PROSPECTIVE PAYMENT LIMITS ON Rx DRUGS IMPOSED BY THIRD PARTY PAYORS PREDICTED BY PURDUE RESEARCHER; SAYS IMPACT WILL BE LIKE DRGs TO HOSPITALS

Prospective payment limits on retail prescription drugs will be imposed as direct third-party payment programs begin to account for a majority of prescriptions, Stephen Schondelmeyer, PharmD/PhD, Purdue University Pharmaceutical Economics Research Center, predicted Jan. 18. Addressing a conference sponsored by the Philadelphia Association for Clinical Trials, Schondelmeyer estimated that 60% to 70% of prescriptions will be paid directly by health care plans by 1995. By comparison, in 1989 insurers directly paid pharmacies for about 38% of prescriptions. The effect of prospectively set rates will be "every bit as dramatic" as the impact of diagnosis-related groups on hospitals, Schondelmeyer said. For pharmacies, "their revenue can no longer be increased by increasing their price," he said. Necessary strategies will include increasing volume and decreasing operating expenses, using personnel more efficiently, "controlling" drug acquisition costs, and offering services to improve patient care. Profitable manufacturers will be forced to approach pharmacies with a variety of marketing strategies such as bidding, he said. In addition, manufacturers will need to assess cost-effectiveness early in their products' development, improve the efficiency of production and promotion, and assure effective distribution and use of drugs -- for example, by making sure consumers are informed about how to use the drug to best achieve improved health care outcome. Schondelmeyer warned against thinking that repeal of the Medicare outpatient prescription drug benefit means that the issue of drug coverage will "go away." Medicare enrollees objected specifically to the program's financing, not to coverage, he noted. "I think we're going to see substantial growth in terms of prescription drug coverage for the public as a whole and the elderly in particular, because of the heightened awareness [of drug expenses] that's occurred in the last few years," he remarked. * While Medicare is unlikely to add a drug benefit for at least the next five years, the Purdue researcher predicted, the private "Medigap" supplemental plans are "being pressured to add prescription drug coverage." Many Medigap policies "are beginning to add" drug coverage as a competitive feature, he noted. In addition, "Medicaid [drug coverage] is growing slightly, and we're seeing a substantial growth in private third parties, particularly the old indemnity plans where the patient would pay for the prescription and the patient had to collect it back [from the insurer]," he continued. "Those are beginning to disappear and more and more are being rolled into direct pay programs because the third party has virtually no information about the prescription drugs being delivered under an indemnity plan and cannot attempt in any way to control the costs."