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MAIL ORDER DISTRIBUTION ACCOUNTS FOR APPROXIMATELY 5% OF MARION's Rx

Executive Summary

MAIL ORDER DISTRIBUTION ACCOUNTS FOR APPROXIMATELY 5% OF MARION's Rx drug business or roughly $ 35-$ 40 mil. on an annualized basis, according to Marion estimates. Marion Senior VP-Marketing Harley Tennison estimated the impact of mail order distribution on his company's Rx sales during a meeting with drug wholesaler executives on April 13. Tennison pointed out that while 5% may "sound like a small number," that business has developed "almost instantaneously." Cautioning that the rapid growth of mail order in 1987-1988 could presage the "beginning of something," Tennison noted that managed care health providers are looking to mail order as a way to hold back drug costs. However, he tempered his forecast for the growth of mail order with a long-term prediction that it will become the method of dispensing only in those cases in which it is clearly the most convenient for the patient/customer. The Marion exec observed that some managed care organizations are establishing three-tier co-pay systems to encourage mail order use. "Basically, what [the managed care groups] are saying [to enrollees]," Tennison said, "is, if you take a brand product you pay, as the recipient, the highest co-pay." The middle co-pay would be charged for a prescription filled by a pharmacy with a generic. "The best co-pay" would be available for receiving a prescription through mail-order. The expansion of the mail order business, Tennison maintained, may be aided by the development of computer literacy among practicing MDs. Tennison cited the effort to establish computer ties to physicians -- such as the Physicians' Computer Network (PCN) -- as having a potential and "predictable" effect on mail order delivery of drugs. He noted that PCN plans to install IBM System 2 computers to reach 45,000 physicians over the next four years. PCN has 10 sponsoring pharmaceutical firms. Marion is not one of that initial group. PCN, which has been developing the network for about three years, is getting ready to begin a test of the system in the NY/NJ area. Computer placements, Tennison suggested, could lead to managed care systems creating firm treatment regimens (or algorithms) for participating doctors. In a system with computer programs containing fixed treatment regimens, Tennison said a doctor would enter a patient's control number and a diagnosis number and the system's algorithm would make a drug selection. Then the computer could close the diagnosis and drug treatment loop by sending the drug choice "across phone lines to the mail order distribution center of the managed care operation," Tennison pointed out. The Marion exec reported that systems such as that are already being used or developed by some managed care operations. Tennison called current formularies the "horse-and-buggy" approach by managed care organizations to control drug prescribing practices and said the algorithm may be the more refined embodiment of the trend. The Marion exec described algorithms as "basically treatment protocols based on the diagnostics." He noted that the first algorithms being used by managed care groups severely restrict a physician's choice of drug treatments -- generally allowing only three drug choices. That points towards an "all-or-none" situation for drug marketers in the future, Tennison warned.

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