journal of managed care pharmacy

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volume four. number sixnovemberldecember 1998

Journal of Managed Care Pharmacy @Official Journal of the Academy of Managed Care Pharmacy

COMPARATIVERESEARCH. Treatment of Patients With ALS:Implicationsor the Managed Care

Pharmacist

. The Information Requirements of HealthSystems as Drug Purchasers: Does theFDA Have a Role in Setting EvidentiaryStandards?

. A Predictive Cost AnalysisModel forEstimatingFormulary Impact of NewProducts in Managed CareFEATURES. Maximizing Generic Substitution inManaged Care. State-by-State Look at Medicaid RetailPharmacy Delivery:Trials and Triumphs


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'C 0 V E R IMPRESSIONSThe Skater (1771)

Looks can be deceiving. For exam-The Skater, featured on the cover ofissue of JMCP, shows a courtlygentleman skating in aquiet setting. Who wouldthat such a scene was painted

an often-vulgar prankster with a wildGilbert Stuart played crude practical

on his colleagues and students,n snuff, and enjoyed liquor. Inyears, his face reflected a life ofAt the same time, however, he

a cultured, intelligent man whoand studied in Europe and wasby his colleagues and wor-by his students. Clearly, Stuarta man of contradictions. And hiscould be just as enigmatic as theirThey appeared on the surfacepeaceful, and attentive to theBut a closer look at his brush-and painting style shows a quick,hand eager to capture the"aware of the luminous possi-of brushstrokes as appliedthe layered glaze technique,"indifferent to the subjectThe colorful life of Gilbert StuartDecember 3, 1755, in a mill inEngland. He was a spoiled child,by his parents and older sis-He spent his youth in Newport,Island, in a tobacco shop on theof the maritime city. Stuart was

as a capable, self-willedHe also was a bit of a hooligan andtime prowling the town with aof street urchins.While he enjoyed his wild youth,also exhibited a strong inte]]ectartistic leanings. His first artisticwere with Samuel King, anmaker who had taught him-

to produce crude portraits.However, Stuart spent only a shortwith King; his head was turnedCosmo Alexander came to town.an elegant Scotsman, was

.. Gilbert Stuart (1755-1828)hardly a great artist, but his portraitswere the most expert the citizens ofNewport had seen. The Scottish artistsoon was enjoying an impressiveincome, and young Stuart was thrilledwhen Alexander took him on as anapprentice.After studying with Alexander inNewport for several years, Stuart leftwith his mentor in 1770 or 1771 on atour of the American South, then abroadto Scotland, returning to Newport, thenmoving to Boston. But he was restlessand eventually found his way toLondon. Stuart spent his early years inEurope destitute, often living on thestreets. His work, which had receivedpraise in Newport, seemed shamefullyinferior on the sophisticated London artscene. At one point, he actually gave upthe idea of being a professional artist.

Stuart's break came when he got anopportunity to study with famedAmerican artist Benjamin West. West"knew that Stuart's hands trembled soviolently because of overtaut nerves; herecognized his outrageousness wascaused by a lack of self confidence; andhe treated him, Stuart remembered, likea son." Although West's portrait styledid not greatly influence Stuart, theyoung artist matured and grew underWest's tutelage. And although he stillindulged in vvild sprees, he learned topaint with regularity and self-discipline.He developed a unique style that assimi-lated the European mode and traditionwith American pragmatism. Stuartbegan to establish a "painterly traditionof transparent luminosity" that set thescene for the Romantic art movement inAmerica.It was at West's urging that Stuartagreed to do a full-length portrait ofWilliam Grant of Congalton. Inspiredwhen Grant suggested that he and Stuartskip the first sitting for the portrait andgo ice skating, the artist began work onwhat would become one of his most

famous and highly praised works. Afterbeing held quietly in private hands, thework called Gentleman Skatingwasexhibited as a "probable" ThomasGainsborough seven years after its com-mission. Although the critics disputedtis attribution and argued among them-selves about the painter's true identity,they agreed unanimously that GentlemanSkating was a standout in a show ofmasterpieces. When Stuart was lateridentified as the artist, the recognitionmade him famous.After many years in Europe, Stuart .eventually returned to New York, amove that led to the artist's place inAmerican history books. It was here thathe was commissioned to paint his mostfamous subject. Today, the artist's por-trait of George Washington hangs inschools, libraries, and city halls nation-wide and has appeared on postagestamps, posters, and adversements.

Pharmacists and other health careprofessionals learn early in their school-ing to look beneath the surface andbeyond the obvious. They know that thetruth about a patient's condition mayormay not be what it appears initially.These mysteries, enigmas, and contra-dictions are part of what makes everyminute of our work so interesting.Joanne KaldyJMCP Contributing Editor

.. Cover CreditGilbert Stuart (1755-1828) THE SKATER, oil oncanvas. CopyrightlQ 1998, The National Gallery ofArt, Washington, DC. All rights reserved.

.. Reference1. Novak B. American painting of the nineteenthcentury New York, NY: Harper & Row, Publishers,1969.

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BOARD OF DIRECTORS .Steven G. Avey, M.S., RPh., Prospec-tive Health, Inc., Sandy,pTCarey C. Cotterell, RPh., KaiserPerrnanente Medical Care Program, Anaheim, A

President: Lowell T. Sterler, RPh., M.BAHealth Systems, Inc., Scottsdale, AZShawn Burke, RPh., CoventryHealth Care, Kansas City, MOJean Brown, Pharm.D., PCS HealthSystems, Fountain Hills, AZLarry Barenbaum, R Ph., Rxlmage,Wheeling, ILBruce Fallik, M.S., RPh., Blue CrossBlue Shield plans of Colorado, New Mexico,and Nevada, Deriver, COCynthia] Pigg, RPh., ClGNAHealthcare, Glen Allen, VA

ADVISORY BOARDD. Bimer, RPh., MBA, Harvard PilgrimHealth Care, Brookline, MA

I. Brixner, Norvartis PharmaceuticalsCorp., East Hanover, NJC. Cotterell, RPh., Kaiser PermanenteMedical Care Program, Downey, CA

E. Daniels, National Institutes of HealthClinical Center, Bethesada, MDDillon, M.S, R.Ph., Foundation forManaged Care Pharmary, Alexandria, VA

Elder, R.Ph. MBA, PCS HealthSystems, Inc., Scottsdale, AZEngle, Ph.D., University of Alabama atBirmingham, Birmingham, ALB. Ginsburg, University of Texas, atAustin, College of Pharmacy, Austin, TX

Hadeler, 3M Pharmaceuticals, St. Paul, MNS.,Hunter, Ph.D., NLU College ofPharmacy, Monroe, LAMcCarthy, Ph.D, Massachusetts Collegeof Pharmacy &: Allied Health Sciences,Boston, MA

A. Motheral, University of Arizona,Tuscson, AZ.

E. Ogden, M.S., FA.5.H.P, Department ofVeterans Affairs, Washington, DCA. Wanke, M.S., R.Ph, ImmunexCorporation, Seattle, WAWaugh, Pharm.D., WellpointPharmacy Management, Calabasas Hills, CA

HEADQUARTERSNorth Pitt Street, Suite 400VA 22314A 703/683-8417 (fax)OFFICEJamieson Avenue, Suite #210VA 22314-5715A 703/518-8495 (fax)

SALES OFFICESouth Main Street, Suite 10 1PA 18901A 215/345-0187 (fax)

CONTENTS.}~CPJournal 01 Managed Care Pharmacy@OfflciIIiJo.;'n.oIoI"",-.yolM.l""~CanJ~

" AMCE,...m,f ManagedCare PharmacyVolume 4, Number 6 November/December 1998

585

COMPARATIVE RESEARCHA Predictive Cost Analysis Model for Estimating Formulary Impact of NewProducts in Managed CareSamuel Hedayati and Peter W Kleinstiver

593 Information Requirements of Health Systems as Drug Purchasers:Does the FDA Have Role in' Setting Evidentiary Standards?Paul C. Langley

'-, 599 Treatment of Patients with ALS: Implications for the Managed CarePharmacistAnthony Barisano and Jeffrey A. Kramer

& CONTINUING EDUCATION617 Research Methodology:Some Statistical Considerations

Peter D. Hurd

Vol. 4, No.6 NovemberlDecember 1998 }MlP Journal of Managed Care Pharmacy 541


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EDITOR-IN-CHIEFLouise J. Sargent, M.S., R.Ph. . Astra Pharmaceuticals, L.P . St. Paul, MN 55117PUBLISHERJudith A. Cahill, Executive Director. AMCP HeadquartersMANAGING DIRECTORRebecca Mashaw. Mitchell Petersen, Inc. . Editorial OfficePRODUCTION MANAGERSue Partyke . Mitchell Petersen, lne. . Editorial Office

PEER REV] EW ASSOClATEEDITORChristine Campbell. Mitchell Petersen, Ine. . Editorial OfficeADVERTISING REPRESENTATIVEAdam Handler. MedMedia@ . Advertising Sales Office

'-

CONTRIBUTING EDITORSMarlene Z. Bloo~1J.. AMCPROGRESSPerry Cohen A FeaturesRenwyck Elder'" SpotlightDiane Ginsburg J. CavcatsTracy S. Hunter A. AcademicsJoanne Kaldy ... Cover ImpressionsRobert McCarthy A CampusJ. Warren Salmon'" InternationalKenneth W Schafermeyer IJ.. Continuing Education/CE ExamLee A. Wanke'" PerspectivesAMCP STAFFStacy Andres, Manager of Education ProgramsMarlene Z. Bloom, Director of CommunicationsJudith A. Cahill, Executive DirectorMonica Escobar, Administrative AssistantJennifer L. Fortney, Coordinator of Member ServicesRichard N. Fry, Director of Pharmacy AffairsConnie Fulwiler, Executive Assistant c'Jack Geisser, Legislative AnalystAime S. Hickox, Manager of Meetings and EventsLeah Lough, Director of Marketing Development and EducationJulie A. MacDonald, Manager of PublicationsNina Nance, ReceptionistNicole Reynolds, Office ManagerKevin Rhoden, BookkeeperMaxine White, Administrative Assistantjournal of Managed Care Pharmacy (lSSN 1083-4087) is published bimonthly by the Academyof Managed Care Pharmacy, 100 North Pitt Street, Suite 400, Alexandria, VA 22314; 703/683-8416; 800/TAP-AMCP; 703/683-8417 (fax) Annual membership dues are $125 for ActiveMembers and $225 for Associate Members, $20 of which is allocated to a subscription to journalof Managed Care Pharmacy. Periodicals postage pending at Alexandria, VA, and additionalmailing offices

Postmaster: Send address changes to Journal of Managed Care Pharmacy, 100 North PittStreet, Suite 400, Alexandria VA 22314.Correspondence related to editorial content should be mailed to the Managing Editor at MitchellPetersen, lne., 1775 Jamieson Avenue, Suite #210, Alexandria, VA 22315-5715.Annual Subscription Rates: USA, individuals, institutions-$60; Canada-$60; other countries-$80. Single copies cost $10. Missing issues replaced free of charge only up to six months afterdate of issue. Send requests to AMCP headquarters.Advertising for journal of Managed Care Pharmacy is accepted in accordance with theadvertising policy of the Academy of Managed Care Pharmacy For additional information, contactthe Advertising Sales Office.All articles published represent the opinions of the authors and do not renect the officialpolicy of the Academy of Managed Care Pharmacy or the authors' institutions unless so specified.For article reprints, contact Tricia Rudis, Reprint Management Services, 717/560-2001 x49.Microfilm and microfiche editions of ournal of Managed Care Pharmacy are available fromUniversity Microfilms, 300 N. Zeeb Road, Ann Arbor, MI 48106.jMCP is indexed by Interna-tional Pharmaceutical Abstracts and Iowa Drug Information Service.Copyright ( 1998, Academy of Managed Care Pharmacy, Ine. All rights reserved. No part ofthis publication may be reproduced or transmitted in any form or by any means, electronic ormechanical, without written permission from the Academy of Managed Care Pharmacy.

CONTENTS}MCP/,' Journal of Managed Care Pharmacy@"""'-'.JIJ


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CAVEATSYou know the feeling: A knot beginsto form in your stomach. Time rushes

on. Your coworkers are frantic. Teamefforts become more difficult as nervesare frayed. Frustration, aggravation~nda general fear of the unknown are preva-lent in the organization.The cause of the syndrome? A regu-latory or accreditation site visit.Health care practitioners resentcompleting tasks solely to satisfy a regu-latory standard. As professionals, weconsider everything we do as an exten-

. sion of our professionalism. Meeting reg-ulatory standards is considered an intru-sion into our professional integrity aswell as a time-consuming task that de-tracts from our ability to provide high-quality care to our patients. Early ac-creditation o;urveys produced 'these feel-ings and the accompanying symptoms.These surveys typically were tied tocompliance with stringent standards,Organizations often modified policies toreflect accreditation standards ratherthan actual organizational practice. Inor-dinate amounts of time and energy weredevoted to making changes within theorganization to meet the regulatory stan-dard. Thesstandards were almost uni-formly process- and structure-focused,not outcomes-driven.

Currently, health care is shifting toan outcomes focus. As managed carepharmacists, we too use outcomes to

The Survey Syndromejustify many of the decisions we make.The outcomes literature still is in itsearly years, and there still is much datato be collected. As the field of outcomesresearch continues to grow over the nextfew years, and as experience grows withit, a more definitive picture of best prac-tice standards will develop.Most health care practitioners don'trealize that, to a significant degree, theaccrediting organizations themselves havedriven the shift to an outcomes focus.These organizations have shifted fromprescriptive standards to standards thatallow organizations to find their own bestpractices, as long as the outcome of theprocess of care has been evaluated. Ac-crediting organizations are striving to ex-pand the outcomes literature by encour-aging reporting of outcomes of care andallowing organizations to look within theindustry for benchmark best practices.The value this shift in focus bringsto patient care cannot be overstated. Theaccreditation process is an extension andvalidation of good patient care. Surveyorsbring outside expertise and experiences-both personal and those gleaned fromvisits to other organizations-that canbe valuable resources to organizations.When this expertise is combined withthat present in each individual organiza-tion, the synergy of ideas can result inimprovements in performance and out-comes of care for the benefit of patients.

544 Journal of Managed Care Pharmacy }MlP November/December \998 Vol 4, No.6

This is not to say that the accredit-ing rganizations do not make mistakesin developing standards to which we, ashealth care providers, must adhere. Weshould not take a passive role in accept-ing these faults but assume, instead, atrue partnership that creates standardsto which we are proud to be held.The next time your organization isscheduled to undergo an accreditationsurvey, use the experience to showcasewhat your organization does really welland look for opportunities to gain in-sight into processes that you know canbe improved. Try approaching the sur-vey with an open mind, anticipation,excitement, and a willingness to ex-change experiences. Not only will youfind the survey more tolerable, but youalso will likely find that the experienceprovides some stepping stones for futureimprovement in the care your organiza-tion provides to the' patients it serves.

Charlotte A. Kenreigh, Pharm.D.ManagerLinda Timm Wagner, Pharm.D.Manager

MLC SolutionsGalena,OH


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Mary Ellen McPeak

, AUe/101

MARY ELLEN McPEAK is Senior Writerfor Emron,Totowa, NJ.

Copyright 9 1998, Academy of Managed CarePharmacy, Inc. AI/lights reserved.

State-by-State Look at Medicaid RetailPharmacy Delivery:Trials & TriumphsAs states shift the delivelY of Medicaid benefits,including retailpharmacy, to managed care Medicaid insurers, related cost-controlshifts are occurring around the country.

Year fter year, the number ofMedicaid enrollees in managedcare increases. Between 1992 and1997, even with the total Medicaid pop-ulation remaining fairly stable, the num-ber of recipients served through man-aged Medicaid programs rose from 2.7million to 13.3 million. Medicaid man-aged care enrollment increased fourfold,

from 9.5% to 40% of eligible recipients.]Medicaid managed care enrollmentcan be either voluntary or mandatory.The use of Section 1915b waivers (free-dom of choice) and Section 1115 waiv-ers (typically, pilot programs of predeter-mined duration to determine services orreimbursement requirements for expan-sion of a state's Medicaid benefits) in-creases access. As of March 1997, theHealth Care Financing Administration(HCFA) had granted 114 waivers acrossthe nation.' Currently, only Alaska andWyoming have yet to switch their Medi-caid recipients into managed care. At theother end of the spectrum, 31 states haveat least 50% of their Medicaid eligiblesin a managed care plan, with Arizonaand Tennessee providing managed careas their sole source of Medicaid benefits.Although some managed care plans, es-pecially those ne,v to the Medicaid mar-ket, have withdrawn from Arizona, Cali-fornia, Connecticut, New York, New Jer-sey, Pennsylvania, and other states, blam-ing inadequate reimbursement rates, 'na-tional enrollment in Medicaid managedcare programs continues to increase asstates are asked to assume responsibilityfor greater numbers of needy patients.Although the latest enrollm~nt statisticsare imposing, they probably represent

546 Journal of Managed Care Pharmacy jMCP November/December 1998 Vol. 4, No.6

only the tip of the managed care iceberg.Overall, within the next decade, an esti-mated 80%-90% of the American popu-lation will receive care through an inte-grated service network that provides pri-mary, specialty, and hospital services. Asa result, Medicaid enrollment rates inmanaged care are likely to continue toincrease for at least three reasons:... States now have the right to mandateMedicaid eligibles into managed careplans.... More- health maintenance organiza-tions (HMOs) now can bid for Medicaidcontracts because the 75/25 law, whichrequired that managed care plans enrolla minimum 25% of commerciallyinsured enrollees along with itsMedicaid enrollees, has been repealed.... Some low-income populations nowcan buy into Medicaid plans, paying asliding fee scale.THE MANAGED MEDICAIDPHARMACY BENEFIT

A pharmacy benefit is part of everystte's traditional Medicaid program and,under law, managed care plans mustprovide equal coverage to the state'sb.enefit program, even if it exceeds thecoverage available to other plan mem-bers. For example, some state formula-ries cover selected over-the-counterdrugs, typically nonsteroidal antiinflam-matory drugs, cough and cold remedies,antihistamines, antacids, and vitamins.Furthermore, most states require no orvery low copayments from Medicaidpatients. State Medicaid formularies also


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State-by-State Look at Medicaid Retail Pharmacy Delivery: Trials &: Triumphsheavily on generic equivalents, anthat commercial managed care

welcome.Currently, Medicaid fee-for-servicereimbursement rates to pharma-are higher than those of third-partyAccording to a NationalCouncil survey, mostprograms (55%) calculate reim-

rates using average wholesale(AWP) minus 10% or 10.5%.California, Minnesota, Nebraska,Virginia, and Wyoming havereimbursement rates, discountingrates by less than 10%. Connec-Delaware, Michigan, New Hamp-New Mexico, Utah, and Westhave deeper discounts of 12%-bringing them closer to the aver-for commercial third-party payors.Average dispensing fees paid to retailfor Medicaid prescriptions

vary widely In addition, many statesa range of dispensing fees, with

set according to specific cri-such as outpatient dispensing ver-long-term care dispensing, or brandgeneric dispensing. The averagefee ranges from $3-$4.50prescription. Across the board, theof a prescription in the United

rose last year by $2.80 to an aver-of $35.89, according to data in thePharmacy BenefitReport: 1998and Figures.

CHANGES INOF MEDICAID RETAILDOLLARSFigure 1 shows the degree of changeFFS Medicaid dollars spent at thepharmacy level. Starting on the

Coast, Pennsylvania's share of FFSpharmacy dollars fell 11.6%,as a result of the state's first foraymanaged Medicaid.3 Its new $11program, Health Choice, is onlyin the state's most populous

five-county Philadelphia region.into the Midwest, data show that

level of Medicaid pharmacydipped only 1.3% afterintroduction of managed Medicaid

Figure 1. Changes in Medicaid Spending at Retail Pharmacy LevI

"-.,.71.7% .

. 70.0% and greateriii 60.0 - 69.9%IIJ 50.0 - 59.9%II] 40.0 - 49.9%EJ 30.0 - 39.9% .

Source: Novartis Pharmacy Benefit Report: IMS Health Retail Method of Payment Reportinto Detroit and surrounding counties.State-reimbursed pharmacy retail spend-ing is expected to decrease again nextyear, however, because Michigan ispushing for its managed mental healthplans to add a pharmacy benefit. InUtah, the rate of change in Medicaiddollars moved down 2.1 %-an im-pressive achievement, considering thatUtah has carved in an FFS Medicaidpharmacy benefit plan. State admini-strators largely attribute this accom-plishment to the state's computerized,centralized, real-time Medicaid drugutilization program, which containsthe name of every Medicaid enrollee inits database.

States experiencing less control overtheir traditional Medicaid retail drugreimbursement levels include Kentucky,New York, and North Carolina. Kentuckyhas seen its FFS Medicaid pharmacyspending increase 39%.3 There are atleast two reasons for this predicament:1) the state's goal ,is to introduce man-aged Medicaid into its counties on anincremental, region-by-region basis-atactic Kentucky hopes will avoid someof the implementation/service deliveryproblems incurred by its neighbor, Ten-nessee, which switched all its traditionalMedicaid enrollees into a managed careprogram in one fell swoop; and 2) therehas been a lack of interest in acceptingmanaged care Medicaid members fromadequate potential insurers.

The job of cost-effectively admin-istering New York's FFS Medicaid phar-macy benefit program has been daunt-ing. Retail dollars reimbursed grew21.2% from 1996 to 1997, $609 millionmore than FFS Medicaid in California,the state' with ~hesecond highest Medi-caid pharmacy tab.3 In the past, NewYork carved in pharmacy benefit deliv-ery for Medicaid enrollees diagnosedwith HIV/AIDS. During the next fewyears, the state will be carving in allMedicaid pharmacy delivery This tacticwill, for the first time, allow the state tocollect statewide Medicaid pharmacyutilization data via a systematic, linkedprocess-a process that should eventu-

.ally help New York better control itsFFS Medicaid expenditures.

In a similar vein, North Carolinaexperienced an 11.3% increase in FFSMedicaid pharmacy dollars spent,3 and,at the same time, the state ranked firstin growth (25%) of third-party reim-bursed retail prescriptions. North Caro-lina has been moving Medicaid eligiblesin the Charlotte region into managedcare Medicaid programs. In addition, itis in the process of developing a diseasemanagement program for Medicaid-insured children with asthma. Otherprograms have opened access to greaternumbers of Medicaid eligibles, someserved by commercial plans and someunder state benefit management (retailreimbursement)

Continued on page 551 ~Vol. 4. No.6 November/December 1998 }M{P Journal of Managed Care Pharmacy 547


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State-by-State Look at Medicaid Retail Pharmacy Delivery: Trials &: TriumphsContinued from page 547Faced with increasing drug costs andMedicaid enrollment, managedpharmacistshave their cost account-work cut out for them. This

task is likely to become morebecause most states initiallythe healthiest members of theirpopulation-young womenchildren-for enrollment. Now istime to provide services for the otherenrollees-those patients whofor one-quarter of enrollees butof health care expenditures.SHIFTS EXPANDINGFOR

AT STATE LEVELShifts in the way the Medicaid phar-benefit is reimbursed are influenc-corresponding shifts throughout the

care industry. Both retail and hos-pharmacists are affected. Noviewed as merely product pur-who simply deliver the salves,and syringes from behind apharmacists are being recog-as strategic players in the strugglepharmacologic benefits and

adverse events and ineffectivecare expenditures. Pharmacists arethe right to be financially reim-for educational services, as arehealth care professionals, especially

services provided in clinical settings.Emerging fields for pharmacistsutilization review and drug use

programs (DUR/DUE);services; and

management programs

FOR MANAGEDENROLLEE PHARMACYPROGRAMSManagement for OUR/DUEInitially, Medicaid administratorsDUR programs as a way to iden-

patients guilty of drug benefit frauddrug abuse. Today, identifyingand/or patient -oriented abuse,

while still important, is a secondary con-sideration among the many benefitsachievable with effectively designed, on-line, real-time DUR/DUE data systems.

Utah's experience with DUR systemsoffers a prime example of the health careenhancements that other states canachieve for their Medicaid enrollees. InUtah, a state with a carved-in FFS phar-macy benefit and an open formulary,currently available drug review and eval-uation options include programs thatmonitor a patient's file for duplicatetherapies, drug-disease contraindica-tions, drug-drug interactions, mini-mum/maximum dose levels for childrenand adults, and pregnancy-related con-traindications. On average, the Medicaiddata system processes about 160,000prescriptions per month, flagging about30,000, or 19%, for review. Of these,about 1,300, or 4%, of prescriptionclaims are denied based on DUR warn-ings, according to Duane Parke, R.Ph.,M.H.A., drug utilization review programmanager, Utah Department of Health.Utah's Medicaid Prospective DrugUtilization Review Program saved thestate an estimated $4 million-$5 millionin avoided hospital admissions andphysician office visits, according to RayDell Ashley, its Medicaid pharmacy/health program director.The state's pharmacists, by doingtheir bUR homework, enabled the Utahprogram to identify and prevent a num-ber of narcotic/acetaminophen-combina-tion adverse events, as well as to forecastand avert the phenterminelfenfluramine(phen/fen) disaster before it came ontothe national radar screen. Another state making progress in thebattle to redirect costs to risk insurers isNew jersey. Its Medicaid pharmacyspending dropped by 8.6%, with overallthird-party share of prescriptions in-creasing by 19.6%3 The state has 10managed care plans providing a pharma-cy benefit, including the Mercy HealthPlan of New jersey, a plan managed byHMO Blue, the Medicaid arm of BlueCross and Blue Shield of New jersey.Since the spring of 1997, Mercy hasbeen revie\ving the pharmacy data of its

100,000 members-75% of whom arechildren, and 10%-15% of whom areasthmatics-for signs of therapy compli-ance. Scanning for signs of patient non-compliance, Leslie Lotano-Saba, R.Ph.,M.S., director of pharmacy services, rou-tinely checks for optimal asthma therapycompliance.

Patients identified as possibly non-compliant or not treated optimally,based on the National Institutes ofHealth guidelines, are considered candi-dates for an asthma intervention pro-gram when their data indicates they: 1)use acute care albuterol inhalers LOOoften; 2) do not often receive long-termcontrol therapies; and 3) only infre-quently get breakthrough asthma-attackdrugs. The care coordinator providesfollow-up with these patients and islikely to refer them to the plan's asthmaDM program.Mercy has yet to determine savingsaccrued via fewer asthma-related emer-gency room and hospital admissions.Studies demonstrate, however, thatpatients admitted for an acute exacerba-tion who go on to enroll in a DM pro-gram are three to four times less likelyto be readmitted for asthma during thenext three months.COGNITIVE SERVICES

Because the pharmacy benefit re-mains a therapeutic linchpin of managedcare plans, pharmacists are in an excel-lent position to demonstrate how theirproactive services markedly enhance thevalue and reduce the risks associatedwith pharmaceutical care. The OmnibusReconciliation Act of 1990 supportsfunding of demonstration projects toevaluate payment for cognitive services,and many cognitive services studiesaround the United States are demon-strating how pharmacist services add tooverall positive health care outcomes,although few are reimbursed or recog-nized. Fiscal redress, however, may beon the horizon; the U.S. Congress has"expressed interest in reimbursing phar-macists" for reducing provider servicesthat affect Medicaid or Medicare drug

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State-by-State Look at Medicaid Retail Pharmacy Delivery: Trials &: Triumphs

Table 1. Community Pharmacist-Provided Cognitive ServicesState of Service Rendered Outcome Estimated SavingsNebraska &: Iowa 19 pharmacies 712 Rx interventions $1.178 million in avoided ER: 1 month &: physician office visits/monthKansas 25 pharmacies/ 294 Rx interventions $490,836 in avoided1 month hospitalizations, ER &:physician office visits monthTexas 4 pharmacies 47 Rx interventions $20,795 in avoided services2 months or $6.13 returned to healthsystem for each $1 spent on RxsArkansas 30 pharmacies/ 421 Rx interventions $12,880 in avoided ER &:1 month for Medicaid physician office visitspopulation

spending. Canada's subsidized health-care program, for example, alreadyreimburses pharmacists for saving thesystem moneyUnder that insurance program, phar-macists in at least one province arereimbursed for cognitive services. Theyare paid $15 to alter, terminate, orreplace a medication in order to preventa drug-related event, and $7 not to dis-pense a drug they deem harmful underthe circumstances. Additionally, andmore to the point, a recent studydemonstrated that pharmacists who arereimbursed for such interventions aremore likely to intervene and documenttheir activities. .Table i-identifies recent statewidestudiesH that demonstrate the. value ofpharmacist intervention in overall healthcost control. Interventions include pre-scribing errors, such as wrong drugs ordoses, and drug-drug interactions.DISEASE MANAGEMENTOPPORTUNITIES

In a benchmark decision by HCFA,Mississippi became the first state in thecountry to allow pharmacists to billMedicaid directly for DM services ren-dered. Medicaid, however, will not reim-burse .state HMOs for this service. Thisinaugural development allows Medicaidto reimburse a "credentialed" retail pharm-acist for a service beyond drug dispens-ing. Initial services covered will includefour therapeutic areas: anticoagulation,

asthma, diabetes, and hyperlipidemia.This process is intended to help individ-uals identified by their physician asmedication noncompliant. To educateMedicaid beneficiaries about their con-ditions and medications, the diseasemanagement program will require apharmacist to spend 15-30 minutes pri-vately with each patient. Each recipientwill be limited to 12 consultations peryear per condition, with a $20 flat feeper appointment. Ultimately, the pro-gram's objective is to reduce the inci-dence of costly and avoidable hospitaladmissions and emergency room visits.It is assumed that this DM break-through in Mississippi will spread toother states. With that in mind, theNational Association of Boards of Pharm-acy has called for an industry-widecoalition to establish a national creden-tialing system so that all interestedpharmacists can provide DM programs

" across state lines.Although there are numerous casesof nonphysician provider DM programsaround the country, so far traditionalMedicare is the only government-fundedprogram that pays for nonphysician ser-vices under certain circumstances.Within the parameters of specific man-aged care programs, pharmacists partici-pating in such services as anticoagula-tion clinics have been able to bill Medi-care for services provided in those clin-ics, but the method of billing was indirect.For example, under an entirely legalpricing scheme known as the "incident

552 Journal of Managed Care Pharmacy }MP NovemberlDecember 1998 Vol 4, No.6

to" rule, under specific circumstances,health care services provided by a non-physician provider can be billed as if thephysician performed them. In incidenceslike this, the amount billed is less than aphysician would charge, and it is sub-mitted to Medicare encoded at the nursepractitioner service rate, according toJames Taylor, Pharm.D., of the Depart-ment of Pharmacy Practice at the Uni-versity of Florida at Gainesville.

Pharmacist-managed anticoagulant cli-nics operate under a physician-approvedprotocol. A physician reviews each pa-tient's chart and is available for consulta-tions concerning patients whose war-farin (Coumadin) therapy is difficult tocontrol. Numerous studies have demon-strated that these clinics can improveanticoagulation control, patient compli-ance, and clot-related complications.According to the Agency for HealthCare Policy and Research, appropriateuse of oral anticoagulants could reducestrokes secondary to atrial fibrillatioI\ by50% and save $600 million annuallyWith the total cost of stroke estimated at$30 billion per year in the United States,and the estimated mean lifetime cost ofan ischemic stroke about $91,000, sys-tematic, pharmacist-managed anticoagu-lant programs are proving to be lesscostly and more effective than nonsys-tematic physician care procedures.Table 2 demonstrates health care uti-lization/cost savings achieved throughDM servicesH'1OCONCLUSION

Only a few years ago, as Medicaidpatients began to flood into managedcare waiver programs, states held thatdrug prescription costs should be trans-ferred to the commercial plan thataccepted these patients. The pharmacybenefit was usually managed as a carve-out by the plan (i.e., passed on to apharmacy benefit manager). However,the cost of supplying the pharmacy ben-efit remained difficult to finance underthe typical state formulary package. To-day, states with managed Medicaidexperience say that it is essential tomaintain control of the pharmacy benefit

Continued on page 554 ~


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State-by-State Look at Medicaid Retail Pharmacy Delivery: Trials &: Triumphs~ Continued from page 552Table 2. Pharmacist-Staffed Disease Management Programs ...State Intervention Population Estimated Savings

81 % reduction in hospitaliza-tions and $154,350 in COStSArizona Anticoagulantprogram

Anlicoagulantprogram

Mid-Atlanlic Region

Maryland Diabetesprogram

437 palients

or, at the very least, develop a statewide,seamless link to all Medicaid providersand patients. These states have foundthat it takes an integrated, shared-risksystem to deliver cost-effective, high-quality patient outcomes across theentire continuum of health care. Ob-viously, pharmacists have a clear con-sulting and administrative role to playas such programs develop.As long ago as 1975, Dr. John Millisreported in the Study Commission onPharmacy, "Delivering pharmaceuticalproducts to the patient is not, or.shouldnot be, an end in'itself. Rather, drugpreparation and distribution is but ameans to an end, the end being the

554 Journal of Managed Care Pharmacy

660 palients104 patients 49% reduction in ER/hospi ta lizations-$2 00,000in COStS per 4.5 months

$89,287 comprehensive netbenefit per year

enhanced health and well-being ofpatients." Twenty years later, this obser-vation has become a mandate to phar-macists. The opportunities attainable topharmacists in the new Medicaid sys-tems will be short-lived if drug utiliza-tion practices and medical benefits can-not be effectively managed. Pharmacistswho seize the opportunity to incorpo-rate their comprehensive skills into theevolving Medicaid care systems will bein the best position to thrive profession-ally, to establish adequate reimburse-ment techniques for their contributions,and to move pharmaceutical therapiesinto their appropriate place within treat-ment protocols.

}MCP November December 1998 Va\. 4, No.6

References1. Novanis Pharmacy Benefit Repon: ] 998 trends& forecasts. Totowa, Nj: Emron, from the lMS 'Health Retail Method of Payment Repon ] 998: 34.2. Fubini S, Limb S, Morgan SH. 1998 guide tomanaged care markets. Bethesda, MD: HealthTrends, Inc., 1998: 55.3. Novartis Pharmacy Benefit Repon: 1998 facts &figures. Totowa, Nj: Emron; ] 998: 9-11.4. Fincham j, Hospodka R, Scott D. The true valueof pharmacist care. Nat Assoc Retail Druggists j1995(March): 29-31.5. Fincham j, Hunter j. Documenting the wonh ofpharmacist care. Nat Assoc Retail Druggists j1996(April): 29-32.6. Dobie RL, Rascati KI.. Documenting the value ofpharmacist intervention. Arizona Pharmacist1994(Sep/Oct): 8-11.7. McCormack], Reinhardt G, Hastings], McGuinR. Documented value Arkansas study shows phar-macists who get paid document more interven-ti9ns. Nat Assoc Retail Druggists] 1996(March):39-41.8. Grahl C. Why begin an anticoagulation clinic?Disease State Management, Managed Healthcare:www.modernmedicine.com/mhc/dsm2sb ].9. Meszaros I.. Getting a handle on efficacy andcosts in anticoag therapy. Disease StateManagement, Managed Healthcare: www.modern-med icine.com/mhcldsm2 .html.10. lai LL, Sorkin AI.. Cost benefit analysis ofpharmaceutical care in a Medicaid population(from a budgetary perspective). ] Managed CarePharm 1998; 4: 303-08.


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Edward]. Keating

J. KEATING, RPH., is Director ojand DME Services, Priority Health,Rapids, MI.1998, Academy oj Managed CareInc All rights reserved.

MaximizingGeneric Substitution inManaged CareIncentives, education, and flexibility combine to create mandatorysubstitution programs that work.

With oday's health care mar-ket under intense pressure to. reduce costs, mdependentpractice associations (IPAs) are looking

to cut expenses associated with reim-bursement for prescription drugs. PriorityHealth is a National Council on QualityAssurance (NCQA)-accredited multi-product managed care organization(MeO) serving more than 180,000 mem-bers in 13 coupties in western Michigan.It has contractual relationships with morethan 700 primary care providers, 700specialists, 16 hospitals, and more than800 pharmacies in Michigan. More than2,800 employer groups have selected

. Priority Health as their plan of choice.After reviewing prescribing patternsof participating physicians and the dis-pensing records of pharmacists in thecatchment area, Priority Health discov-ered that many of the prescriptions writ-ten could have been filled with less cost-ly generics. It then implemented anincentive program to maximize use ofgeneric drugs. The potential for savingsin a program like this is significant. Theaverage wholesale price (AWP) per pre-scription for brand name drugs is esti-mated to be $53, but only $10 for gener-ic drugs. For every 1% increase in genericsubstitution, Priority Health could save$332,000 annually This article describesthis midsized MCOs successful efforts toimprove generic substitution rates using acomprehensive program.BENCHMARKING: THE BEGINNING

In many areas of pharmacy practice,pharmacy benefits managers (PBMs) find

that comparing MCOs nationally is use-ful. Reviewing generic substitution ratesacross the country gives overall directionto the cost ;eduction program. Whenthis program was considered, the nation-al generic substitution rate was around39%; it now hovers around 42%.In reviewing national statistics, thebenefits manager should look not onlyat the overall rate of generic substitu-tion, but also at the specific drugs-involved. Regional and local compar-isons can make their analysis meaning-ful. By reviewing regional and local dif-ferences in generic substitution rates, thebenefits manager can identify the mostsignificant obstacles to success in theIPA catchment area. Regardless of thenational trend, different localities willrequire different strategies based on theattitudes and beliefs of prescribers, phar-macists, and members. In some areas ofthe country, physicians are more recep-tive to using generic drugs than in oth-ers. In others, pharmacists may haveexperienced resistance from both pre-scribers and members, and consequentlymay be reluctant to substitute generics.Members may be hesitant to use genericdrugs initially, or resist switching afterusing a brand-name product.State and local law also can affectgeneric substitution rates. Before 'estab-lishing a program, review existing lawscarefully Some states restrict substitu-tion of certain drugs. For example, manystates prohibit generic substitution fordrugs with narrow th ,Tapeutic indexes,including digoxin, theophylline, andphenytoin. Some prescribers also arevery reluctant to allow generic substitu-tion of these drugs. .

Vol. 4, No 6 November/December \998 }MlP Journal of Managed Care Pharmacy 557


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Maximizing Generic Substitution in Managed CareBUILDING THE FRAMEWORK

Target audiences for a generic substi-tution campaign are easy to identify;physicians, pharmacists, and membersall must be included. Initial acceptanceby the physician is crucial to success.Education and information that address-es the physician should include discus-sion of the purpose of the program andsafeguards that will ensure high-qualityclinical outcomes. Priority Health deter-mined that several areas were of utmostconcern to physicians-particulargeneric brands and their equivalence tothe brand-name product, communica-tion with members, and community-specific concerns-and discussed itsspecific policies on these issues withprescribers in advance.Physician education focused on theprogram's plan to use only those genericdrugs rated "A" by the Food and DrugAdministration (FDA). Explanation ofthe rating system for equivalence helpedalleviate concerns about inferior prod-ucts and bioequivalence. Physicianswere particularly concerned about thosepatients who, for one reason or another,could not use a generic drug. They alsowere interested in ensuring that mem-bers would be educated about genericsubstitution and have appropriate infor-mation available to them from a varietyof sources. "Three approaches were used to con-vey information to physicians. First,prescribers received direct mailings, in-cluding a copy of the formulary. Anothermailing was directed at their office man-agers (whose support is important to thesuccess of the MCO in many matters,not just generic substitution). Finally,pamphlets addressing member concernswere made available to members atphysicians' offices and participatingpharmacies. Newsletter articles werepublished in the member health journalas well.

Once Primary Health addressedphysician acceptance, it directed itsefforts at pharmacists, whose influenceis substantial. Without the incentive of

fair reimbursement for an investment oftime, however, pharmacists are less like-ly to suggest substitution to physiciansor members. As the liaison between theprogram, the physician, and the mem-ber, pharmacists must be prepared toadvocate for a substitution program.Pharmacists with good communicationskills, augmented by a solid understand-ing of the program's benefits, can helpgeneric substitution programs succeed.Involving the pharmacist from the pro-gram's inception helped both with poli-cy design and consistent communica-tion.Like physicians and pharmacists,members have concerns about genericsubstitution and must be included inthe process early. Often, their concernsare less technical and more emotionalthat those of health care providers.Communication with the patient mustbe clear, direct, professional, and unam-biguous. It should be' presented in amanner that is somewhat redundant,using both oral instructions and writtenmaterials, but not condescending.Priority Health designed its memberpamphlets and newsletter articles withthe average member in mind. The ques-tions they addressed ranged from bioe-quivalence-presented in layman'sterms-to cost.POLICY

Establishing a firm but flexible poli-cy helps everyone understand the crite-ria and process for substitution. Thera-peutic failures and the ptential for mis-adventure are always the greatest con-cerns. Any policy must address medicalnecessity exceptions. Physicians andmembers want to know in advance that.there are mechanisms to obtain brand-name products if generics fail; they needclear, measurable guidelines describingthe exception policy. At a minimum,these guidelines should include a de-scription of the length of the trial, themeasures that will be used to determinesuccess or failure, and the documenta-tion required to request a return to a

558 Journal of Managed Care Pharmacy jMCP NovemberlDecember 1998 Va\. 4, No.6

Table 1. Priority Health GenericIncentive PlanGeneric Dispensing Incentive PaymentRate LevelLess than 26.00% $0.0026.00%-32.99% $0.5033.00%-35.99% $0.5036.00%-37.99% $1.2538.00%-40.99% $1.5041.00%-43.99% $1.7544.00%-46.99% $2.0047.00% or greater $2.50Generic incentive payment for pharmacies dis-pensingfewer than 100 prescriptions to PriorityHealth members in a quarter will remain at$1.25 extra per generic prescription.

brand-name product. Such requestsmust rely on demonstrable clinical out-comes, rather than the subjective find-ings of the physician or member.Recognizing that paperwork is the baneof the health care provider's existence isimportant; forms should be simple andconcise. Justification forms, called"Dispense as Written" forms by PriorityHealth, were kept to one page and limit-ed to essential information.In some cases, demonstrable clinical

Figure 1. Generic Substitution Rates. 1997 Generic Substitution ResultsPriority Health=47.1 % National=41.3%.1996 Generic Substitution Results

Priority Health=47.5% National=44%.1995 Generic Substitution ResultsPriority Health=48% National=42%. 1994 Generic Substitution ResultsPriority Health=46% National=41 %.1993 Generic Substitution ResultsPriority Health=41 % National=39%. 1992 Generic Substitution ResultsPriority Health=37% National=39%In 1997, Priority Health identifiedeach percent-age point as having value of$332,000.00 saved.


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Maximizing Generic Substitution in Managed Care2. Priority Health Contract Pharmacy Comparison: 1996-1998;

Generic Generic Average AverageHealth Volume % Generic Index Bonus % DAW I 0.5. $/Rx1st Qtr, 98 311,499 46.80% '~0~1 2.00%4.30% ,.... . $0.00 24 $32.562nd Qtr, 98 ,000/; $0.003rd Qtr, 98 $0.004th Qtr, 98 \ $0.001st Qtr, 97 195,859 48.00% 84.50% " $0.00 2.00% 24 $30.342nd Qtr, 97 191,383 45.60% 83.30% Qa); . $0.00 2.00% 25 $32.113rd Qtr, 97 195,378 44.90% 82.90% $0.00 2.00% 25 $33.164th Qtr, 97 220,129 46.30% 84.40% .... $0.00 2.00% 25 $33.061st Qtr, 96 . 191,502 48.80% 81.70% .., $0.00 2.00% 22 $26.642nd Qtr, 96 175,381 46.90% 81.80% $0.00 2.00% 24 $29.053rd Qtr, 96 176,713 45.70% 82.10% $0.00 2.00% 24 $29.764th Qtr, 96 197,039 48.10% 83.90% %. $0.00 2.00% 23 $29.251st Qtr, 98 1,392 47.50% 85.50% ;2l. $2.50 1.00% 22 $30.222nd Qtr, 98 ['"3rd Qtr, 984th Qtr, 981st Qtr, 97 908 50.00% 84.20% " $2.50 1.00% 22 $28.172nd Qtr, 97 959 48.20% 84.80% . $2.50 1.00% 23 $29.583rd Qtr, 97 1,147 48.30% 83.70% " $2.50 1.00% 22 $29.874th Qtr, 97 1,260 46.80% 83.70% '."'.: $2.50 23 $30.021st Qtr, 96 904 51.10% 83.50% $2.50 2.00% 20 $28.342nd Qtr, 96 922 48.40% 84.60% $2.50 1.00% 21 $28.613rd Qtr, 96 834 45.20% 82.30% '.- $2.50 2.00% 23 $30.354th Qtr, 96 966 48.30% 85.10% ..... 2.00% $29.512.50 22

are difficult to define. Whenexperience sleep disturbances,or pain, it can be difficult toand document problems. In

cases, a firm but consistent policyimportant, but can be difficult to

SUBSTITUTIONMandatory substitution programs

on drug lists so that the prescriberthe pharmacist have drug selection

guidelines. An acceptable drug list is thefoundation for the program. Initially,this is a tremendous task because of thesheer number of generic products on themarket. Many organizations begin byreviewing the Health Care FinancingAdministration's (HCFA's) generic druglist. This is a comprehensive list of some800 drugs whose study requires closeattention and an investment of time. Butregardless of the source used, the initiallist must describe each drug and itsmaximum allowable cost (MAC).

Once a drug list is developed, itrequires constant maintenance to reflectchanges in the marketplace. Changes atthe FDA have complicated that market.The 1984 Waxman-Hatch Act, whichallowed generic versions of drugsapproved after 1964 to be processedunder an abbreviated new drug request,as well as internal FDA initiatives toexpedite the drug approval process havehelped to fuel exponential growth in thenumber of new generics. These newgenerics represent a potential savings

Vol. 4. NO.6 NovemberlDecember 1998 jMCP Journal of Managed Care Pharmacy 559


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Maximizing Generic Substitution in Managed Care

$60.00Figure 3. Priority Health Prescription Cost Differential: 1994-1997

$50.00

. Single-Source Brand~ GenericIT] Multi-Source Brand

$40.00 ---$30.00 - -

$20.00

$10.00

$0.00'


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Maximizing Generic Substitution in Managed Care~ Continued from page 562

50.00%Figure 4. Generic Substitution Rate: 1994-1997

49.00%

48.00%

47.00%

46.00%

45.00%

44.00%

43.00%

I_ % GENERIC I

42.00%".... "... "... "... 11"\ 11"\ 11"\ 11"\ \0 \0 \0 \0 I'- I'- I'- I'-9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9' 9'...... N r'1 "... ...... N r'1 "... ...... N r'1 "... ...... N r'1 "...CI CI CI CI CI CI CI CI CI CI CI CI CI CI CI CI

Before a plan establishes paymenttiers, local pharmacists should be includ-ed in the negotiations to ensure that theirconcerns and problems are addressed.They may provide information aboutprescriber acceptance, member con-cerns, or state law that will significantlychange proposed tier structures. Addi-tionally, PBMs must consider seasonalchanges in reimbursement rates. Genericsubstitution rates do vary with seasons,particularly in the case of antibiotics.Figure 1 shows actual generic substitu-tion rates achieved by pharmacies asso-ciatedwith Priority Health; the seasonalvariation is apparent.Reimbursement issues appear simpleon the surface, but can be quite com-plex. Clearly, the PBM should change

reimbursement rates very quickly toreflect changes in generic reimburse-ment rates at each pharmacy. Failure tochange the reimbursement rate quicklycauses dissatisfaction among pharma-cists who do not receive immediatefinancial rewards for successful interven-tions. It also adversely affects the IPAwhen a pharmacy's substitution ratedeclines but the reimbursement rateremains high. Because there usually aremultiple steps involved in the paymentprocess, a procedure must be establishedto ensure that changes are communicat-ed and acted upon expeditiously.Priority Health uses a report cardformat to document information foreach pharmacy (see Figure 2). Thereport card provides enough information

562 Journal of Managed Care Pharmacy jMCP NovemberlDecember 1998 Vol 4, No.6

for pharmacists to examine their ownperformance in comparison to the IPA'saverage. The historical informationincluded can be used to track progressover the previous three years. Severalareas of the report card offer help to thepharmacist who is lo()king for ways toimprove. For example:... The generic index tells the pharma-cist the proportion of prescriptions thatcould have been filled with a genericdrug that actually were.... The report card shows the proportionof prescriptions designated "Dispense asWritten," indicating how often pre-scribers eliminate the possibility of sub-stituting generic drugs..... A performance index compares the


16/76

Maximizing Generic Substitution in Managed Care

substitution rate with thefor all pharmacies participating.The report card provides an element

peer review, and directs the pharma-attention to areas of accomplish-as well as areas where improve-is possible.

In addition to the report card, partic-pharmacies receive a list of drugsbrand name 'tht could have beenwith a generic drug, but were not.pharmacist can use this informationplan improvements for the next quarter.

Concerted efforts to maximize genericwere successful at PriorityFigure 3 shows prescription costssingle-source, multisource, and generic

drugs for fiscal years 1994-1997. Nation-ally, the average cost per prescription hasgrown at a rate significantly higher thanexpected. The success of this program isdemonstrated clearly; as the generic sub-stitution rate has increased, the averagecost per prescription at Priority Healthhas decreased. Figure 4 describes overallgeneric substitution rates compared tothe national average. For the last fiveyears, pharmacies affiliated with PriorityHealth have consistently exceeded thenational average for generic substitution.In 1997, this represented savings ofalmost $1.8 million to the plan.CONCLUSION

Programs designed to encouragegeneric substitution offer an opportunity

for savings. Management mechanismsare quite simple, and incentives helppharmacists become true partners in theprogram.

In the future, MCOs and PBMs willdevelop such programs to address thera-peutic substitution and take advantageof opportunities to cut costs while main-taining quality care. We are laying theframework for new programs now. Tosucceed, we will need strong trust rela-tionships with prescribers, participatingpharmacists, and members. These rela-tionships must be built on a history ofexcellent clinical judgement, fulfilledpromises, and accurate communication.

AMCPs J Jth Annual Meeting will offer anexciting line-up of featured speakers,workshops, and topical sessions - as wellas the debut of AMCPs Annual Showcase.Don't miss this unique opportunity todiscuss your solutions for optimizing thedelivery of cost-efficient and quality-drivenpharmaceutical care. Watch your mail for the.Preliminary Announcement. For moreinformation, please call AMCP atJ 800-TAP-AMCP.

~ The Academy of Managed Care Pharmacy(AMCP) is

~ approved by the American Council on PharmaceuticalEducation (ACPE)as a provider of continuing. pharmaceutical education.Vol. 4, No.6 NovemberlDecember 1998 jMCP Journal of Managed Care Pharmacy 563


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, SPOTLJGHT

Marlene Z. Bloom

Aut/wIMARLENE Z. BLOOM is Director ofCommunications at the Academy of Managed CarePharmacy.Copytight@1998, Academy ofManaged CarePharmacy, Inc. All tights reserved.

MississippiMedicaid Waiver BreaksNew Ground for PharmacistsPharmacists, not pharmacies, benefit rom a new plan that promotespharmaceutical care, credentialing, and pharmacist-physician cooperation.

An nnovative plan in Mississippithat allows pharmacists to bepaid for managing specific dis-ease states could set the stage for majorchanges in the pharmacy profession. Thegroundbreaking program allows the stateto use federal money to reimburse phar-macists for providing counseling anddrug therapy management under proto-cols developed by pharmacists andphysicians.

The well-publicized Medicaid waiver,approved by the Health Care FinancingAdministration (HCFA) earlier this year,allows Mississippi to pay pharmacists-not pharmacies-for managing chronicdisease in four areas: diabetes, asthma,lipids, and anticoagulation. Mississippiis the first state where HCFA hasallowed reimbursement for pharmaceuti-cal care.Equally important, this programgives implicit endorsement to the con-cept of pharmacists managing diseasestates and improving patient care-con-cepts that arc: fundamental to the prac-tice of managed care pharmacy.A key element in winning federalsupport for paying pharmacists was thestrong backing of doctors from theUniversity of Mississippi, said S.E. "Bo"Dalton, R.Ph., executive director of theMississippi Pharmacists Association.When the University of MississippiMedical Center decided to relocate itsambulatory care clinic to an emptyshopping mall, the clinic's doctors askedthe medical center also to relocate theclinical pharmacy residents and studentswith whom they had been working."Doctors said that the extra time takenby pharmacists and pharmacy students

564 Journal of Managed Care Pharmacy ]MlP NovemberlDecember 1998 Vol. 4, No.6

to counsel their patients and to followup with them improved therapy out-comes," said Dalton. "The pharmacyschool had the strong support of themedical staff."Medicaid believes the pharmaceuticalcare program put together by the phar-macy school, pharmacy association, and

state board of pharmacy will save theprogram money by keeping patients outof the urgent care clinics, emergencyrooms, and hospitals.Medicaid will give the program anIS-month trial period. Then stateMedicaid officials will examine out-comes of pharmacists' interventions. "IfMedicaid sees a tremendous savings,reimburserpent to pharmacists might go'up," said Dalton. "If they don't see sav-ings, Medicaid might pull the plug."About 70% of the Medicaid budget is'now spent on hospital, emergency care,and ambulatory services."Just as important as the impact oncost is the effect on care," noted JudithA. Cahill, executive director of theAcademy of Managed Care Pharmacy(AMCP). "Pharmacists' intervention willalso improve quality."HOW IT WORKS

To be paid for providing disease statemanagement (DSM) services, registeredpharmacists must complete a disease-specific certification program approvedby the Mississippi Board of Pharmacy.According to the waiver, the statewill pay "specially credentialed pharma-cists" a flat fee of $20 per encounter toprovide DSM services to Medicaid recip-ients in the four established areas.



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Mississippi Medicaid Waiver Breaks New Ground For Pharmacists~ Continued from page 564Patients must be referred to a pharma-cist by a physician, and the state willpay for no more than 12 encounters perpatient per year.

Pharmacists must develop patient-specific protocols jointly with thepatient's physician. These protocols maybe based on care plans that pharmacistand physician have previously agreed onfor each disease state. Pharmacists alsomust have a private counseling area, becredentialed by the Mississippi pharma-cy board, and have a Medicaid personalprovider number.

"Working pharmacists don't needanother 10 years of high-level discus-sions about how this would work in anideal world," said William L. "Buck"Stevens, executive director of theMississippi Board of Pharmacy "Theyneed something that is reasonable,affordable, and doable. We've set up asystem to assure the public and payorsthat the pharmacist is knowledgeableand competent." ,

Pharmacists also must keep a portfo-lio for each patient that includes thephysician referral, treatment protocols,pharmacy progress notes, and laboratorydata. It also must document:... patient evaluation;... compliance assessment;

... drug therapy review;

... patient treatment plans and clinicalpractice guidelines; and... patient/caregiver education.

All pharmacists who want to providethese services must pass a $25 disease-specific assessment exam developed bythe National Association of Boards ofPharmacy, (NABP). Those who pass alsomust sucessfully complete a skills-assessment workshop conducted by fac-ulty authorized by the pharmacy boardin conjunction with the University ofMississippi School of PharmacyLucinda Maine, senior vice presidentfor professional and public affairs for theAmerican Pharmaceutical Association(APM), said APM will work with theboard and the pharmacy school todefine the most important skills neededfor each disease and to determine waysto evaluate pharmacist performance."Some people think credentialing istraining, some think it is a test ofknowledge, and some say it is an assess-ment of practical skills," said Maine."Mississippi's credential would encom-pass all three."To ensure maximum pharmacist par-ticipation and patient access, the phar-macy board has established a target costof $150 for each disease state workshop,which includes $25 for each NABP

566 Journal of Managed Care Pharmacy jMCP NovemberlDecember 1998 Vol. 4, No.6

knowledge-based exam. Providers ofdisease state certificate programs areurged to make their programs self-pacedand accessible via Internet, video, andother home-study means. Pharmacistsmust submit claims for reimbursementon HCFA Form 1500 using a new CPTcode, "Preventive MedicationInformation.

Stevens predicts that NABP eventual-ly will develop an exam to evaluate apharmacist's ability to provide pharma-ceutical care, not just care for specificconditions. "I forecast that NABP even-tually will make an exam for pharma-ceutical care a prerequisite for all thespecific disease states," said Stevens."But it's an evolving field, and we had toapprove the four disease exams quickly"

THE VALUE OF PHARMACISTS"In approving this amendment,HCFA has recognized the value of phar-

macists' contributions to quality patientcare," said Richard Fry, AMCP directorof pharmacy affairs. "The success of theMississippi program will establish abenchmark for the entire profession, anopportunity pharmacists have longanticipated," he said. "It is importantthat all pharmacists and their national

. associations support this effort."


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. INTERNATIONAL

Kimiko Chevalier and]. Warren Salmon

S

CHEVALIER, PHARM.D., received hertraining and worked in the Japanesecare system for several years. She was award-her Pharm.D. degree n May from the University

llinois at Chicago] WARREN SALMON, PH.D.,ofPharmacy Administration at theof Illinois at Chicago. He is ContributingEditorfor ]MCP.@ 1998, Academy of Managed CareInc. All right reserved.

International Movement of Japan'sPharmaceutical Industry:Reform of.Japanese Health Policies, Part IIIThere are about 1,550 pharmaceuticalcompanies in Japan,of which approximate-ly 450 supplydrugsfor medical care. J Mostof the large companies, such as Takeda,Fujisawa, and Tanabe, beganas traditionalwholesalers, and thus have developedmorestrength in sales promotion than in scientif-ic research2 Japan has a corresponding his-tory of importing foreign products and sell-ing them in the domestic market. Becausethe Japanese market grew rapidly with theimplementation of national health insur-ance and was protected by the NationalIndustrial Policy, Japanese pharmaceuticalcompanies did not developan institutionalcapacity to market their products in over-seas markets nor did they innovate interna-tionally acceptabledrugs until the 1980s.At that time, the government was curbingdrug prices to reduce health expenditures,and competition with foreignfirms for thedomestic market was increasing. Pressureson Japanese drug companies to developdomestic drug products and to market theminternationally intensified.

That historical focus on the domesticmarket resulted in a lack ofoverseas expe-riences and understandingamong the topmanagement ofJapan's pharmaceuticalfirms. Foreign language competencies areessential for overseas drug marketing activ-ities because of the massive amounts ofinformation requiredfor drug approval andmarketingand the highdegreeofgovern-ment regulation; U.S. Food and DrugAdministration regulations have been par-ticularly problematic for Japanese compa-nies. Japanesefirms thus have used licens-ing or joint ventures to introduce theirproducts overseas and have dependedonthe regulatory expertise of their U.S. part-ners to achieve approvals.

In contrast to their sophisticatedunder-standingofmarketing automobiles, elec-tronics, and now computers in the UnitedStates, the Japanese are just now becoming

skilled in the American pharmaceuticalmarket. Furthermore, a stronger yen in the1980s lowered some costs of overseas mar-ket entry, especially land and labor, makingit more attractive for Japanese companiesto establish wholly owned subsidiaries,manufacturing plants, and research facili-ties in foreign countries. Today,changingeconomic conditions are altering manufac-turers' strategies yet again. -,This article examines the context of thisoverseas development, which was the focusof Part II of this series (published n theMarchiApril1998 issue ofJMCP)J Part IIIincludes a relevant update ollowing therecent financial turmoil across the PacificRim and discusses specificactivities of

" Japanese pharmaceutical firms as theyhave ventured into overseas markets,including their entlY into the Americanmanaged care arena. The contemporaryperiod presents a great deal ofuncertainty as Japanese manufacturersregroup to adjust to new market conditionsdomestically and to continued expansionoverseas.

J. Warren Salmon, Ph.D.International Contributing Editor

Accordingo a suovey conductedby the Japan PharmaceuticalManufacturers Association inMarch 1993, 41 member firms wereengaged in overseas activities: 38 firmsin research and development (R&D)and 20 firms in production, with someoverlap between the two categories'Expenses for overseas R&D made up3.3% of the total R&D budget of 38firms; six firms spent more than 10% oftheir R&D funds in overseas researchactivities5The number of overseas bases hasgrown rapidly, totaling 245 in March

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International Movement of Japan's Pharmaceutical Industry: Reform of Japanese Health Policies, Part IIITable 1. Overseas Bases of Pharmaceutical Firms as of March 1993 (March 1991 in parentheses)Area Fonn of Base N. America W Europe Asia & Oceania Central & S. America I ussia & E. Europe Middle East & Africa TotalWholly owned subsidiaries 36(19) 34(16) 13(10) 2(2) -( -) -( -) 85(47)Capital participation 6(6) 8(15) 8(7) 2(4) -( -) -( -) 24(32)Joint ventures 2(4) 13(1l) 46(36) -( -) -( -) 1(1) 24(32)Branches and offices 20(16) 28(30) 24(11 ) 1(-) 1(1) -( -) 74(58)Total 64(45) 83(72) 91(64) 5(6) I l(l) 1(1) 245(189)Source: JAPAN 21st August 1995

1993 compared to 189 in March 1991.Although their presence in Central andSouth America, Russia and EasternEurope, the Middle East, and Africa hasbeen negligible, Japanese companieshave established solid bases in Asia andOceania (91 firms), Western Europe(83 firms), and North America (64firms). Japanese drug companies estab-lished 36 wholly owned subsidiaries inNorth America and 34 in WesternEurope, with 20 company branches inNorth America and 28 in WesternEurope. Asia and Oceania led joint ven-tures with 46 firms4 (see Table 1).Japanese pharmaceutical companies

already have made an impressionaround the world. The U.S. Departmentof Commerce has stated, "U.S. andEuropean firms appear to be bettingthat the top Japanese companies willeventually make the transition toworld-class competitors."6Although the information on indi-vidual firms spotlighted in the follow-ing discussion may be dated or incom-plete, it remains one of the few compi-lations in English documenting theiroverseas activity to date. Because cur-rent conditions in Japan may be alter-ing these strategies individually and/orcollectively, the following information

Table 2. Ten Largest Japanese Pharmaceutical Firms (in million yen)

can give insight into past behaviors ofthe 10 Japanese firms on the interna-tional scene and should be useful forassessing future strategies. Table 2ranks the 10 major Japanese pharma-ceutical companies by overseas sales,and Table 3 offers a timeline of overseasbase development for each of the top10 firms.TAKEDA CHEMICAL INDUSTRY,LTD.

Takeda Chemical Industry, Ltd., wasfounded 215 years ago and ranks at thetop of the pharmaceutical enterprise in

Company I erm Sales IGrowth Rate Operating Profit I rowth Rate IOrdinary Profit IGrowth Rate I et Profit Growth RateTakeda 3 574,367 2.3% 67,843 1.6% 78,809 2.1 39,809 7.4%Sankyo 3 401,466 1.5% 82,244 0.5% 83,526 3.9 37,250 1.0%Yamanouchi 3 273,048 5.1 % 56,419 11.5% 57,990 6.6 28,143 1.8%Fujisawa 3 241,483 2.8% 25,036 46.0% 24,009 20.4 7,474 25.7%Eisai 3 240,030 7.0% 36,913 12.7% 36,982 12.4 16,888 7.1%Shionogi 3 238,176 3.5% 23,057 18.2% 26,192 13.7 11,471 11.1%Daiichi 3 221 ,819 2.1% 38,166 11.2% 41,666 I 8.7 18,876 10.6%Taisho 3 210,936 5.3% 49,727 18.0% 55,602 7.7 27,563 9.9%Tanabe 3 183,162 0.2% 10,991 33.1% 10,515 27.7 3,122 8.8%Chugai* 12 162,588 7.4% 19,756 131% 19,886 16.8 7,608 8.3%Source: JAPAN 21st August 1995*Dee. '94 term for Chugai Pharmaceutical only; March '95 term for all other firms.

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International Movement of Japans Pharmaceutical Industry: Reform of Japanese Health Policies, Part IIIContinued from page 568

3. Overseas Bases by Major Japanese Pharmaceutical CompaniesCandidates ofCategory* Year Development of Major Overseas Bases International Drugs

1 1960 Strongholds for production and marketing established in Southeast Leuplin (Tx for prostate cancer)Asian countries. Takepron (proton pump inhibitor)3 1978 Laboratories Takeda established by joining with Roussel Uclaf in France.3 Takeda Pharma GmbH established by joining with GrunenthalGmbH in Germany3. Takeda Italia Farmaceutici established by joining with Cynamid ItaliaS.P.A. in Italy3 1985 TAP/Pharmaceuticals established by joining with Abbott Laboratoriesin the U.S.1 1988 Takeda Europe R&D Center founded in Frankfurt, Germany.3 1994 Tianjin Takeda Pharmaceuticals Co., Ltd., joined with LishengPharmaceutical Factory, Tianjin, China.

"Takeda has wholly owned subsidiaries and joint companies in 10countries.3 Sankyo Europe GmbH in Dusseldorf, Germany, established. Mevalatin (antihyperlipidemia drug3 Sankyo U.S.A. Corp. in New York established. Nascal (antidiabetes drug)3 Uni Sankyo founded in India. Acecol (antihypertensive drug)3 Sino-japanese Synthetic Chemistry, Ltd., established in Taiwan.3 Thai Sankyo founded in Thailand.2 1990 Capital invested in Luitpold Werk, German pharmaceutical company1 1992 Luitpold Pharma GmbH in Munich, Germany, established by fullypurchasing Luitpold Werk.4 joint research with University of California in U.S.A. established.4 joint research with Medical Research Council in London andUniversity of Southern California in U.s.A. established.4 1994 Beijing office opened.3 1995 joint venture founded with Glycomed Inc. & Reagando Co. in U.s.3 1963 Yamanouchi Taiwan Co., Ltd., established by joining with Gaster (antiulcer drug)Yamanouchi Pharmaceutical Co., Ltd. Perdipine (circulation-improving1 1986 Yamanouchi Ireland Co., Ltd., in Ireland established. drug)1 1989 japan Shacklee Corp. constituted by purchasing Shacklee Hamal (urination-improving drug)Corp., U.S. Atack (bronchial dilator)4 1990 Yamanouchi Research Institute installed at Oxford in England.4 1990 Korea Yamanouchi Pharmaceutical in Seoul, Korea, established.4 1990 Hong Kong office opened.1 1991 Royal Gist-Brocades Nv, medical drug division of foods andchemicals company in Netherlands, purchased and renamedBrocades Pharma to Yamanouchi Europe.2 1992 Capital invested in Roberts, Inc. in U.S.4 1993 Beijing office opened.4 1994 Yamanouchi Europe again renamed Yamanouchi Pharma and

established sales branched in 12 countries, including France,Germany, and Russia.3 1994 Yamanouchi Shenyang Pharmaceutical Co., Ltd., established, build-ing Shenyang First Pharmaceutical Factory in Shenyang, China. Table continued an page 572

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International Movement of Japan's PharmaceuLcalIndustry: Reform of Japanese Health Policies, Part IIITable 3. Overseas Bases by Major Japanese Pharmaceutical Companies (continued)

Candidates ofCompany Category* Year Development of Major Overseas Bases ~nternational Drugs

Fujisawa I 1977 Fujisawa Pharmaceutical Corp. in U.s. established. Prograf (immunosuppressant)4 1979 London office opened. Cefamedin (antibiotic)3 1981 Fujisawa SmithKline Corp. established as joint venture.2 1983 Capital invested in Klinge Pharma GmbH, German pharmaceutical co.2 1985 Capital invested in Lyphomed Inc., American pharmaceutical co.4 1985 Clinical Research Center opened.4 1986 Milan office opened.1 1987 Fujisawa SmithKline Corp. wholly consolidated.1 1987 Fujisawa Holland B.V founded. Maryland Representative Office in

U.S. opened.4 1989 Lyphomed Ine. totally acquired.1 1989 Fujisawa SmithKline Corp. renamed Fujisawa Pharmaceutical Co.1 1990 Fujisawa USA, Inc. established by merging with Lyphomed FujisawaPharmaceutical company & Maryland Representative Office.4 1990 Fujisawa Ireland Limited founded.4 1991 Fujisawa Europe GmbH founded.

Eisai 4 \988 Eisai America Inc. established. Candidates of international drugs are4 1989 Eisai Research Institute of Boston in Andover, Massachusetts, in undergoing clinical tests.

U.S. established.4 1992 Eisai London Research Laboratories at University College inLondon, U.K., established.4 Eisai Corporation in New jersey founded.3 joint venture founded with Sandoz Pharmaceutical in Germany.

Daiichi 1 Subsidiaries established in U.s., u.K., Germany, Taiwan, and Hong Kong. Tarivid (broad-spectrum antibiotic)3 joint ventures founded within France, South Korea, Taiwan, and Cravit (broad-spectrum antibiotic)Thailand. Transamin (antiplasmin agent)4 Representative offices maintained in U.S., U.K., Germany, Taiwan; Neuer (gastric mucosal defensiveand Hong Kong. drug)4 1993 Daiichi Research Center at University of California at SanFrancisco founded.3 1993 Daiichi Pharmaceutical (Thailand) Limited established.3 Joint ventures founded with Shanghai Shin Yi Pharmaceutical

Corp. Ltd. and Beijing Pharmaceutical Works NO.4.4 1995 Beijing office opened.Chugai 1 1989 Gen-probe in U.S., the world's top-class maker of diagnostic Ulcerlmin (Tx for gastritis)biodrugs, purchased. Granocyte (Tx for Leukopenia)3 1992 C61C Research Laboratories established by joining with Picibanil (anticancer drug)Choongwae, South Korean pharmaceutical company. Sigmart (Tx for angina)

2 1993 Stocks acquired from Amrad, Australian pharmaceutical company. Alfarol (calcium-bone metabolizer)3 1994 joint venture founded with Shanghai xim xing Medicine & DrugScientific Development Center in China.4 Laboratories founded in Korea, Australia, and in San Diego in U.S..4 Chugai Pharmaceutical BioPharmaceuticals Inc. established.3 joint venture founded with Rhone-Poulenc in France.

*Category Number: 1. Wholly owned subsidiaries; 2. Capital participation; 3. Joint ventures; 4. Branches and offices.Source: JAPAN21st August 1994 & 1995572 Journal of Managed Care Pharmacy }M(,p NovemberlDecember 1998 Vol. 4, No.6


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International Movement of Japan's Pharmaceutical Industry: Reform of Japanese Health Policies, Part IIITheir overseas activity has beenachieving annual sales ofbillion (574 billion yen) in MarchRecently, Takeda has concen-

on reinforcing tripartite researchcovering Japan, the Unitedand Europe to construct a globaland establish the foundation ofinternational enterprise based onand development.In 1978, Takeda established the firstjoint enterprise, Lab-Takeda, with Roussel Uclaf.

company soon followed this jointwith the formation of TakedaGmbH in Germany and Takedain Italy In 1985,opened TAP Pharmaceu-ticalscenter in the -United States, achiev-considerable success with clinicalfunctions as a joint ven-with Abbott Laboratories. In1988, Takeda Europe R&:D

was founded in Frankfurt,as a stronghold for new drugin Europe?Kenkichi Murakami, director of

Chemical Industry, Ltd., hasthe importance of develop- .the R&:D capability to create innov-new drugs.? Takeda has focuseddeveloping innovative drugs intherapeutic areas: dementia, hyper-osteoporosis, ulcers, cancer,and infectious diseases. Leuplin,drug for prostate cancerendometriosis, and Takepron, a

pump used for duodenal ulcerreflux esophagitis, already are mar-in Europe and the United Stateshave been very important to thebusiness of Takeda Chemical

Ltd. In addition, several neware in application for approval,some in clinical trials overseas.Takeda, which markets productsas Cephem antibiotics in China,

a joint venture contractLisheng Pharmaceutical Factoryin 1994 to create TianjinPharmaceutical Co., Ltd., withcontributing 75% of the $19.2

million capitalization.? A pharmaceuti-cal plant was scheduled to be complet-ed in 1996. Takeda now has whollyowned subsidiaries and joint concernsin 10 countries, including China. Thecompany believes that the merits ofinternational venture are not in scalebut in quality, especially in developingglobally acceptable new drugs.SANKYO COMPANY, LTD.

At the end of March 1995, SankyoCo., Ltd., reported total sales of $3.9billion (401 billion yen), includingexports of $301 million (31 billionyen), with a growth rate of 1.5%.Sankyo's ordinary profit totaled 83.5billion yen, a 3.9% growth rate. Sankyoranks as the second largest pharmaceu-tical firm in Japan.Sankyo has developed severalremarkable new drugs. Mevalotin, usedto treat hyperlipidemia, earns $971million (100 billion yen) a year in itsdomestic market and is sold in 47Western countries through Bristol-Myers Squibb Company The annualturnover of Mevalotin in the UnitedStates alone already has reached $311million (32 billion yen). Mevalotinworks to decrease LDL cholesterol byinhibiting HMG-CoA reductase andalso to increase HDL cholesterol8Tomonori Miki, executive managingdirector of Sankyo, has said that thecompany intends to begin a self-con-trolled marketing system in the UnitedStates and begin full-scale sales activi-ties rather than licensing Bristol-MyersSquibb Company to sell Mevalotinthroughout the world9Sankyo plans to follow the successof Mevalotin by marketing Noscal fordiabetes and Acecol for hypertension inEurope, the United States, and othercountries. The company, which con-ducts its own R&:D, has no researchorganization abroad because its labora-tories in Shinagawa, Tokyo, and itsassociation with Tsukuba ResearchLaboratories in Kyshu suffice. However,

Sankyo is pushing joint research onAlzheimer's disease with the MedicalResearch Council in London and theUniversity of Southern California.Additionally, in 1994 Sankyo beganworking with the University of Alabamaon research into rheumatism and malig-nancies that cause autoimmunization.With its purchase of Munich-basedLuitpold Werk in 1992-now calledLuitpold Pharma GmbH-Sankyosecured footholds for production, mar-keting, R&D, and the expansion of itsinternational network throughLuitpold's subsidiaries in Europe andNorth and South America. Sankyo hasoffered technical licenses t~ the UpjohnCo. in the United States for the produc-tion and sale of its antibioticsCefmetazon and Banan. Sankyo's otherinternational activities are managedthrough Sankyo Europe GmbH inGermany, Sankyo U.S.A. in New York,Uni Sankyo in India, Sino-JapaneseSynthetic Chemistry, Ltd., in Taiwan,and Thai Sankyo in Thailand. Sankyonow is gathering information throughits Beijing office to enable the companyto expand its operations in China.Sankyo moved quickly into theinternational marketplace; however, itwill take time for Sankyo to build inter-national R&:D, production, and salesnetworks on an integrated basis.Sankyo will expand overseas marketsstep by step, with promising new drugsas the core of its marketing strategyYAMANOUCHIPHARMACEUTICAL COMPANY,LTD.

In fiscal year 1994, YamanouchiPharmaceutical Co., Ltd., achieved totalsales of $2.65 million (273 billion yen);exports accounted for $126 million(12.7 billion yen). Ordinary profits to-taled $563 million (57.9 million yen).The sales and profits grew by 5.1 % and6.6%, respectively The combined organi-zation, including 54 subsidiaries, showedsales of $3.7 million (384 billion yen)

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International Movement of Japan's Pharmaceutical Industry: Reform of Japanese Health Policies, Part IIIand $748 million (77.3 billion yen), up4.2% and 10.5%, respectivelyl0Yamanouchi is actively pursuingbusiness development in North America,Europe, and Asia. Consolidated pharma-ceutical sales of 336.4 billion yen ($3billion) in FY96 were up 8%, due inpart to contributions from internationalsubsidiaries in Europe and Ireland.11Yamanouchi was one of the firstJapanese pharmaceutical corporationsto build plants and laboratories inEurope. In 1986, the company estab-lished its subsidiary, YamanouchiIreland. Its Irish manufacturing planthas played a vital role in sales and pro-duction of the circulation-improvingagent Perdipine and the antiulcer agentGaster, sold in more than 100 countrieswith annual sales of $1.2 billion world-wide in 199412 In 1990, the Yama-nouchi Research Institute was estab-lished at Oxford, where British scien-tists have been engaged in basic re-search on cell biologyIn 1991, Yamanouchi purchased thepharmaceutical division of Royal Gist-Brocades in the Netherlands as a strong-hold for R&D, drug manufacturing,and sales in Europe. This subsidiary,now called Yamanouchi Pharma,became a head office with sales branch-es in 12 countries, including France,Germany, and Russia. In addition, anew laboratorywas completed in theNetherlands and a plant in ItalyIn 1989, Yamanouchi purchasedShacklee Corporation, a San Francisco-based company that markets enrichedfoods. Since that purchase, the compa-ny has achieved very high sales andprofits. In 1992, Yamanouchi purchaseda 29% interest in Roberts, Ine., a mid-sized American pharmaceutical compa-ny Yamanouchi USA is engaged in clin-ical development and study, includingadvanced research in a technical jointventure with Tularik Inc. of the UnitedStates, which possesses a gene tran-scription and screening technologyIn Southeast Asia, Yamanouchi cre-ated the joint venture Yamanouchi

Taiwan Co., Ltd., in 1963, and itsTaipei Branch in 1987. The SeoulOffice in Korea and the Hong KongOffice were founded in 1990. TheBeijing Office, founded in 1993, hasactively maneuvered for technologicalestablishment and product exports inlocal pharmaceutical firms. In June1994, Yamanouchi contributed 80% ofthe 3 billion yen capitalization to buildShenyang First Pharmaceutical Factory,a joint venture with China's ShenyangPharmaceutical Co.1] The plant beganfull-scale operation in early 1997 toproduce Gaster and Hamal, a urina-tion-improving agent. This subsidiaryhopes its first factory will become oneof China's top three drug makers withinseveral years14 by marketing Josamycin(an antibiotic), Gaster, Hamal, Perdi-pine, Atock (for asthma), Bisphonal(for hyperkalemia), and Elen (fordementia). Construction of another fac-tory is scheduled for early next century.In 1996, Yamanouchi signed licensingagreements with NovoNordisk andMallinckrodt.

Masayoshi Onoda, president ofYamanouchi Pharmaceutical Co., Ltd.,said that the aim of the firm is tobecome a global enterprise, with thehighest level of R&D capability in theworld, by the first decades of the 21stcentury. According to Onoda, theimmediate goal of R&D is to "deliverseven major new products to worldmarket by 2005."15 Yamanouchi be-lieves that Hamal, which was devel-oped in Japan in August 1993 andachieved sales of $146 million (15.2billion yen), will become the next inter-nationally accepted drug.12 The firm'smost emphasized research topics aredementia senilis, hypertension, cardiacdiseases, and diabetes. Onoda also saidthat Yamanouchi's management tasksinvolve not only developing interna-tionally acceptable new drugs and thereinforcing of enterprise competitive-ness and profitability, but also main-taining prices of existing drugs andfuture cost savings. 15

576 Journl1l of Managed Care Pharmacy }MP November/December 1998 Vol. 4, No.6

FUJISAWA PHARMACEUTICALCOMPANY, LTD.Fujisawa Pharmaceutical Co., Ltd.,

had sales of $2.3 billion (241.4 billionyen) in 1994 and is ranked fourthamong Japanese pharmaceutical com-panies.1 Consolidated prescription salesfor fiscal year 1996 were 230.2 millionyen ($2 billion); drug products repre-sented 86.5%'of total consolidatedsales.16 Fujisawa wants to be ranked inthe top 20 enterprises in the world andto firmly establish business in theUnited States and Europe through self-marketing by the beginning of the 21stcentury, according to its chairman, Dr.Tomokichiro Fujisawa.17Fujisawa developed a new immuno-suppressant, Prograf (FK506), whichbegan marketing in 1994 after approvalin the United States by the Food andDrug Administration (FDA). Prografalso has been approved in the UnitedKingdom and Germany for treatment ofrejection after liver and kidney trans-plants. 17 Fujisawa has licensed Cepha-losporin antibiotics to various countriesin the world; however, Prograf was thefirst new drug developed and marketedsolely by Fuj,sawa and it is expected toplay an important role in buildinginternational business.In 1990, Fujisawa USA, Inc., wasfounded by merging Lyphomed (apharmaceutical company acquired in1989), the joint venture FujisawaPharmaceutical Company, and the com-pany's Maryland Representative Office,which opened in 1987 as a center forproduct development.

.In Europe, Fujisawa has built anumber of strongholds: the LondonOffice in 1979 for collecting informa-tion and surveying, and its ClinicalResearch Center in 1985 as a develop-ment center; the Milan Office in 1986;capital investment in the German phar-maceutical firm Klinge Pharma GmbH;and Fujisawa Holland B.v in 1987 as afinance business. In addition, FujisawaIreland Limited was established in



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International Movement of Japan's Pharmaceutical Industry: Reform of Japanese Health Policies, Part III~ Continued from page 5761990 for ethical drug production andmarketing, and in 1991, FujisawaEurope GmbH was founded to super-vise stocks in firms of Fujisawa Groupin Europe.Fujisawa's business strategies call forestablishing its own bases in theEuropean and U.S. markets throughwholly owned, affiliated, or consolidat-ed companies, investment in localenterprises, or license-based marketing.The firm seeks to make every effort todevelop internationally acceptabledrugs. Its consolidated R&D spendingin fiscal year 1996 was 36.4 billionyen, down 1 % from the previous year.EISAI

Eisai had annual sales amounting to$2.3 billion (240 billion yen) as ofMarch 1995 and was ranked fifth inJapan and 32nd among the world'spharmaceutical manufacturing compa-nies.18 Masaji Ohno, a managing direc-tor and head of Eisai's R&D department,said that the company will try to jointhe top 20 international firms early inthe 21st century, a goal whose successdepends on development of new drugs.Eisai has established a tripolarresearch base for R&D: the indepen-dent Tsukuba Research Laboratories,which was established in 1982 inTsukuba Academic New Town as a cen-ter for new drugs; Eisai Research Insti-tute of Boston in Andover, Massachu-setts, in 1989; and Eisai London Re-search Laboratories at University Col-ege in London in 1992. Also, EisaiAmerica Inc., established in 1988, andLondon's Eisai Europe Ltd. are con-ducting basic organic research.Eisai has not yet introduced out-standing internationally acceptable newdrugs, but several candidates are under-going clinical tests in the United Statesand Europe. These products includeE2020 for the treatment of Alzheimer'sdisease; E3810 for ulcer; E5531 for thetreatment of septicemia; and E5510 forthe prevention of platelets.

In Europe and North America, theEisai Corporation of North Americaserves as the core of operations. InSouthea

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