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Executive Summary

HMOs increased their use of brandname drugs significantly in 1989, propelling the brand share of that market up eight points, according to a recently-released profile of HMO drug benefits. "Two-thirds of all prescriptions written for HMO [health maintenance organization] enrollees in 1989 were filled using brandname drugs, up substantially from the 58% of prescriptions filed with brand-name drugs in 1988," reports the Marion Managed Care Digest/HMO Pharmacy Edition 1990. The data for the Marion Merrell Dow study was collected by the SMG Marketing Group Inc. The upswing in HMO branded prescriptions in 1989 coincided with the peak period of publicity surrounding the generic drug approval investigations on Capitol Hill and the indictments from the Justice Department. The trend towards brand prescriptions also occurred simultaneously with the growth in the size of average formularies. "A larger proportion of HMO formularies in 1989 (70%) contained more than 500 drugs than in 1988, when 63% contained over 500 drugs," the Marion report finds. More than a third of the formulary HMOs surveyed for the Marion Digest reported having approved lists with over 1,000 products. The IPA (independent physician association) HMOs have the largest percentage of plans with approved product lists of 1,000 or more. Thirty-eight percent of that category of HMO have long product lists. The IPA plans are the dominant category of HMOs representing about two-thirds of all HMOs and about one-third of total HMO patient enrollment. Overall, however, the majority of HMOs continue to eschew the use of formularies. The Marion survey for 1989 found 39% of the responding HMOs using drug formularies compared to 40% in the 1988 survey. The data for the 1989 study was collected from 393 HMOs through a survey conducted at the beginning of this year. Marion estimates the total number of operating HMOs in the U.S. at about 650. "HMO enrollees obtained more than 170 mil. prescriptions" during 1989 by the calculation of the Marion report. That figure represents an average of 5 prescriptions per enrollee and translates into $2.4 bil. in HMO spending for pharmaceutical benefits last year. The drug programs appear to be profitable for the HMOs in the Marion survey. Average capitation rates per member per year were$96.00 in 1989 compared with average costs per member of $70.23. The ingredient cost component of HMO prescriptions was up a sizeable 24% in 1989 over 1988 levels, presumably a reflection of the higher percent of brandname products used by HMOs and the continued price inflation at the manufacturer's level. Not surprisingly, the IPA HMOs, with the highest percentage of brandname use, had the highest ingredient cost per prescription ($15.20). That figure was up 30% from the IPA average Rx cost in 1988. Just less than half of the HMOs in the Marion survey (49%) penalized physicians for violating prescribing standards. The penalty provisions were much more frequent among one of the subgroups in the survey, the staff HMOs, where 75% of the organizations had penalties for violating policies. The SMG data on which the study is based compared the frequency of prescribing penalties to other penalties leveled for over-use of hospitalization (77%) and excessive referrals to specialists (66%). Only 16% of the HMOs permitted therapeutic substitution of different drugs within drug classes in 1989, compared to 27% in 1988. Therapeutic substitution declined in each type of HMO model, particularly among IPA HMOs. Therapeutic substitution remained the strongest among staff HMOs, where 36% continued to permit the substitutions in 1989 down just slightly from 38% the year before.

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