UNITED HEALTHCARE CORP.'s DRUG "INGREDIENT" COSTS HAVE RISEN AN AVERAGE 13.5% ANNUALLY SINCE 1980; 1987 PHARMACEUTICAL EXPENDITURES WERE $60 MIL.

United HealthCare Corporation's costs for drug ingredients (the products alone before pharmacy services and charges) have risen at an average annual rate of 13.5% for the last seven years, Chairman Richard Burke reported at March 15 workshop held at the American Pharmaceutical Association's annual meeting in Atlanta. Burke disclosed the percentage increase in drug costs during a discussion of the cost pressures experienced by United HealthCare, a Minnesota-based marketer and developer of managed health care delivery systems. He added, however, that double-digit drug cost increases have been largely offset by programs such as formularies with mandatory generic and therapeutic substitution. Increasing drug costs were partly responsible for a doubling of company expenditures on pharmaceutical benefits -- from $30 mil. to $60 mil. -- between 1985 and 1987, Burke pointed out. "A good portion" of United's drug cost increase . . . came from enrollment growth, in terms of new members we added," Burke explained. "But a significant portion came from increased costs of drugs themselves." He expects the ratio of drug costs to the company's overall medical costs to increase after the onset of outpatient drug coverage. Commenting on pending federal legislation that would expand Medicare drug benefits, Burke stated: "If at some point we start offering drug coverage to the 120,000-plus Medicare members [of United's HMO programs] that we have throughout the country, these costs are certain to mushroom." Burke noted that the inevitable expansion of managed healthcare benefits will incur further cost controls on pharmaceutical services provided by the industry. He said that United HealthCare is an industry bellwether for implementing those controls. The company has been using maximum allowable cost (MAC) programs and formularies in its original market, Minneapolis/St. Paul, for at least five years. "What you are starting to see others doing now, as marketplaces begin to catch up with Minneapolis/St. Paul [in terms of overall HMO enrollment], reflects what we had to do a considerable p In some markets, United HealthCare uses capitated reimbursement arrangements. "In many markets," Burke said, United is being forced "out of necessity" to move "clearly toward more limited provider networks . . . in the pharmaceutical area." The firm's formulary was first implemented in 1982 in Minneapolis/St. Paul, and is used today in all of its markets. The formulary includes mandatory generic and therapeutic substitution requirements for "most prescriptions," he said. The three general criteria for including drugs on the formulary are "uniqueness . . . therapeutic need . . . and price, which is the deciding factor, all things being equal." Burke said increased control of utilization is inevitable. "As we get more and more control over the cost side of the business," he said, "we are increasingly seeing an evolution in the direction of trying to affect utilization patterns, which, I think it's fair to say, [as an industry], we have not had much of an impact on until now."