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HMOs sign pacts with chains.

HMOs Sign Pacts With Chains

KANSAS CITY--Health maintenance organizations shifted many of their contracts to drug chains last year, forsaking independent pharmacies in large numbers, according to the results of a national survey.

The proportion of HMOs using chains exclusively in 1989 rose to 82% from 74% the year before, according to data published in the 1990 HMO pharmacy edition of Marion Merrell Dow Inc.'s Marion Managed Care Digest. The survey also found that 84% of HMOs used contract bids to purchase drugs, putting that method of buying ahead of prime vendors or purchasing groups.

HMOs filled 170 million prescriptions, or an average of five per member, last year. Survey respondents say that pharmacy benefits accounted for 10% of total operating expenses in 1989, virtually the same as in 1988. The average capitation rate for pharmacy benefits, a premium equivalent, was $96 per member per year, 8% higher than in 1988. And the average rate for family coverage was $250.80, up 13%.

At the same time, the HMOs' average spending for drugs decreased to $70.23 per member from $71.49 in 1988. Extrapolating that data, HMOs spent an estimated $2.4 billion nationally on pharmaceutical benefits, the same amount as in 1988. Average ingredient costs per member rose 24% to $14.20. (Staff model type HMOs had the lowest ingredient cost at $10.90, up 15%.)

Drug formularies were used by 39% of HMOs, down slightly from 40% in 1988. Of HMOs more than 10 years old 59% had formularies during 1989. A noteworthy change from 1988 was the expansion of formularies by staff models, 46% of which had more than 1,000 drugs on their approved lists last year. The year before the number was 36%.

Hospital-affiliated and independent HMOs were the two groups by owner type that increased formulary use in 1989. HMOs had a smaller portion of prescriptions filled using formulary-listed drugs than in 1988 --90%, versus 94%.

Most HMOs were independent practice association models, serving patients out of independent physicians' offices. Only 20% of HMOs had in-house pharmacies, up from 16% in 1988. The HMOs that operated in-house pharmacies most often were staff models, which serve patients out of centralized clinics. The percent of such HMOs with dispensing units grew from 23% to 32%.

Some of the other survey findings for 1989 included:

* Some 14% of HMO plans provided benefits for O-T-C medications. * Experimental drugs and cosmetic aids were the pharmaceuticals most often excluded from benefits. * The median drug supply for chronic ills was 34 days. * After reviews, HMOs most often resorted to quality control and financial incentives in order to limit physician prescribing. * About 64% of HMOs used formulas, including costs plus dispensing fees, to compensate pharmacies. * Some 31% changed formularies monthly, versus 21% in 1988. * Roughly 64% required generic drug substitutions whenever possible, although two-thirds of all prescriptions were filled with brand names. * And 61% made substitutions based on price.

The data was drawn from a sample group of 393 of the nation's 643 operating HMOs. The survey was conducted in early 1990 and was designed to fit the profile of the HMO industry by model type and size. The plans surveyed represented 21 million members. The statistics intentionally reflect only the cost of providing pharmaceuticals to non-Medicare members.

Medicare and Medicaid enrollees constitute only a small part of the 34.1 million enrollees in HMOs.

Late in 1990 Marion Merrell Dow will publish midyear HMO and preferred provider organization data.
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Title Annotation:RX: Mass Market Retail Pharmacy
Publication:Chain Drug Review
Date:Jul 30, 1990
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