Doctors are feeling the pinch as health plans shift some or all of the risk for drug benefits to medical groups.
Just this month, Minneapolis-based Medica Health Plans sent a warning letter to hundreds of contracted physicians about prescription drug use. It said that for the first time the physicians could lose all their annual fee withholds, an amount set aside as a financial incentive to them, if they do not reduce expenditures on costly treatments like certain heart drugs and antidepressants.
The average physician in the plan stands to lose $5,000.
Medica says its pharmacy costs surged 18% in 1996, more than any other expense. And it's not alone. HMOs traditionally have been big advocates of prescription drugs, which can prevent more expensive treatments such as hospitalization. But drug utilization has shot up for various reasons recently, hurting plans' earnings.
Now health plans are pushing physicians to change prescribing habits by putting them at risk for drug utilization.
But often pharmacy risk is a money loser for medical groups, experts say.
"Ninety percent or more of the medical groups I represent lose money on pharmacy," says Noah Rosenberg, an attorney with Los Angeles firm Rosenberg & Kaplan, which has negotiated prepaid contracts for providers in about 20 states.
The number of HMO enrollees covered by plans that share pharmacy risk with providers has increased sharply, up 95% in three years, to 24.6 million in 1996 from 12.6 million in 1993 (See chart). For 1996, that translates to nearly one-third of total HMO enrollment.
Most medical groups work under partial-risk arrangements, such as withholds. A handful of groups take full risk.
Jack Raber, a Seal Beach, Calif.-based pharmaceutical services consultant, says many medical groups want the big chunk of potential revenues from pharmacy risk, but most don't have the policies and infrastructure to manage it, particularly under full-risk contracts.
For example, most groups lack mechanisms to change physicians' bad habits, such as prescribing brand-name drugs when a generic will do or yielding to patients' requests for a particular drug that's been advertised.
"Some groups exert tremendous control (over prescribing) where physicians are employees, but if they're partners it's hard," Raber says.
Large medical groups can take steps to monitor prescribing patterns and help prevent adverse reactions to drugs. That includes establishing a pharmacy and therapeutics committee and operating in-house pharmacies.
MedPartners, a giant physician practice management company, operates 31 pharmacies in Southern California and might add more, says John Parodi, vice president for pharmacy education for the Western division of the Birmingham, Ala.-based firm.
MedPartners' own spending on prescriptions in its prepaid Southern California medical groups soared to a current 15% of healthcare expenditures from 5% in 1994, Parodi says. The groups accept full risk for healthcare services, receiving a prepaid per enrollee per month rate for all medical services.
Perry Cohen, a pharmaceutical services consultant based in Glastonbury, Conn., views full pharmacy risk as a step appropriate only for large medical groups that have tamed hospital and specialist utilization. He agrees with other experts that strong physician governance is essential to success.
One difficulty in managing prescription costs is that HMOs use different formularies, or prescribing guidelines, complicating their application. Some medical groups are establishing their own formularies to gain more control over drug utilization, Cohen says. To justify the cost of hiring a pharmacist for such an endeavor, a group needs at least 70,000 prepaid health plan enrollees, he says.
Meanwhile, physicians are going to have to learn to do more with less.
In Minnesota, critics of the withholds say they pit patient interests against physician pocketbooks. But Medica, which is owned by Allina Health System, says it is aiming to reduce inappropriate usage.
Sometimes that could involve more drug utilization. For example, it found some of its enrollees received Prozac for only three months; but the antidepressant requires six months to be effective.
"We think we're being reasonable. We want physicians to work with us and look at their own practices," says Medica spokeswoman Gloria O'Connell.