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A Workers’ Comp Approach to the Compounded Creams Conundrum

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By: Alex Lyle, Associate, Sarasota

Compound medications are typically medically indicated in cases where a patient cannot tolerate commercially available medications approved by the FDA. For instance, when a person is allergic to one of the inactive ingredients in a drug, it would be appropriate for a compounding pharmacy to make a similar medication minus what would trigger an allergic reaction. Or, if a person could not swallow capsules, a compounder could formulate a liquid version of the commercially available drug. No one is really opposed to this type of compounding; however, compound creams are another story. They are commonly marketed as a way to treat pain and/or inflammation without any of the side effects that can come with commercially available drugs. Creams are touted to treat ailments such as arthritis, trauma, sprains, muscle strains, nerve damage, and chronic inflammation. Since creams are absorbed into the bloodstream at minimum levels, they are proposed to be risk free for the types of drug interactions that come with oral medications.

Compound creams, in no uncertain terms, are costly. The typical range of the pharmaceutical “pain creams” are billed anywhere from $3,500 to $10,000 per jar per month. Compounding pharmacies reach these incredible prices by including expensive and unproven ingredients in the compound creams. [1] The pain creams can contain up to 8 or 10 individual drugs, such as Ketamine HCI, gabapentin, flurbiprofen, cyclobenzaprine, bupivacaine, and baclofen, to name a few of the more utilized components. What is troubling is that there are no studies concerning potential drug interactions, or even stability of the drugs in this format.

Thus far, the compounders have been able to get away with this because there are no standards for what goes into compounded pain creams. The “recipes” are often pre-determined by the compounders and there is no regulation of the amount, if any, of active ingredients that go into the mix. The few ingredients of proven effectiveness in compounded pain creams are already available as vastly more affordable over the counter products. This includes menthol (Bengay), Lidocaine (Aspercreme), and Capsaicin (Zostrix). Comparing the costs for these over the counter products – often in the range of $10 to $15 – to a compounded cream containing the same ingredients (such as a tube containing menthol and capsaicin but priced at $2,800) sheds light on this money making scheme.

The marketing pitch for these moneymaking creams starts with the physicians. Compounding pharmacies aggressively market their wares to doctors, especially those pain management specialists or surgeons who are closely allied with plaintiff’s/claimant’s law firms. Compounding pharmacies offer to do everything possible to entice physicians to prescribe their creams, including writing the letter of medical necessity for the physician,[2] and attempting to collect from the insurers. In many cases, the prescriptions are pre-printed by the compounding pharmacy and sent to physicians to check a box next to the particular cream to be used. According to studies conducted, the doctors could make $5,000 to $10,000 per month by screening and prescribing the compounded creams, even if the patients did not need them.

The first target of the compounded pain creams was national health insurers. Ten years ago, the compounding of pain creams was virtually unheard of, but by 2010, one health care program (Tricare) was paying $23 million for compounded drugs. By fiscal year 2014, its costs for compound drugs had ballooned to $513 million. A feeding frenzy in the first nine months of 2015 saw those costs sk rocket to $1.7 billion.[3] When the health insurer balked at the costs of the “miracle creams”, they met with the pharmacies to set better pricing practices for compounded creams, and that is when the federal government got involved and began to look at the compounding pharmacies it had been authorized to oversee under the Federal Drug Quality & Security Act enacted in 2013. As a result, the federal government began prosecuting the fraudulent billing of compounded pain creams to governmental insurance carriers.

With the federal government’s involvement and as health insurance carriers wise up to the practices of the compound cream industry, the new target of the fraud is state workers’ compensation carriers and auto insurers. Due to regulation, workers’ compensation and other liability carriers often have limited options in the denial of payment. In order to combat this in Florida, there must be a concerted effort between carriers, attorneys and even some physicians to identify the players (compounding pharmacists, physicians and others), determine the methodology of and relationships between the players (pay to prescribe, ownership and direct sales) and quantify the costs utilizing components, coding and available caps.

Recent involvement by the federal government has managed to crack down on some fraudulent practices in Florida. Four pharmacies agreed to pay $12.8 million to the government after an investigation into the billing practices for scar and pain creams.[4] And as recently as last year, eight Florida residents were charged in an indictment that was unsealed on August 9, 2016 for their alleged participation in a multimillion-dollar fraud scheme involving prescription compounding pharmacies located in the Tampa Bay and Miami area.[5] The pharmacies submitted approximately $633 million in claims for prescription compounded medications and received approximately $157 million in reimbursement based on the claims.[6] This exemplifies the lack of pharmaceutical board oversight in this industry and further supports the caution and evidence-based approval methods that a claims adjuster must use when dealing with this situation.

Prior Florida cases have dealt with the issue of compound creams with mixed results. In Walker v. United Parcel Service/Liberty Mutual Insurance, OJCC Case No. 08-020987EHL, there was a hearing on whether to appoint an Expert Medical Advisor (EMA) since there were competing doctors’ opinions as to the medical necessity of a compounded topical cream prescribed to the claimant that consisted of several different drugs for her to apply to the site of her pain. The claimant relied on Dr. Fuoco’s opinion in which he indicated that the compounded medication was medically necessary to treat the injury from the industrial accident. The competing doctor, Dr. Chaumont, expressed the opinion that the cream was not medically necessary because he thought it to be experimental in nature and it would not be possible to ensure the quality of the cream since it would not be produced in a manufacturing facility. The JCC reviewed the definition of “medical necessity” in FS 440.13(1)(k) and found that Dr. Chaumont arrived at his opinion based on the elements of medical necessity contained in that statutory subsection, established there was a conflict of opinion, and, therefore, granted E/C’s motion to appoint an EMA. 

A similar order was issued in Thomas v. Bellsouth Telecommunication, Inc. and Sedgwick Claims Management Services, Inc., OJCC Case No. 11-02816, where the claimant was prescribed a compound cream for use on his left ankle scar by his treating podiatrist. The E/C’s IME physician opined that the compound cream for the scar was not reasonable or medically necessary. The JCC ordered that an EMA be appointed to address the issue of medical necessity of the compound cream. These cases illustrate one avenue the courts commonly take to determine medical necessity, which is to appoint an EMA to determine the answer; however, in this course you are leaving the decision in the hands of the EMA, and risk having to pay for a costly compounded cream.

In Heischman v. Eastern Airlines/Travelers Insurance, OJCC Case No. 12-004126NPP, the claimant contended that he was entitled to authorization and payment of a compounding cream, which was a combination of anti-inflammatory and neuropathic medication, prescribed by his treating physician, Dr. Yatham, for use as part of his pain management regimen. The E/C contended that this treatment was not reasonable or medically necessary, as alternative medications were available and because this combination ointment was not FDA approved. JCC Neal Pitts relied upon the decisional law, which held that the JCC was not bound by whether a medication was FDA approved in determining whether the medication is medically necessary. The compound cream was composed of four different medications that are each FDA approved in their individual form. Dr. Yatham testified that the claimant used the compound cream medication with good results and with fewer side effects than when taking the medications orally. Further, Dr. Yatham noted that by combining the four different medications in one combination, it was able to work on different receptors in the body and was more effective. The JCC found the fact that there was no evidence one way or the other on whether the particular compounding cream is or is not FDA approved in its composition was not determinative on the issue.

He cited Jones v. Petland Orlando S., 622 So.2d 1114 (Fla. 1st DCA 1993) which held that FDA approved indications were not intended to limit or interfere with the practice of medicine nor preclude physicians from using their best judgment in the interest of the patient. The JCC further found that Dr. Yatham’s opinion on why he prescribed the cream was reasonable and logical, as the compounding cream used its combination of FDA approved medications in a way to avoid the various side effects of the same medications taken in their oral form and was also a way to avoid the interference with claimant’s blood thinning medication. Finally, the JCC noted that a compounding cream used as a treatment for pain relief had a long history and was found to be safe and effective, there was no evidence to suggest that it is experimental or investigative in nature, and, therefore, the compounding cream was reasonable and medically necessary for use as part of the claimant’s pain management regimen for his compensable back injury.

In the same vein as the previously discussed case, the JCC continued with denying the E/C’s arguments against the authorization of compounded creams in Mims v. College of Central Florida/Gallagher Bassett Services, Inc., OJCC Case No.  06-028846MRH. In this case, the claimant was prescribed a topical cream for pain. The amount of each medication was prescribed by a physician for the pharmacist to compound. Similar to the Heischman case, each medication included in the compound was regulated by the FDA, but the compound itself had not been approved by the FDA because no drug company is attempting to brand and market the cream. The claimant’s prescribing physician, Dr. Nguyen, opined that the cream provided improved pain control and optimal function and was thus reasonable and medically necessary to treat the pain resulting from her work injury. JCC Marjorie Hill found the only reason the E/C did not authorize the compound was that it was not FDA approved, even though compounds prescribed for individual patients are not required to be approved by the FDA. The JCC noted that the E/C did not cite any statute, case law or regulation prohibiting the use of compound creams in workers’ compensation cases. The JCC held that the E/C’s assertion that the compound cream was an experimental drug was unsupported by persuasive evidence and ruled that there was no evidence that use of the compound cream to treat claimant’s pain was prohibited by law and thus authorized its use. The E/C appealed and the First DCA affirmed the decision per curiam.

On the other spectrum, in Latchmansingh v. Travel Advantage Network/Travelers Insurance,  OJCC Case NO. 15-028645, the issue of whether the claimant was entitled to the authorization of a pain cream prescribed by Dr. Kenneth Krumins for treatment of the claimant’s compensable right foot injury was determined at the final hearing by JCC James Condry. The E/C defended the claim on the grounds that the compound cream was not shown to be reasonable or medically necessary to treat the claimant’s injury. Under the topic “plan of care” on Dr. Krumins’ January 15, 2016 report, he indicated that he ordered a pain cream from a compound pharmacy and the report simply read “[t]his may help him.” The claimant then filed a petition for benefits on March 1, 2016 requesting authorization of the cream. There was no prescription provided to the E/C indicating what pain cream compound was going to be provided to the claimant or even indicating whether the doctor had in fact requested anything in particular for the carrier to do or provide. The JCC noted that any medical care under FS 440.13 is awardable only where the care is deemed to be reasonably medically necessary. In determining whether care is medically necessary the uttering of the phrase, “medically necessary” is not required. However, just because a doctor stated that care is medically necessary does not automatically make it so. The judge, as trier of fact, must determine from the totality of the evidence the reasonable necessity of the care. Delong v. 3015 West Corporation, 558 So.2d 108 (Fla. 1st DCA 1990). The JCC ultimately found that the deficiency in the case was that the physician did not request any specific care of the carrier. And even if the physician had, the JCC found what was to be provided was not sufficiently detailed for the carrier or for the tribunal to otherwise determine its reasonableness. The JCC agreed with E/C’s argument that the information provided was deficient for establishing or allowing a reasonable determination that the cream compound was accepted among practicing healthcare providers, was based on scientific criteria or was even safe. There was no indication the cream was appropriate for the claimant’s diagnosis or that it was within applicable practice parameters. The claimant, not the carrier, carries the burden of proof for showing medical necessity of care, and for those reasons, the JCC denied the request for authorization of the pain cream without prejudice.

In the most recent JCC opinion, Gallegos-Tolomei v. The Walking Company/Travelers Insurance, OJCC Case No. 15-015305DBB, the claimant sought authorization of a non-formulary compound cream recommended by Dr. Herman to dull the claimant’s numbness and tingling symptoms. The E/C denied the claim on the basis that there was no objective medical evidence to support medical need for the medication. The claimant reported that she was receiving a benefit from the lidocaine patches but they were falling off, so it was not functional. He prescribed an ointment and noted the shape of the knee did not allow for the patch to adhere properly because it was a flat patch. Dr. Herman testified the medication he prescribed was reasonable and medically necessary and also causally related to claimant’s accident. He stated that all of the lidocaine ointments are compounded products and if there was just a simple lidocaine gel he would order that, but they are all compounded. He further said that there were over the counter things that could be tried, but nothing equivalent to what he recommended. The claimant’s treating physician, Dr. Valadie, opined there was no need for a compounded cream.  However, the JCC found that Dr. Herman, through his testimony, had provided objective medical evidence to support the need for the non-formulary compounding cream. The JCC accepted Dr. Herman’s opinion over Dr. Valadie’s as more persuasive on the issue of the compounding cream because Dr. Herman is a physiatrist who provided pain management treatment and provided sufficient testimony to establish the reasonableness, medical necessity and causality of the compounding cream. Therefore, the JCC found that the E/C should authorize the non-formulary medication as prescribed by Dr. Herman.

Given the number of healthcare systems that appear to be struggling with compound drugs and the recent 1st DCA and JCC cases in the state, it may seem like there’s no easy solution. The best way to proceed is to use an evidence-based approach to determine if medications are necessary. In a workers’ compensation case, the carrier should only be required to pay for compound drugs in a limited number of situations, such as special medications needed to wean people off opioids, or antibiotics that a patient may need, but there are few other situations in which the carrier could be liable to pay for compound creams as there is little evidence that compound creams are medically effective. The only current foundational scientific evidence is on the over-the-counter compound creams or on the individual ingredients found in the compounded creams, which should therefore be what is prescribed instead, barring the above special circumstances. Hopefully, the recent unraveling of the fraudulent practices involved in the compound medications industry will begin to force the judges and physicians to take a longer, more careful look into these situations when they are presented with them.


[1] Helios Comp, The Price of Compounded Medications, http://www.helioscomp.com/insights/articles/the-price-of-compounded-medications (last visited Apr 1, 2017).

[2] Helios Comp, supra at note 7. The compounding pharmacy will send a “Letter of Medical Necessity” for the prescribing physician to sign when the bills are sent which vary little between patients and prescribers. These letters make the claim that the oral medications can produce bothersome adverse effects which have created the need for topical analgesic formulations. The citations to studies have no relationship to the drugs being mixed together and usually cite to a study of a single ingredient topical application.

[3] Tom Philpott, Stars and Stripes, July 30, 2015. http://www.stripes.com/news/us/compound-drugs-fleece-tricare-create-deep-budget-hole-1.360510.

[4] Walker, Joseph, WSJ, 11/8/15, http://wsj.com/articles/u-s-targets-pharmacies-over-soaring-claims-to-military-health-program-1447032619 .

[5] Eight Individuals Charged in Multimillion-Dollar Compounding Pharmacy Fraud Scheme, Eight Individuals Charged in Multimillion-Dollar Compounding Pharmacy Fraud Scheme (2016), https://www.justice.gov/opa/pr/eight-individuals-charged-multimillion-dollar-compounding-pharmacy-fraud-scheme (last visited Apr 1, 2017).

[6] Id.