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HMO MARKETING CONTACTS BY PHARMACEUTICAL COMPANIES INCREASED 16% IN SIX MONTHS BETWEEN LATE 1988/EARLY 1989; 75% OF DRUG COMPANIES HAVE HMO SALES ARM

Executive Summary

Pharmaceutical company contacts with HMO pharmacy directors increased 16% in the six month period between fall 1988 and spring 1989, Scott-Levin CEO Joy Scott told a Group Health Association of America (GHAA) conference in San Diego Oct. 20. "We have learned that in just the six month interval between fall 1988 and spring 1989, the number of contacts between pharmaceutical companies and HMO pharmacy directors has increased 16%, reflecting many new companies jumping on the managed-care promotional bandwagon," Scott said. The increase in HMO marketing efforts is being charted in a semi-annual survey of 75-80 HMO pharmacy directors by the Newtown, Pa. market research firm. A "typical HMO pharmacy director" now reports "three-to-four promotional visits per week," Scott said, which is "above the fairly constant rate of office-based doctors who report two-to-three pharmaceutical representative visits per week." Scott noted that nearly 75% of those firms contacting HMOs for promotional purposes "have invested the time, money and overhead to create a unique group dedicated to serving and selling the managed care market." She pointed out that "virtually all of the major pharmaceutical companies have invested large sums of money to learn about managed care needs and are continuing to experiment with different mechanisms of promotion." A recent example supporting Scott's point about the increased marketing priority managed care is getting from drug companies is Warner-Lambert. The company recently started an internal newsletter called Managed Health Views that outlines the firm's efforts in the managed care market, which include a new specialized managed care sales and marketing group. The first newsletter also includes a story on a Lopid cost benefit study conducted by Systemetrics that was used by Warner-Lambert to persuade California to add the drug to its Medicaid formulary. * Scott maintained, however, that drug companies and managed care organizations "do not really have the basis for a synergistic partnership" since HMOs "benefit when drug costs are down" and drug companies benefit when "revenues are up." The "only common ground" held by drug companies and HMOs, Scott suggested, "is the realization that both groups . . . can be effective in controlling and manipulating physician prescribing behavior." Scott recommended that pharmaceutical companies adopt a longer-term approach in their dealings with HMOs. She advised drug companies to take on "a more consultative form of selling; that is, to understand the HMO needs may not require including all of a company's major products on a formulary," but might include information about compliance or side effect advantages of a given drug. HMOs, on the other hand, "need to look further into the future . . . [to the] longer-term effect [of certain more expensive drugs that] will save doctor visits, costly change of drugs, and possibly hospital visits," Scott suggested. "Furthermore, affiliated doctors will gain experience with use of a new compound, which can only add to the HMO's current scientific knowledge." A key problem facing drug companies that has grown out of the managed care environment, Scott indicated, is the adoption of HMO prescribing guidelines by physicians for private-pay patients. However, a recent Scott-Levin analysis of HMO-affiliated physicians reveals that the trend is shifting toward physicians choosing to "discriminate" between the two groups, according to Scott. Based on a semi-annual survey of 10,000 physicians, Scott-Levin has found that in 1987-1988 over 60% of physicians followed "the dictate of HMO guidelines for all patients, regardless of insurance coverage," Scott told the GHAA meeting. However, the trend began to show a "slight reversal" in the first half of 1989, with "over one-half of affiliated doctors . . . utilizing managed care guidelines only for managed care patients," Scott said. Physicians who follow HMO rules for all patients, Scott said, tend to be "younger; a member of a large group or multi-specialty group; usually have a high percentage of managed care patients; and a number of years of experience treating HMO-member patients." Currently 58% of all physicians are affiliated with at least one HMO; primary care doctors belong to an average of four HMOs, and specialists average closer to five HMO affiliations. Also, Scott observed, some physicians have been found to discriminate between managed care and private patients in the distribution of drug samples. Over the last one-and-a-half to two years, she noted, "physicians have been consistent . . . in reporting that between 26%-28% of [HMO-affiliated] doctors reserve drug samples for 'private-pay' patients." Although physicians "don't want to be penalized for excessive utilization, on the other hand, they know that HMO patients are typically reimbursed for prescription drugs, and they feel an excessive loyalty to non-managed care patients who pay their 'usual and customary' fee-for-service," Scott explained. A Scott-Levin survey of the largest 156 HMO plans (with over 50,000 members), representing 26 mil. enrollees, indicates that 55% implement formularies -- almost all with an automatic generic substitution plan. Of the plans with formularies, 46% practice therapeutic substitution, Scott reported. In a further break-out of the data, Scott said: "Almost three-quarters of staff models [with formularies] claim to use therapeutic substitution, with only a third of those [Independent Practice Association] models with formularies employing this method of control." In addition, over 75% of HMOs polled use some form of drug utilization review. * Also presenting data on HMO cost containment strategies was GHAA Director of Research Analysis Marsha Gold. In a GHAA 1989 HMO Pharmacy Survey, the association interviewed a proportionately stratified random sample of 39 GHAA member plans representing four mil. members and 12.4% of total HMO enrollment. According to the GHAA HMO Pharmacy Survey results published in Project HOPE's Fall 1989 Health Affairs journal, 55% of HMOs use formularies, and 36% use therapeutic substitution. Of those HMOs that do not currently have a formulary, 65% anticipate installing a formulary in the future. Mandatory generic provisions are included in 61% of the plans. In addition, 63% of HMO plans expect to either introduce or raise copayments over the next two years, and 55% anticipate deleting certain drugs from coverage. The most common cost containment practice, however, is drug utilization review, included in 76% of the plans surveyed. Specific drugs are targeted for review in 93% of those plans, while 86% target specific physicians or physician groups and 45% target specific pharmacies. Of the plans with in-house pharmacies, 78% review drug use by specific diagnoses. Gold pointed out that "the group staff plans were more likely to use formularies and therapeutic substitution, [and] were somehwat more likely to use drug utilization review and mandatory generics. IPAs and networks tended to rely more on methods drawing from the fee-for-service and indemnity side of practice, [and] were more likely to have a higher cost for using brand name drugs and to use the preauthorization policing type functions." The GHAA survey also looked at the frequency with which financial incentives, or disincentives, are used by HMOs to enforce cost-effective prescribing practices. Physicians are placed financially at risk in 18% of the plans: 29% of group and staff-model HMOs hold doctors collectively at risk and 13% of network and IPA plans hold physicians at risk. Furthermore, 15% of the plans hold contracted pharmacies at risk for prescription drug utilization. Almost all (97%) of the plans surveyed by GHAA cover prescription drugs either in the basic benefit package (23%) or in a rider (74%), according to the GHAA survey. An average of 85.7% of all enrollees in the HMOs surveyed have prescription drug coverage. HMOs appear to favor limiting drug coverage. For example, 76% limit experimental drugs; 73% restrict OTC drug coverage; and 63% limit birth control devices. * A recent report on "utilization management" by the Institute of Medicine, entitled Controlling Costs and Patient Care? -- The Role of Utilization Management, found no clear correlation between utilization management and reduced net benefit costs. "Savings on inpatient care have been partially offset by increased spending for outpatient care and program administration," the IoM report says. In addition, the report states that "although utilization management probably has reduced the level of expenditures for some purchasers, it -- like other cost-control stategies -- does not appear to have altered the long-term rate of increase in health care costs." Although the study does not specifically address drug utilization review or the effectiveness of formularies and therapeutic substitution, it does make some long-term research recommendations for evaluating and improving the effectiveness of health care cost containment measures. "Research on what works in medical care should be complemented by research on how to ensure that such knowledge is used effectively," the report states.

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