Compromising Your Drug of Choice:
How HMOs are Dictating Your Next Prescription

December 1996. 73 pp.
New York City Public Advocate Mark Green.

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This six-month investigation has identified a new and unhealthy trend in the marketing of medications to millions of New Yorkers enrolled in health insurance plans which cover prescription medications. The drugs that health insurance plan members -- especially members of managed care organizations such as HMOs -- are receiving at pharmacies are increasingly not the ones initially prescribed or desired by their doctors. Physicians and pharmacists are being systematically pressured to rewrite or switch prescriptions to cheaper medications favored by drug marketing middlemen retained by the health insurance plans.

Several of these marketing middlemen, called Pharmaceutical Benefit Managers (PBMs in the alphabet soup of managed care), have become billion dollar corporate giants influencing drug selections for tens of millions of patients. And the switches or "therapeutic substitutions" which PBMs now encourage mean that patients can get an inappropriate, or less appropriate, prescription than their physician's initial or usual choice. Since the U.S. Patent Office says it only grants patents to drugs if they are "novel and useful," these substituted drugs are often not truly interchangeable. Each has different properties and effects, just as each patient has different needs and responses, which is precisely why prescription decisions have historically been such a sensitive medical judgment. This report demonstrates that HMOs and drug manufacturers, through PBMs, are increasingly determining what pill will end up the mouths of patients, sometimes with adverse health consequences, particularly for the elderly and chronically-ill.

Commercial concerns are driving this remarkable, subterranean and still-evolving transformation of the medication marketplace. PBMs are now being bought outright by the drug makers. Other PBMs are signing contracts with manufacturers and are paid millions of dollars in rebates by them for promoting the sales of particular drugs.

These vertical arrangements and discounts have the goal of helping to keep a lid on prescription costs, which account for nearly 12 percent of the nation's health care bill, and in 1995 continued to climb at a rate faster than inflation. Five billion dollars was spent on prescription drugs in New York State alone in 1995. A laudable attempt to control medication costs, however, is increasingly colliding with the interests of doctors and patients, who want to dispense and receive the best possible drug.

Manufacturers and PBMs use formularies -- a list of drugs a health insurance plan will cover -- as the basic device to affect drug selection. Formularies exclude certain drugs from coverage altogether and express preferences even among the drugs they approve because of the desire of drug makers to boost market share for their most profitable products.

Therapeutic substitutions are but one manifestation of a fundamental contradiction in the burgeoning managed care sector: when cost-cutting endangers the practice of good medicine. The first installment of the Public Advocate's ongoing series of reports on managed care, What Ails HMOs, released in January 1996, identified numerous examples of this conflict, from possibly too-short hospital stays to shrinking provider capitation payments that discourage providing good care. Future installments will look at mental health coverage and health care for the disabled.

To produce this part of the Public Advocate's managed care series, we analyzed the formularies of 15 major HMOs operating in New York State, surveyed numerous pharmacists across the state, including the regional representatives and the board of directors of the Pharmacists Society of New York State, spent many days in pharmacies watching the substitution process occur, interviewed scores of physicians, staff pharmacy directors of HMOs and patients, examined PBM-HMO contracts and public disclosures, and reviewed litigation, medical journals, academic studies, government reports and trade journals.