Nearly half of what Pennsylvania's workers' compensation program pays for prescription drugs goes to physicians who dispense them directly to patients, bypassing pharmacies, a lucrative practice that is limited by many states and not reimbursed at all by private insurance, Medicare or Medicaid, according to a new report.

Although few doctors take advantage of the loophole, the cost differential can be enormous. A single Percocet cost an average 64 cents at a pharmacy last year, the Workers Compensation Research Institute reported Monday, vs. $3.55 when dispensed by a physician. Patients typically don't know the difference; there are no copays in workers' comp, which is funded by businesses.

Limiting the practice could save 1 percent of the program's entire cost, Julia K. Hearthway, the state's secretary of labor and industry, told a House committee last year that was considering a bill to restrict the practice. The legislation unanimously passed the House; a less restrictive version, amended by a Senate committee, has not been scheduled for a full vote.

Much of the argument against physician dispensing is that it's costly: since Pennsylvania's workers' comp law does not allow the kind of negotiation that dramatically lowers costs for most health insurance, doctors can set their own prices.

Some critics of the practice have also noted that Pennsylvania has among the highest death rates from drug overdoses in the United States. Although workers' comp accounts for a relatively small proportion of all prescriptions, many involve pain medications.

Addictive opioids have been blamed for skyrocketing overdose deaths nationally. Some patients also progress to heroin when they can no longer pay for the more expensive pain pills, further fueling the epidemic.

An earlier report by the Cambridge, Mass.-based workers' compensation institute found that the average morphine equivalent per claim - basically a measure of narcotic strength - in Pennsylvania's program was third-highest of the 25 states that account for the bulk of all workers' comp expenses nationwide.

In an unrelated report last year, the Drug Enforcement Administration found that nine of the top 25 practitioner purchasers of oxycodone products who dispense directly to patients nationwide were located in Pennsylvania.

Addiction psychiatrist David R. Gastfriend said that, while he was not familiar with workers' comp rules in Pennsylvania, he had little doubt that doctors who dispense increasingly high rates of narcotics directly to patients play some role in the state's high rate of addiction, overdose, and death.

Those physicians will "attract a subculture of the population that has obtained workers' compensation and they pass the word on to others and they get the word out about a doctor who is ready, willing and able to prescribe, and you get a whole practice built around this model," said Gastfriend, who became CEO of the Treatment Research Institute in Philadelphia one month ago.

Physician-dispensers often prescribe elevated doses for two reasons, he said. One is that long-term pain patients develop tolerance and require higher and higher doses. The other is that patients fake the intensity of their pain and then sell the extra pills on the street.

"This is a very small proportion" of doctors, he said, but the economic and societal "costs that this group can create can be enormous."

State Rep. Marguerite Quinn (R., Bucks) introduced a bill to limit physician dispensing last year. "My initial interest started on the economic side of this but you can't ignore the human cost," Quinn said Monday.

She said she was "hopeful" that her amended bill would be approved by the full Senate and then by the House, which had passed a stricter version, in the seven session days left. The bill is supported by a broad coalition that includes business, labor, the insurance industry, and the Pennsylvania Medical Society.

"Physician-dispensing costs more money and it doesn't improve care," said Sam Marshall, president and CEO of the Insurance Federation of Pennsylvania, citing a May study by Johns Hopkins researchers. That Illinois study concluded that workers' comp patients who received drugs directly from their physicians lost more time than those with pharmacy-dispensed medications.

The bill, Marshall said, "does not limit the doctor's ability to control the treatment."

The Pennsylvania Orthopaedic Society, which has opposed the bill, disagrees. While the amended legislation "contains reasonable provisions for containing the reimbursement" project consultant Kathy DeWittie wrote in an e-mail, "we do not support dispensing limitations which interrupt the treatment of an injured worker under the care of an Orthopedic surgeon whose practice includes dispensing." The bill limits most physician-dispensed drugs to 20 days, and seven days for the more powerful narcotics.

Meanwhile, the institute report released Monday found that the proportion of workers' comp drugs dispensed by physicians has been increasing.

In 2008-09, physician-dispensed medications accounted for 17 percent of prescriptions in workers' comp and 17 percent of the cost. By 2012-13, the proportion of doctor-dispensed prescriptions had risen to 29 percent while the proportion of the cost had nearly tripled, to 48 percent - 11 of those percentage points in the last year.

For Quinn, those numbers mean it is more urgent that the bill be passed this fall, before more doctors get used to the profits they can bring in by dispensing medications. "It will only get tougher to pass a bill like this as the appetite [increases]," she said.