Managed care drives drug growth

The United States pharmaceutical industry experienced an unprecedented real growth rate of more than 10% in 1996, according to IMS, a Plymouth Meeting, PA-based unit of Cognizant Corp.

The industry saw an 11.7% increase in dollar purchases and a 1.6% increase in prices, producing real growth - in excess of pricing increases - of 10.1%.

IMS attributed the growth to managed care: Contrary to conventional wisdom that managed care is a threat to the pharmaceutical industry, managed care has actually driven up drug utilization, causing the highest prescription growth rates the industry has ever seen.

"Compared with utilization, pricing is a relatively minor driver of overall growth," said Richard Fehring, vice president of global client services. "Our data show that over the past several years, pricing increases have slowed while volume has increased. In 1996, prescription volume rose nearly 4% over the previous year."

Not only has script volume grown, but the number of pills per script is growing as well.

IMS' look at average prescription sizes for select single-source products revealed that scripts that were paid for by managed care groups were generally 20% larger than those paid by cash.

Managed care

IMS also noted that while almost all of the 688 health maintenance organizations in the United States offer some type of prescription benefit, only 27% have closed formularies.

Within this group, about 88% of prescriptions are filled by formulary-listed products.

Surprisingly, generics have not had the kind of success expected in the cost-conscious managed care environment, according to IMS.

Approximately 57% of all prescriptions paid for by managed care are still filled with brand products - a virtually identical ratio to the overall market.

Instead, Fehring said managed care has created cost-insensitive consumers due to low copayments. "Before managed care, patients were more apt to ignore doctors' prescriptions or buy over-the-counter products instead to save money. Today, consumers are more likely to fill more prescriptions because there is a minimal copay in the range of $5 of $10. And since the median copay for brand products is usually only a dollar or two more, they are less apt to ask for a generic."

Promotion

Pharmaceutical manufacturers have been investing less time and money on promotional activity directed at physicians, according to IMS. Since 1994, office and hospital calls have decreased more than 12%.

However, Fehring suggested this trend will reverse itself. "Many companies have increased their marketing efforts aimed at doctors. For the most part, they are discovering that the doctors are still the ones with the greatest influence and they are re-focusing their efforts back to these activities."

In fact, Fehring said this trend back to traditional promotion is already evident in journal advertising. The amount spent on advertising in professional journals decreased in past years,but was up again by 23% in 1996, according to IMS. PR