Pharmacy benefit managers say there is scant evidence that these combinations of ingredients are safe or any more effective than conventional drugs approved by the Food and Drug Administration, like Voltaren Gel, a topical pain treatment with only one active ingredient that costs about $50 a tube. Compounded drugs do not require F.D.A. approval.

Some states are acting to control spending on compounded drugs in workers’ compensation, said Brian Allen, vice president for government affairs at Progressive Medical/PMSI, a workers’ comp pharmacy benefit manager. California passed a law in 2011 and Ohio has set a limit of $600 per prescription. Georgia is looking at a limit of three ingredients per prescription.

But some say abuses continue and point to the indictments issued in June by a grand jury in Orange County, Calif. They center on Kareem Ahmed, a million-dollar donor to President Obama’s re-election campaign.

According to a 2012 profile of Mr. Ahmed in Talking Points Memo, his company, Landmark Medical Management in Ontario, Calif., buys accounts receivable from doctors and other health care providers treating workers’ compensation cases. The doctors and pharmacists get less than the face value of the claims, but do not have to wait months for processing. Landmark profits when the claim is eventually paid.

But the indictments said the purchase of accounts receivable was really a disguised kickback to doctors and chiropractors to induce them to prescribe compounded creams that Mr. Ahmed had formulated “based on the profitability of the ingredients.”

The indictments also named 10 doctors or chiropractors, two pharmacists and two Landmark employees.

Priscilla Lujan of Los Angeles applied one of those creams to her knee for a workplace injury and then prepared a bottle for her 5-month-old son, according to her lawyer, Shawn J. McCann. She allowed the baby to bounce on her knees and suck her fingers.

The next day, the boy, Andrew Gallegos, was dead, from what the coroner’s office called “multiple drug intoxication” with “extremely high and lethal” levels of some of the pain cream ingredients in his blood.

Benjamin N. Gluck, a lawyer for Mr. Ahmed, said, “Mr. Ahmed and Landmark complied with all applicable laws at all times and we expect to be fully vindicated.”

He said the prosecution’s legal theory was “defective and has never been accepted by any court.” He added that selling accounts receivable, a practice known as factoring, was “a common and completely legitimate business practice” that was “especially necessary in the medical field because insurance companies make it so difficult, time-consuming and expensive for providers to collect on their bills.”