Abstract
The Iowa Pharmacy Capitation Project (1976–1981) implemented and evaluated the impact of a capitated payment model for prescription drug reimbursement for Iowa Medicaid beneficiaries. This model departed from traditional payment models by paying a fixed amount per member per month instead of a per-prescription fee. Phase 1 of the project, which operated from 1976 to 1978, included two intervention and two control counties. Results showed increased generic product dispensing and reduced overall prescription drug spending without negative impacts on medication‐related quality. Building on this success, Phase 1 was expanded in 1981 to include 64 of Iowa’s 99 counties. However, Phase 2 failed to achieve any study objectives, and the project was abruptly terminated after less than one year. Reasons for lack of success include a shift in the prescribing landscape as generic drugs became more available, challenges with intervention scale‐up, and substantial pharmaceutical manufacturer‐funded opposition. This historical analysis relies on original documents supplemented by contemporaneous interviews with study leaders to illuminate a time of substantial change in payments for prescription drugs. This experiment highlights the challenges of payment reform for community pharmacies and provides helpful retrospection for pharmacists seeking alternatives to traditional third‐party payment models.
Introduction
The first half of the 20th century was a time of great change for community pharmacists in the United States. In the early 1900s, pharmacy practice consisted of a mix of compounding, dispensing a selection of naturally derived products, and front‐end retail.1 By the 1930s, soda fountains and lunch counters contributed an increasing share of the overall revenue for a typical pharmacy. For example, in 1931 it was estimated that that less than 1 percent of pharmacies made more than half their sales through the prescription department.
This began to change by the end of the 1940s as the postwar era expanded the availability of novel, synthetically derived pharmaceutical agents and compounding declined even further. The greater volume of products available for dispensing in the 1950s brought about the “lick and stick, count and pour” era of pharmacy practice wherein the pharmacist once again focused on dispensing, but much of the specialized art of pharmacy practice was gone.2 The 1950s also saw the expansion of chain pharmacies and self‐service retail, which increased the volume of front‐end sales and overall size of pharmacies. In the 1960s, there was further expansion in prescription dispensing, with as many as 25 percent of pharmacies making at least half their revenue from prescription dispensing with sharp increases in drug expenditures per capita.
Throughout this later era, the concept of what professionalism in the industry meant began to change. In the early 20th century, a professional pharmacy was one which prepared and dispensed high‐quality compounded prescriptions at fair prices.3 The 1922 Code of Ethics, affirmed in 1952, supported this limited role stating that a pharmacist, “should never discuss the therapeutic effect of a Physician’s prescription with a patron nor disclose details of composition which the Physician has withheld, suggesting to the patient that such details can be properly discussed with the prescriber only.”4 With an ethical prohibition on discussing prescriptions’ therapeutic effects, and with the transition from compounding to dispensing mass‐produced products, the specialized knowledge that distinguished the profession of pharmacy became less clear.
Sensing a change in their professional roles, pharmacists in the 1950s began developing an alternative model for pharmacy practice, which placed patients at the center of the dispensing process. Eugene White’s well‐known transformation of the pharmacy, from a store with a soda fountain, lunch counter, and broad range of consumer items to an office‐based family pharmacy which focused on the patient, is emblematic of this change. This new model featured innovations such as charts that facilitated longitudinal patient care instead of transactional prescription dispensing and was encouraged by the American Pharmaceutical Association (APhA) as well as other national organizations, including the American College of Apothecaries.5 This new vision for pharmacy practice compelled community pharmacy toward a greater emphasis on patient care and was reflected in the revised 1969 APhA Code of Ethics, which stated in its first section, “A pharmacist should hold the health and safety of patients to be of first consideration; he should render to each patient the full measure of his ability as an essential health practitioner.”6
Despite this transition toward patient care, the financial underpinnings of the pharmacy business model remained the sale of prescription drugs.7 White and others funded their new model of pharmacy practice through a per‐prescription fee, which covered the cost of broader patient care services. This ability to set fees was undermined by the advent of third‐party payments that set standard payment rates across entire networks of participating pharmacies. By the mid‐1970s, a third party was paying at least some of the cost for approximately a quarter of all prescriptions.8
Third‐party reimbursement formulas relied on a dispensing fee (DF) added to an estimate of the acquisition cost (EAC) to cover the pharmacy’s purchase of each product. The DF, a flat fee per‐prescription, was typically held constant across all pharmacies in an insurer’s network.9 Changes to federal regulations in 1976 also established maximum allowable cost lists (MAC), which capped the total amount of reimbursement for multisource generic products and encouraged drug product substitution. Once MAC was established, the standard reimbursement through Medicaid was to pay the lowest of DF + EAC, DF + MAC, or the pharmacy’s usual and customary rate.10 This fixed fee formula bound pharmacies into unilateral agreements with third-party payers that traded professional choice for cost‐cutting incentives.11
Throughout the 1970s, pharmacists were granted authority to select bioequivalent generic alternatives for brand name drugs following the repeal of anti‐substitution laws across most states. Pharmacists generally favored this drug product selection (DPS) ability, with 74.4 percent of respondents supporting the concept in a large survey conducted by American Druggist in 1974. However, DPS was opposed by the American Medical Association (AMA), believing this to be an erosion of physicians’ authority. DPS remained a contentious issue even after repeals. While pharmacy associations celebrated this expanded scope of practice, the implementation facilitated not so much a clinical role as a new opportunity to reduce the cost of prescription drug products for patients.12
In addition to the limitations enforced by standardized dispensing fees, the reliance on prescription drug revenue meant that any clinical service that encouraged the discontinuation of a product would also threaten a pharmacy’s revenue. White described this challenge well, stating in his 1978 self‐published book:
The present pharmacy system inherently encourages, not discourages, the use of drugs, for if the family pharmacist in an office practice receives no prescriptions, he receives no income. For this reason alone, one can readily see that the role of the pharmacist in primary care must be expanded [emphasis original] to that of counselor and consultant to ensure that his survival as a professional does not depend entirely on the use of drugs. He must be entitled to a professional fee for his expertise whether or not drugs are required.13
The per‐prescription method of payment, referred to as fee‐for‐service (FFS), was also common throughout the broader healthcare system. Physician payments from Medicare and commercial insurers began as FFS when those funding models were first developed. However, recognition of the FFS incentive to increase the volume of services without regard for quality or patient need led to the development of alternative payment models, including capitation. Capitation is a model in which up‐front payments are provided for a bundle of services to a specific provider or group of providers for a specific patient over a fixed period. This model, if applied appropriately, discourages over‐provision of care and can create flexibility for providers to deliver the care that they feel is appropriate to patients.
Inspired by broader movements in capitation and recognition of the limitations of FFS, the Iowa Pharmacy Capitation Project (1976–1981) was an experiment born from a growing emphasis on patient care and dissatisfaction with third‐party reimbursement models. The project aimed to decrease drug spending and improve patient outcomes by paying pharmacies a prospective per‐member‐per‐month rate. Contrary to FFS, capitation incentivizes using fewer and/or less expensive drugs rather than volume‐driven business and product margin. The pilot phase showed early success, but the expanded phase ultimately failed to produce the expected improvements. This study describes the design, results, and context of the experiment supported by recollections from three narrators (G. Joseph Norwood, lead researcher with University of Iowa; Tom Temple, CEO of the Iowa Pharmacist Association from 1979–2011; and Robert Osterhaus, engaged Iowa pharmacist and APhA president from 1992–1993) and provides relevant perspective for present‐day pharmacy payment reforms geared toward financial stability and better patient care.
The Iowa Pharmacy Capitation Project
In the 1970s, Iowa was the seat of progressive pharmacy culture in the US. Beginning in 1972, the Iowa Board of Pharmacy mandated continuing education and proposed legislation to expand pharmacy practice. The Iowa Pharmacists Association (IPA) maintained partnerships with local pharmacy schools and pursued a varied agenda focused on the broader role of pharmacy in healthcare. During this time, Iowa produced many executives and volunteers within national pharmacy organizations, and small‐town pharmacists held local positions of political and social leadership.14 Also in 1972, the CEO of IPA, Robert Gibbs, partnered with Blue Cross Blue Shield of Iowa (BCBS IA) to identify problems within the Iowa Medicaid program and consider if an alternative payment model could curb spending while advancing pharmacists’ position as clinicians.15 One solution would be to use capitation to, “modify the method of financing with the objective of providing optimal patient care at a minimal cost.”16
Pilot Phase
Norman Johnson, BCBS IA pharmacy consultant, became the hands‐on project manager and developed the original proposal. Norwood encouraged Johnson to engage with the project as they were assessing “some of the Kaiser models for prepayment and [thought] that is a good model if we can find a way to adapt it to pharmacy services.”17 Project coordinators met with stakeholders at the state and local levels, including the Iowa Department of Social Services (DSS) and the Iowa Medical Society (IMS), and data analysis was shifted to Norwood’s University of Iowa (UI) team.18
BCBS IA boards did not anticipate sweeping savings but were interested to see how pharmacists would advance in professional standing. DSS officials were similarly guarded, and they secured approval from the regional Department of Health, Education, and Welfare (HEW) on the condition that drug utilization review (DUR) would shift from being the state’s responsibility to that of the capitated pharmacists’.19 The only major interruption in the stream of approvals came from IMS, and these negotiations delayed project start for a year. Johnson’s presentations to the IMS House of Delegates focused on allowing pharmacists to make DPS and on physician review of Medicaid patient drug profiles, but IMS physicians expressed fear of losing their autonomy and “maintaining quality.”20 The project team assuaged these fears by emphasizing that pharmacists and physicians would work in partnership; however, the express need for permission to make DPS21 was obviated by the repeal of anti‐substitution laws, effective the same day that the pilot project began.22
IMS approved the project after eliminating two project requirements: (1) listing the diagnosis on prescriptions and (2) attending regular, required meetings with capitated pharmacists. Despite the 1969 APhA Code of Ethics, IMS thought that providing diagnoses to pharmacists would breach patient confidentiality.23 There was also ongoing political tension between physician and pharmacist groups over doctor dispensing; Johnson and the IPA believed that physicians did not want their judgement questioned by pharmacists.24 Capitated pharmacists also opposed scheduled meetings since the pharmacists were accustomed to contacting physicians whenever they needed clarification on prescriptions. Thus, two clinically focused aspects of the original design were removed.
The pilot project employed a “before:after/experimental:control” design to determine the impact of capitation payment on pharmacist dispensing, physician prescribing, patient behavior and outcomes, and administrative changes.25 The two experimental counties contained 12 total independent pharmacies, while the two control counties contained 10 (no chain pharmacies were located in the control and experimental counties). This model compared one year of baseline FFS data from the year prior to the two‐year26 pilot period capitation data (control counties remained on FFS). An interrupted time series design analyzed non‐Medicaid prescription patterns during the year after the pilot—when the experimental counties had returned to FFS—to determine spillover of the project. As one early study of the project noted, “Although no data were available concerning private patients in these pharmacies, it appeared that none of the pharmacies had a majority of its patients in the Medicaid category,” which was likely no more than 15 percent of the panel.27
Medicaid‐eligible patients in the experimental counties were required to designate their preferred pharmacy each month, and non‐responders were assigned to a pharmacy.28 Each pharmacy received its eligibility lists at the beginning of each month along with 90 percent of the capitation payment for each member. Pharmacy selection “locked‐in” members to patronizing one pharmacy each month with the freedom to choose a new pharmacy within the experimental county during the following months. Lock‐in ensured that pharmacists would be paid for providing services to assigned patients and facilitated record keeping in the form of a detailed, continuous patient profile.
The remaining 10 percent of the capitation rate was held in escrow at the Iowa State Treasury to reimburse capitated pharmacies for any additional, related expenditures.29 Money was initially withheld because, in the absence of drug utilization models, the capitation rate was simply based on previous FFS expenditures and pharmacies were expected to save money under capitation. The pharmacists were informed of the escrow withholding and the ability to share savings with the state by splitting the balance of the escrow account every six months.
The pilot project began on July 1, 1976, and remained in effect until June 30, 1978. Although the original schedule was to begin on June 1, 1976, for a one‐year duration, the start was delayed since Medicaid eligibility lists were missing 20 percent of patients.30 Johnson corrected this discrepancy through partnership with county‐level DSS offices. Throughout the project, eligibility lists were updated on the last 5–10 days of each month to add or subtract capitated enrollees or account for changes to enrollees’ designated pharmacy. Each member was then categorized as a dependent child, recipient of Supplemental Security income, or institutionalized.
Interestingly, prepayment was against the DSS charter.31 Instead, BCBS IA provided the capitation payments from a fund discrete from non‐Medicaid benefits. The state then reimbursed its Title XIX (Medicaid) servicer the amount due from capitation payments. Johnson reviewed the data and concluded that pharmacists should not be adversely affected by drug utilization trends, which were heavily influenced by physician prescribing trends with little input from the pharmacists. Norwood recollected that:
We spent a lot of time developing good capitation rates. The other thing that bothered us . . . is that you have oftentimes very small populations. . . . We tried to make adjustments for that in the capitation rates. What I remember specifically [is] that there were a few hemophiliacs, and boy if you were hit with one of those, [then] he would wipe you right out.32
As a result, the original capitation rates calculated using BCBS IA actuary data were adjusted after two quarters for seasonality (such as winter or flu season) and inflationary trends.33 Although the actuary data produced disparate rates between experimental counties, Johnson’s rates were reported to more closely match FFS payments with a reported average monthly payment of $2.50 for aid to dependent children, $14.00 for patients with supplemental security income, and $30.00 for institutionalized patients.34 Adjusted to 2025 dollars using the medical component of the Consumer Price Index, these monthly rates equate to $27.31, $152.91, and $327.67, respectively.35 The change in rates was approved as a signed amendment to the original contract. Rates were also adjusted more frequently, and contemporary political scientist John Cirn cited unspecified political motives on the part of Johnson as well as his desire to placate capitated pharmacists.36 Osterhaus believed the rates were “modified first after it was underway . . . [because] they gave up control of the real merits and the benefits of capitation in order to appease these people.”37 In the 6th quarter, capitated pharmacies were divided into four groups based on the utilization of drug services and costs, which produced more pharmacy‐specific rates instead of countywide averages.
Johnson also implemented pharmacy‐specific educational efforts, conducting two four‐member meetings with the remaining 7 of 15 pilot pharmacists receiving individual visits.38 Beginning in early 1976, Johnson instructed the pharmacists on the mechanics of capitation and its monetary rewards, guaranteeing that the project would assume risk and that profits would at least match FFS:
He personally went out to the experimental candidates and worked with them to review how they were doing and advise them on what they could be doing to do better. Looking at the prescriptions that they filled and, ‘Oh, here’s some that. . . . Were you aware you could have done this?’ . . . It was well accepted by the pharmacists. Some were initially skeptical, [but] once they got into it, they thought it, ‘Hey, this is good.’ In fact, I remember one guy used that famous phrase, ‘This is the greatest thing since sliced bread.’39
However, drug representatives also visited the pilot pharmacists to dissuade them from substituting since the practice was “cutting into [their] profitability and the ability to make new drugs.”
Physicians within experimental counties were encouraged to write prescriptions for generic drugs or allow pharmacists to select generic products.40 Local chapters of the IMS were only loosely organized, so Johnson approached physicians at hospital or clinic staff meetings organized by the BCBS IA. A few physicians were not able to attend, so Johnson also visited them individually. At the time of these meetings, the project team was considering developing a formulary, so Johnson introduced physicians to the comparative costs of brand and generic drugs. However, due to the passage of the Iowa Drug Production Selection Act of 1976, which repealed anti‐substitution laws, the formularies were never established. The law went into effect on July 1, 1976 (the same day the capitation project started), creating opportunities for Iowa pharmacists to exercise generic substitution without needing physician approval.
Relations with the DSS required additional efforts. County and district officers considered the additional responsibilities of the pilot project to be a “time‐consuming imposition . . . [but] they did not object because they were accustomed to being ordered to absorb additional duties without being given additional staff.” Cirn further explained that work ethic was variable between the two experimental DSS offices and that any “displeasure” over communication efforts was between the local and state DSS offices, not the BCBS IA and the project team. After the project’s completion, Charles Yesalis III, a member of the UI research team, confessed his opinion that “DSS never really supported [the] project. They thought they were doing us a favor.”41
The state determined that if the capitation project exhibited “better service for beneficiaries, greater satisfaction of pharmacists, and reduction in overall drug and administrative costs,” then the state would consider proposals for expansion.42 Overall, the capitation pilot project reduced Iowa Medicaid drug services expenditures by 16.6 percent compared to FFS.43 Analysis of shopping patterns revealed that high utilizers did not change pharmacies significantly more often than low or medium utilizers, so the team concluded that there was no evident discrimination against high utilizers in the pilot project.44 Although pharmacists felt the need to maintain duplicate patient records, upfront payment allowed pharmacists to be remunerated approximately two months earlier than under FFS, which positively affected budgeting and cash flow.45 According to a survey conducted by Cirn, the majority of capitated pharmacists were “very pleased” with the project, but given the retrospective analysis, it was difficult to measure improvements in patient service.46
Physicians’ opinions varied widely concerning generic substitution, which may have contributed to pharmacists’ substitution levels. The high‐substituting pharmacists experienced open and understanding interactions with physicians prescribing the majority of Medicaid prescriptions. All medium‐substituting and one‐in‐five low‐substituting pharmacists reported that some physicians were opposed to substitution or were particular about certain drugs. Cirn reported that “Other pharmacists noted that antigeneric [sic] sentiment among one or more of the local physicians waned over time; or that the physicians grew more confident in the judgment of at least certain pharmacists.”47
The Intervening Years
Starting in the fall of 1978, the UI research team spread the news48 around Iowa and the wider world, hosting statewide, regional, and countywide meetings49 for pharmacy groups to explain how capitation works, relay project success, and inform about further DSS‐approved expansion.50 There were also meetings with regional DSS offices51 and follow‐up visits to each office within experimental counties. State and local IMS groups were notified of the expansion phase, and approximately one‐third of the county IMS groups accepted in‐person meetings with the project team. Upon recollection, Norwood suspected that this publicity contributed to political opposition.
When we went to the big‐time project, the one third counties, by golly [the pharmaceutical industry opposition] intensified . . . and began to really put pressure politically on the representatives in the legislature. They were successful to a large extent. I was not at all aware, number one that this was going to be a political thing. It never hit me that politics would come into play, but obviously it did. . . . A lot of these guys were friends of mine, but they were convinced, and I’m sure wined and dined. Really that was something else. It was naiveté on my part, not realizing that this thing [was becoming] a political football. . . . I was really just trying to find out what happens; let’s find the truth. . . . We were pretty vocal about the fact that, number one, if this worked, it would go statewide. All of this state, wouldn’t be just one third [of the] counties, but it would be 100% of the counties . . . by golly, this could spread nationwide. That was the crack to the industry. Industry really got intense about that.52
June 1979 marked one year after experimental counties had returned to FFS, and David Lipson, statistician on the UI research team, described the “spillover” of Medicaid capitation generic substitution occurring for non‐Medicaid prescriptions before, during, and after capitation. Although substitution decreased after the termination of capitation, DPS in experimental counties was still statistically significantly greater than during the pre‐period. Substitution in control counties experienced a slight trend upwards, but no change was statistically significant. By now, more states were repealing anti‐substitution laws, and Lipson’s publication included a list of which pharmaceutical companies stood to lose the most money as a result.53
Pharmaceutical manufacturers had long opposed DPS. In 1953, roughly 20 of the larger manufacturers split from the Pharmaceutical Manufacturers Association54 to form the National Pharmaceutical Council (NPC) to “create and promote” anti‐substitution laws, which persisted through the early 1970s.55 By the end of the decade, pharmacists had won the legal authority to select between bioequivalent drug products; however, pharmaceutical manufacturers continued to oppose the practice. Eli Lilly and Company sponsored the “Perspectives in Pharmacy” column in the Iowa Pharmacist and multiple other trade journals to showcase expert opinions critical or contrary to DPS and capitation, ostensibly “presented in the interest of better informed pharmacy,” despite the disclaimer at the bottom of the article stating that “The views expressed are the authors’ and not necessarily those of Eli Lilly and Company.”56
One such article from June 1981 issue of The Carolina Journal of Pharmacy echoed commentary originally published in October 1980 from Professor Jean Paul Gagnon of the University of North Carolina School of Pharmacy and Dr. Raymond Gosselin, president of the Massachusetts College of Pharmacy and Allied Health Sciences. Gagnon concluded that while there may be initial profits, normalizing capitation “may serve only to delay solution of the reimbursement problem.” Gagnon did, however, express that capitation “required additional evaluation before a decision concerning its utilization can be made.”
Gosselin expected that once drug services expenditures decreased, capitation rates would be cut in order to tighten budgets against rising operating costs. He argued that capitation would result in using the “cheapest drugs available. Making a choice based on price as the sole criterion does not involve professional judgement.” He asserted that “new activities for pharmacists must be justified in terms of building clientele, increasing volume and business, and earning a reasonable profit.” Norwood reflected that capitation was based on a fundamentally different foundation: that DPS and decreased drug utilization were better for patient outcomes.57
In addition to heightened scrutiny from the pharmaceutical industry, there were also many changes at the state level impacting the project. In mid‐1979, Dr. Michael Reagen took office as DSS commissioner four months after the previous commissioner, Victor Preisser, resigned.58 The IPA also transitioned leadership when Tom Temple succeeded Robert Gibbs as CEO in March 1980. Temple recalled that relations between the IPA and Reagen were strong and productive as Temple thought that “the project in a lot of ways earned us a lot of credibility with Commissioner Reagan. He was a great communicator. He knew his stuff. He could appear before a legislative committee, and he had the utmost respect of everybody in state government.”59 However, this and “other changes occurred in key posts within the Department” required the UI team to reform its agreement with the DSS.60
In July 1980, the three‐year contract ended for the non‐profit BCBS IA as Title XIX servicer, and the for‐profit Systems Development Corporation (SDC) won the lowest bid.61 The BCBS IA was “responsible for the impetus behind the pilot project and most of its implementation.”62 Ronald Mahrenholz, pharmacy consultant to the DSS, thought the project would set a cost‐considerate precedent for the BCBS IA for when future competition arose to facilitate IA Medicaid. Now, however, the close partnership built between the investigators and Title XIX servicer was lost, along with the trusting relationship between Norman Johnson and IA pharmacists. Mahrenholz highlighted that such an involved figure was necessary to champion the complex effort, but Johnson left the BCBS IA “shortly before the termination of the [pilot] experiment” to become the Executive Secretary of the IA Board of Pharmacy Examiners.63 As a result, the UI team took over much of the project operations in addition to its data analysis role.
The project investigators described their relations with the SDC as “frustrating.”64 While placing bids, the SDC “strongly argued against the concept of capitation” and as result, costs for the capitation experiment were not included in bids.65 After winning, SDC negotiated a cost‐plus contract for processing the additional claims associated with the capitation experiment. Despite such actions,66 the SDC was instrumental in preparing and submitting bulky experimental waivers to the Health Care Financing Administration (HCFA), which were required to approve the temporary changes associated with the larger scale of the expanded phase. Although the regional DSS office in Kansas City was aware of the waivers needed, the project team did not know until a group from the National Center for Health Services Research and Development (NCHSR) visited in January 1980 and casually mentioned the forms. Even then, the team did not know for certain until November 1980, months after the HCFA visited and just two weeks before the original start date for the expanded phase. The team submitted four waivers, three of which were approved: “(1) to limit free choice of providers,67 (2) to prepay providers, and (3) to use more than one type of reimbursement method in the State Medicaid Drug Program.” The communication delays were possibly due to a turf battle between the NCHSR and the HCFA as NCHSR held granting power, but HCFA held both granting power and the ability to give experimental waivers.
Meanwhile, local Iowans were also expressing their opinions, although opposition to the capitation project did not emerge outright until Gibbs, who was locally and nationally well respected, retired.68 By September 1980, pharmacy owner Darwyn Williams of Webster City had formed a splinter group called Concerned Iowa Pharmacists (CIP). Williams was the immediate past president of the IPA, and thus chairman of the Board of Trustees, when the board unanimously approved the expansion of the pilot project. He later decided to work against capitation when he learned from a National Association of Retail Druggists (NARD) officer that capitation may grow to be a national reimbursement scheme as he “wanted to be the president of NARD so bad that, you know, he helped to take the place apart and the benefits of it,” and by mid‐1981, Williams was on NARD’s executive board.69 Temple recalled that “Back in those days, if you didn’t sort of toe the line of NARD, you didn’t move up, and they bypassed people on occasion. So Dar was pretty much given the walking orders to try to kill the capitation project.”70
Williams contacted Pfizer Pharmaceuticals lobbyist Thomas Norton for assistance and was, unbeknownst to the IPA, holding meetings with Iowa Senate Republican Majority Leader Calvin Hultman, Norton’s personal friend.71 The first meetings were also attended by lobbyists from Eli Lilly and Ciba‐Geigy, whose representative was tasked with passive monitoring. Funded by NARD and Pfizer, CIP produced a series of anti‐capitation mailers that included instructions on how to drop out of the project.72 The first set, including a letter and a survey, went out March 1981, just two weeks before the expanded phase finally began:
In short, we Iowa Pharmacists are being asked to risk the health of our Medicaid patients, in order to achieve dubious savings, by substituting a reimbursement program which non‐pharmacist, state and federal bureaucrats,73 are forcing us to implement. In addition, to carry out any of these ‘options,’ we must contact a doctor for approval of each change. We believe physicians will quickly tire of this routine, and may well cause them to question our professional judgement and ethics. Frankly, the idea of such changes based purely on price considerations, is disgusting to us as professional, practicing pharmacists.74 (emphasis and punctuation original)
Norton supported the letter and survey.75 William “Bill” Pletch, pharmacist in non‐capitated Black Hawk County and CIP president, reported the survey results: “10 to 1 against capitation.”76 In actuality, the results indicated 79.2 percent not “in favor of capitation,” 8.6 percent in favor, and 12.2 percent undecided, while the letter accompanying the survey asked for responses “if [pharmacists] agree with us.”77 The survey was sent to 2,200 IA pharmacists and received 970 responses (44 percent). Additionally, 16 percent of respondents submitted additional notes or letters to support their position, and CIP leadership chose “50 to 60 pharmacists who appeared to be the most vehemently against capitation” to encourage them to write to the Iowa US senators to stop the experiment.78 Pletch recalled that those in favor of capitation, according to the survey, were “‘all from the Cedar Rapids‐Iowa City area, that real left wing element in Iowa City’ (where the University of Iowa is located).”
The IPA also sent four surveys during the intervening years between the pilot and the expanded phase. The second, from April 1981, noted that almost 80 percent of pharmacists were in favor of the IPA’s policy to evaluate capitation.79
We received lots of calls and pharmacists saying, what’s the association doing supporting this? And generally speaking, you know, once we explained . . . , most pharmacists were fully supportive of moving forward. . . . But it was because of those leaders that I had at the time that really stood up to Dar Williams, and stood up to NARD in particular, that really allowed this project to go forward. . . . I had lots of targets put on my back by some people, but we survived it. . . . Sort of the culture of Iowa pharmacy is about, you know, looking at new ideas and fresh ideas and, you know, not just being in opposition to things that don’t have any substance one way or another without being evaluated.80
Regardless of how Iowa pharmacists polled, CIP continued to undermine the project. At a meeting shortly before the start of expansion, Hultman, Norton, Williams, and Pletch met with Mahrenholz, Temple, Lipson, and a few other pharmacists, lobbyists, and DSS administrators.81 CIP questioned if the researchers were threatening to withhold Medicaid business from pharmacies that refused to participate in capitation. Officially, the answer was no, but the meeting itself devolved into a “shouting match” between Lipson, Williams, and Pletch and fanned the political flames.
Expanded Phase
Having met state requirements for pilot success, the project team formulated the expanded phase, funded via a $750,000 NCHSR grant, which was originally denied (Table 1).82 Beginning in March 1980, 64 counties in eastern and central IA were grouped based on population, ranked based on Medicaid per-capita drug expenditures, then divided evenly into experimental and control groups.83 Polk County, housing IA’s largest city, Des Moines, was specially chosen to be among the experimental counties.84
Pilot and Expanded Phase Comparison
Although emergency prescriptions were handled with reciprocity by the pharmacies of close‐knit rural counties, the same informal give‐and‐take would not suffice for a larger scale or in disparate urban environments. As a formal process, emergency prescriptions would be reimbursed using FFS, paid for with the additional escrow withholding of 20 percent, as compared to 10 percent during the pilot phase (Figure 1).85 Any pharmacy that did not exhaust its escrow account was eligible to share savings 50:50 with the state. In order to protect capitated pharmacists from loss, the project team placed those patients on FFS whose expenditures exceeded $250/quarter ($1,081.88 USD 2025) if institutionalized or $150/quarter ($1,803.14 USD 2025) if not institutionalized.86 Between high utilizers, non‐responders to pharmacy assignment, and the 12 out of 370 pharmacists who dropped out of the project, about 20 percent of Medicaid‐eligible patients in the experimental counties were managed using FFS.87
Expanded Phase Escrow Utilization. Original figure from Hadsall’s report for the IPA in November 1983 on the project detailing the intended usage of the escrow account withholding and disbursement for the expanded phase. Used with permission from Ronald Hadsall. Source: Ronald Hadsall, “Capitation Payment for Pharmacy Services: The Iowa Experience” (Iowa Pharmacists Association, 1983), 28.
The research team expected major administrative cost savings by only filing 10–15 percent of Medicaid claims; however, certain events necessitated reporting 100 percent of claims. This was done partially to prevent confusion among capitated pharmacists since they still filed claims for non‐Medicaid and/or emergency prescriptions.88 More importantly, the HCFA89 denied the project’s fourth experimental waiver and required that “all capitation data be integrated into the Medicaid Management Information System (MMIS),” which required submission of all claims.90 This precipitated costly modifications to the fairly new MMIS. Although the SDC assisted with the changes, this produced “double work” as the MMIS contained over 900,000 lines of code in a time when not all pharmacies were yet computerized.91
Despite these hinderances, a major improvement was the use of regression models for determining capitation rates. The team evaluated several variables from the MMIS that affected drug utilization and found that the most important predictors were age, sex, and institutionalization.92 This resulted in 20 different rates with the lowest rate being $1.25 per month ($9.02 USD 2025) for institutionalized males aged 6–16 years and the highest monthly rate, $30.10 ($217.10 USD 2025), for institutionalized females aged 45–64.93 Adjustments were made for inflation (2.25 percent per quarter), copayments,94 and seasonality with project monitoring occurring quarterly.
Pharmacists and DSS caseworkers were mailed educational packets created by UI educational design specialists (Figure 2).95 Information to pharmacists included: DPS and dosage, therapeutic category and over the counter (OTC) switches, and avoiding inappropriate drug combinations. Pharmacists and DSS caseworkers also received packets about the project’s operations and the concept of capitation.96
We went to small packets of information that would focus on each of the categories where we felt pharmacists could make a difference. . . . We were able to bring in a real multidisciplinary team. We brought in educational psychologists . . . to design learning modules. By golly, we’ve tried to make them really simple that you could sit down and read in the evening after you’ve been working all day, and it would get right to the point. Tell them, ‘Okay, here [are] examples of what you could do that would improve care. It would save money for the system, but more importantly, it would also help you benefit economically because you’re going to get a prepayment and by golly, you can control costs.’97
Expanded Phase Educational Intervention Materials. Educational materials used in the expanded phase were developed in partnership with educational design specialists. Booklet topics included Introduction, Product Switches, Operational Procedures, Dosage Regimens, and Drug Product Selection. Used with permission from Ronald Hadsall. Source: Ronald Hadsall, personal collection of project files.
Temple thought that these educational efforts were sufficient and not a source of project resistance.98 However, the project team did not believe that pharmacists read the packets or understood the capitation program as Ron Hadsall, pharmacist and IPA‐supported project reviewer, reported that only 73 percent of pharmacists knew about the packets and only 62 percent, in total, read them.99 Physicians in the 32 experimental counties did not receive as close interactions as were present in the pilot project, and educational efforts in non‐capitated counties also suffered.100
Similar to the pilot phase, there was a deficit in eligibility lists prior to the start of the expanded phase, and there continued to be complaints from capitated pharmacists about outdated lists.101 At SDC’s request, the UI team tested the system before the eligibility deficit was corrected. This produced inaccurate data that frightened some capitated pharmacists into thinking that the project would be “financially disastrous for them, despite the fact that the state guaranteed the pharmacists against financial risk.” When the team recognized the deficits, outstanding patients were assigned to the pharmacy they last visited. To aid in lock‐in, patients’ assigned pharmacies were printed on their Medicaid eligibility cards. Shopping was permitted on a monthly basis, as in the pilot phase, but there was no mechanism to reassign high‐utilizing patients who were cared for under FFS. Eligible patients added during the month were serviced using FFS and moved to capitation at the first of the following month.102
The expanded phase launched on April 1, 1981 and was terminated early on December 31, 1981; the planned start date was October 1, 1980, but this was delayed month‐by‐month, much to the chagrin of the UI team, while they waited for HCFA waivers (Table 2). Commissioner Reagen terminated the project three months early because he thought that the data would be sufficient. More importantly, the state was in economic hardship and project administration was costing an additional $30,000 to $50,000 per month due to running two reimbursement mechanisms with 100 percent of capitated claims billed by SDC as a fixed cost per claim.103 Project investigators were disappointed by the results. Provider surveys revealed pharmacists’ neutral attitudes toward the project and its monetary and professional implications. For all 32 experimental counties, only one cost‐saving factor was found statistically significant: a decrease in the “average number of days of therapy per institutionalized recipient. That is, capitation pharmacists reduced drug use in nursing home patients.” Although this aligns with pilot project findings, the UI team was skeptical of this result because there was no accompanying decrease in “per‐capita drug use or the quantity of drugs per prescription.” The team, therefore, dismissed the finding as an artifact of performing multiple tests and data transformations. Lack of pilot‐project‐level engagement from and with capitated pharmacists failed to improve substitution beyond the new baseline.104
Expanded Phase Planning and Implementation Comparison
Capitated drug costs were 3 percent lower than under FFS with more savings from ambulatory patients.105 Despite this success, total program costs were 9 percent higher under capitation, which included “capitation payments, supplemental payments, emergency claims, pharmacist share of escrow balance, and FFS payments for high utilizers, dropouts [of pharmacies located within capitated counties], and unassigned Medicaid eligibles.”106 Fifty percent of pharmacies exhausted their escrow accounts and depleted the state’s share of capitation savings such that, after promised disbursements to successful pharmacies, the State of Iowa share experienced a deficit of $20,000 to $25,000 (the state collected only $850 after all other disbursements were made).
Administrative costs included start‐up, data processing, business operations, and provider relations. The project evaluators claimed that one‐third of start‐up costs were associated with integrating capitation claims into the MMIS, not only for the cost of submitting claims but also because there was no time for competitive bidding among contractors performing the service.107 The remaining two‐thirds of start‐up costs could, investigators envisioned, be transferred to other Medicaid servicers and thus recouped or diluted among multiple states or servicers.
Despite the group of experimental counties being in the red, Polk County, seating Iowa’s largest city, Des Moines, returned surprisingly positive results. The data approached pilot phase numbers: “Per‐capita drug costs were 12% less for institutionalized care and 10% less for ambulatory care. . . . Similarly, reimbursement data on Polk County favored capitation, averaging 10% less for institutionalized care and 11% less for ambulatory care.”108 These data met the breakeven point of 10 percent to absorb the cost of program changes. The evaluators were unsure why Polk County achieved such cost savings since there was no difference in educational efforts delivered. Although Hadsall believed that the Polk County results were also a statistical artifact, the data were consistent throughout the county even if no statistical significance existed when all 32 experimental counties were considered together.109
Key Themes
Between the project coordinators, national pharmacy stakeholders, the pharmaceutical industry, and others, capitation was a major topic of conversation in this era. In utilizing payment reform to advance patient care, there was concern about the risk of cheapening patient care in favor of turning a profit. Given the small‐town nature of community pharmacy during this time, those involved worried about external influences, such as industry and government, on everyday pharmacy practice. As a result, it has consistently proved challenging to implement and evaluate pharmacy practice change.
Project coordinators and the IPA were especially concerned not to place undue risk on pharmacists for the drug specifications of physicians: “the Association’s support . . . extends only to the point that individual pharmacies are not made to economically suffer as a result of their participation in the project.”110
Norwood regretted how the UI team emphasized economic savings rather than advancing pharmacy services, and the Iowa Capitation Review Committee, commissioned by DSS, agreed. They argued that excluding high utilizers was “in conflict with the cost reduction objectives of the program,” and that other merits of capitation, besides economic impact, should have been evaluated.111 Given the statistically significant decrease in per‐capita drug use for institutionalized patients112 during the pilot phase, the investigators suggested limiting capitation to use in nursing homes or larger pharmacies where the census would dilute costs associated with a few high utilizers.113 This would also decrease some need for emergency payments since nursing homes were serviced by only one pharmacy.
The National Pharmaceutical Council shared Gagnon and Gosselin’s concerns that capitation programs may realize short‐term savings that may demand payment later as increased institutional costs, such as hospitalization from un‐ or undertreated conditions. This could occur if “economic incentives to pharmacists outweigh the dispensing of quality products and services.”114 The NPC draft report was included in the opening remarks delivered to the NCHSR site visit team, and stated that the “main area of interest [to the project was] the potential effects of capitation of pharmaceutical services” as a single service program and suggested that service‐oriented pharmacies would participate less in capitation programs “since capitation does not reward the delivery of an increased level of service but rather . . . minimal services.” Although there were no changes in appropriateness of therapy, the project coordinators were still concerned about maintaining quality care.
However, opinions after the fact differed. At the 1982 Medicaid Conference, Temple posed several outstanding questions remaining after the conclusion of the project, including new concerns about capitation rates not adequately adjusted for inflation. He remained skeptical of capitation and wondered about the effect of generic substitution on the pilot’s results, since the project occurred in the first year following the legalization of DPS.115 One reason for this lack of statistical significance in the expanded phase could have been that generic drug product substitution would have become more common across both capitated and control pharmacies.116
Remarks by California Pharmacists Association Executive Vice President Robert “Bob” Johnson was recorded alongside Temple at the same Medicaid conference. Johnson’s perspective was one of survival of the fittest: “Pharmacists must learn to participate in this somewhat risky but potentially efficient cost‐savings approach . . . because the private sector, too, is experiencing runaway costs in health care.”117 The most contentious points at the conference’s capitation workshop related to lock‐in restricting free choice of provider, rate‐setting a year prior during a time of rampant medical inflation, and financial risk assumption either alone or in conjunction with physicians.118 The workshop group believed that the at‐risk aspect of capitation would be more effective at reducing overprescribing than regulatory DUR. DUR was again discussed at the 4th annual Dialogues in Pharmacy: Medicaid‐ Pharmacy Boom or Bust, a three‐day meeting organized by Smith Kline & French Laboratories. The 24 participants did not often agree on solutions to impending problems, but the group did jointly concede that pharmacists must “become directly involved in drug utilization review, lest the accelerating third‐party cost crunch relegate them and their reimbursement to the back seat.119
One of the initiatives that we took forward was to create a drug utilization review commission that we started in the early 80s . . . when we signed an agreement between IPA and the Department of [Social] Services to perform drug utilization review by committees of physicians and pharmacists that really looked at quality of medication use, [and] really brought medicine and pharmacy together around that goal of achieving more quality, cost‐effective use of medications. And Commissioner Reagan was, [due to] the openness that we had created with him, very supportive, and he made it happen. And [IPA] did drug utilization review . . . for probably another 15 years before somebody decided they wanted to move the project elsewhere. But that was a defining moment in IPA’s history of trying to create more cost‐effective, quality medication use in Medicaid.120
Richard Fitzpatrick presented an “all inclusive” capitation covering product cost and professional fees and a “split” form covering product cost with fees paid separately. There was also the idea of adding incentives to capitation for “performance of additional valued services or conservation of costs.” Whereas Larry Sanberg, an Iowa pharmacist, expressed his opinion that capitated pharmacists should not change their behavior for fear of skewing the FFS comparison, Fitzpatrick argued that behavior changes would be required of both the providers and the patients.121 Similar to Gosselin, Fitzpatrick was wary that capitation would not meet the high expectations of savings and that escrow withholding would progressively increase. Many interested parties were asking if it was possible to develop a drug utilization model for third‐party payors, a new concept since the majority of drug services were paid in cash.122 The project team suggested basing capitated models on cash patients, if only to assuage fears of government interference.123
Although most pharmaceutical manufacturers and professional organizations adopted a watchful waiting approach, Pfizer and the National Association of Retail Druggists (NARD) moved beyond Eli Lilly’s trade journal publications and actively funded CIP efforts. Pfizer provided a “small grant for mailing and postage,” but Temple questioned that term in a letter to Pfizer representatives.124 The grant terms were not shared, but Pfizer did acknowledge strong involvement because they “believe[d] that capitation is an unjust and unfair pharmaceutical reimbursement system that will adversely affect the delivery of health care.”125
A Pfizer‐funded roundtable discussion was published in the NARD Journal in July 1981 (Figure 3) featuring CIP executives, a hospital pharmacist, and a pharmacist‐physician. The group mistrusted BCBS IA Norman Johnson’s constant adjustments to the program and was determined to “exert influence over this political problem that capitation has become.”126 Ostensibly, their main concerns were unfairness to Medicaid patients by decreasing quality of service or pharmacist interactions and worsening cash flow from delayed escrow payments. They believed that, despite pre‐payment, full first-quarter payments would not be received for 65 days after quarter end, which was unacceptably longer than the 45 days associated with FFS.
NARD Journal Headline. This headline highlighted NARD’s perspective concerning capitation for the Iowa Medicaid Drug program. The first paragraph includes verbiage such as “newer and bigger cloud looming,” “felt the brunt of this so‐called ‘experiment,’” and “could spell decapitation for retail pharmacy” (emphasis original). Source: Darwyn Williams et al., “Capitation: Stranglehold on Pharmacy,” NARD Journal, July 1981, 35.
Additional issues raised were that pharmacists would repeatedly call physicians and monopolize their time; that patients would more frequently return to physicians’ offices due to untoward effects of substituted drugs; that physicians would be next to be capitated, which would introduce government interference and limit free‐enterprise price setting; and that capitation would damage the pharmacist‐physician relationship by replacing patient‐centered care with monetary motivations. The lock‐in feature was deemed a mechanism of government interference with pre‐established pharmacist‐patient rapport. CIP also implicated DSS for failing to adequately maintain eligibility lists, leaving deceased patients on the lists for months while retaining living patients who never filled prescriptions remained capitated, and padded payments for some pharmacies. The CIP resented both that the pilot did not include urban areas and that the expanded phase adjustments were made, some during the course of the phase, to cater to urban areas.
Throughout the capitation project and the following years, the IPA remained pointedly neutral about capitation as a reimbursement method. After the IPA recognized CIP activity in February 1981, Temple persistently corresponded with NARD and Pfizer to ascertain the extent of each organizations’ involvement with CIP and to censure their “complete lack of respect for organized pharmacy in Iowa,” stating that CIP’s “impact in the lay press in Iowa . . . certainly created an image problem for pharmacy in Iowa, both within and outside the profession.”127 Temple was constantly correcting the misinformation spread by trade journals, in the public news, and to legislators in an effort to defend the experiment and the IPA’s reputation. In response to CIP accusations, the IPA Board of Trustees sent an open letter to IPA members:
IPA takes no position on the concept . . . as an alternative to the fee‐for‐service system. . . . It would be inappropriate to either support or oppose capitation because such a position would be based on speculation and undocumented facts. IPA will support the conducting of an experimental project so that the profession can evaluate the concept of capitation as a reimbursement mechanism.128
Norwood recalled that lobbyists placed political pressure on the state legislature to prevent lawmakers from accepting capitation as a viable payment model, and he reported that they were “successful to a large extent.”129 Big Pharma had convinced NARD that “[capitation] isn’t good for you. What’s good for industry is good for [the] pharmacist.”130 “They fought the whole movement of generic drugs in the system. . . . They became pretty involved in trying to kill any movement toward capitation reimbursement because it would encourage more generic dispensing as well as maybe therapeutic alternatives.”131 The NPC upheld name‐brand prescribing as a means to assure the quality of medications, and maintained that “substitution required by law or regulation interferes with . . . professional judgement, is not in the best interest of patients, and is a deterrent to pharmaceutical research and development.”132 Overall, the NPC, much like CIP, considered capitation to be “an additional government intervention in the free market system along with restrictive formularies, substitution, and MAC [maximum allowable cost lists] to achieve administrative expedience at the expense of the quality of patient care.” Without providing a specific example, the NPC report instead endorsed a “free market incentive system that rewards innovation and productivity.”133
According to Temple, the newer Commissioner Reagen was an emphatic supporter of the project; however, the UI team recollected in 1983 that he had become supportive only after he learned that DSS was publicly committed to the project. Reagen was under pressure from Senator Hultman to terminate the project even earlier, yet he held out until December 1981 and then “strongly supported” post‐hoc DSS evaluation efforts.134 DSS workers at the county and state levels outwardly approved of the project while remaining inwardly resentful of the additional work. DSS lead data processor Sheryl Andre was against capitation from the beginning and considered the project a diversion of resources away from truly client‐centered and money‐saving activities.
In a 1981 speech to the American Society of Consultant Pharmacists, Temple stated that capitation had become “such a hot political issue” and lamented that the IPA had been accused of “supporting socialistic ideas and of promoting capitation reimbursement as a viable alternative to the fee‐for‐service system of reimbursement.”135 According to Osterhaus, “that combination of the industry and medicine has stopped more good legislation favoring patients across our country than anybody would care to admit or examine.”136
According to Temple, APhA and NARD “were constantly in fights with each other, and they fought over this issue too. Bill Apple [APhA CEO] was very strong in standing up, saying the profession needs this project to go forward. We need the answers. We need the information that this project can provide to us.”137 Osterhaus also believed that post‐World War II pharmacists were “in the peak of their professional, productive life . . . and a lot of them went to NARD at that time because they like selling goods as well as medicine rather than acting as a professional.”138
Other states were also addressing the issue of capitation during this time. In 1980, the Michigan DSS commissioned an advisory group to consider switching nursing homes to one of three drug reimbursement plans. The first two, “prudent buyer” and franchising, were dismissed, and capitation was initiated as a result of the 1980–81 appropriations bill.139 Before the final Iowa report was submitted, the State of Minnesota commenced planning a prepaid Medicaid program that was fairly all‐inclusive. In July 1982, the HCFA granted $500,000 to the Minnesota Competitive Medicaid Demonstration Project.140 The 18‐month planning phase was scheduled to start in August 1982 followed by a three‐year project. This initiative specifically limited the ability of providers to market their services due to “scandals in other national demonstrations.”
Trust in the project was also eroded by “[c]onfusion and frustration caused by delays in the implementation of the program and disappointment in the projected capitation rates.”141 Hadsall argued that the UI evaluation team “began to be viewed as capitation advocates142 rather than disinterested [third‐parties],” which added to the skepticism of capitated pharmacists toward the expanded phase. In addition to the changes that necessitated the UI team taking a more active role in project management, there were also multiple personnel changes within the UI team as Norwood left in July 1981 to become dean at the North Dakota State University School of Pharmacy. Although he thought fondly of Yesalis, Norwood later reflected that Yesalis was more interested in wrapping up the project than “trying to get it to go” before he left for Pennsylvania.143 Norwood returned briefly to join the NCHSR site visit on January 12, 1982; however, Lipson, the statistician, was also leaving Iowa for the University of the Pacific, based in California.144 Therefore, Wayne Fisher, another member of the UI team, was guaranteed another year of salary to stay on and finish the evaluation’s hands‐on aspects.
The Iowa Capitation Review Committee, encouraged by Hultman (or Reagen) and formed by DSS from out‐of‐state reviewers,145 focused on methods of evaluation, rate setting, and “pharmacy acceptance of capitation rates.”146 Although the report was necessarily critical, the committee held the project in high regard:
Most commendable was the inherent assumption, and to some extent objective, of this project that pharmacists seek expanded and more specific therapeutic and educational roles in serving the drug needs of Medicaid program participants. . . . The Committee is unanimous in its view that this project will be a most significant and important milestone in the history of public policy development for prescription services payment. . . . This innovative project was a tremendous challenge to its many collaborators and all associated with it are applauded by the Committee for imagination, initiative, and perseverance.147
The committee offered a list of other variables148 to consider in the rate‐setting regression, including provider characteristics, size of pharmacy and client base, and padding for unpredictable variables. Additional recommendations included:
Provide a mechanism for high utilizers to remain capitated,
Allow pharmacists to voluntarily choose capitation or FFS remuneration,
Capitate dispensing fees while reimbursing drugs at cost, and
Dilute shared risk among other providers responsible for patient care.
Mahrenholz, the DSS pharmacy consultant, also devised a list of future directions for the administration front:
Separate the capitation budget from the main DSS budget,
Appoint a full‐time DSS‐based project manager,
Ensure more complete commitment from DSS leadership to motivate employees early on, and
Remove the UI team from the daily project management due to misunderstandings about the role of the evaluators.149
The investigators reflected on the expanded phase experience and pondered future capitation efforts: balancing risk to pharmacists, restricting participation in capitation, and changing the basis of drug utilization models. In retrospect, the project team wondered if some risk transferred to capitated pharmacists would have encouraged greater effort to curb drug ingredient costs, such as with modern Health Maintenance Organizations (HMOs).150 Bob Johnson agreed that “large volume purchasers of health care,” such as major employers, will be buying into the most cost‐effective plans; he lamented the CIP’s actions and warned that “the profession will pay for this ignorance in years to come.” However, Robert Comito, a capitated community pharmacist involved in CIP, conceded during the Pfizer roundtable discussion that capitation could possibly work in “a closed system like . . . institutionalized pharmacy. Capitation won’t work in an open market,” a view that Senator Hultman also shared.151
The development of FFS was a “painful and financially frustrating” decade‐long process, therefore Fitzpatrick proposed a “well defined and [fairly] monitored” trial period with “honest and sincere” input from capitated providers and patients. Without “clear and factual data . . . [he was] unalterably opposed to dismantling the present system at [that] time to accept capitation.”152 Ultimately, the DSS committee recommended against changing the State of Iowa to capitation reimbursement for Medicaid programs, as there were too many outstanding questions concerning project implementation, validity, and results.153 In 1985, Yesalis concluded that “we have learned more about the problems of conducting social experiments in the ‘real’ world . . . than about the performance of capitation payments for pharmacy services.”154 He challenged future researchers to report these problems as means to explain such common implementation failures. In his words, it is impossible to determine if the Iowa Capitation Project succeeded or failed because “the concept never received a fair trial.”
Conclusion
In summary, the Iowa Pharmacy Capitation Project demonstrates the challenge of implementing and evaluating a new model of reimbursement for prescription drugs. Capitation presented opportunities to reduce dependence on FFS reimbursement and move toward Eugene White’s vision of a pharmacy practice model in which income was more dependent on patient care. However, this vision for pharmacy practice change associated with the shift in reimbursement model was not fully realized or evaluated as a part of the Iowa Pharmacy Capitation Project. The project was perceived as a threat and as a means of engaging pharmacists in cost containment for prescription drugs, which created substantial opposition both within and outside of the profession.155 This cost containment role does not appear in contemporaneous commentaries on theories of pharmacy practice that emphasized pharmacists’ clinical role. For example, in his 1980 Whitney lecture, pharmacy practice theoretician Donald C. Brodie listed 20 separate functions of a pharmacist at the time, none of which included any allusion to cost containment.156 The first guidelines for pharmacy residency programs mention cost containment in the context of formularies for long‐term care facilities, but not as a responsibility of community pharmacists more generally.157 A mention of cost containment does appear in the executive summary of the 1989 “Pharmacy in the 21st Century” conference, but only in the context of limitations on the profession, referring to cost containment as an “external influence on pharmacy practice.”158
Instead of incorporating payments for services into dispensing reimbursement through capitation or other enhanced dispensing fees, pharmacy practice commentaries in the 1980s discussed the professional ethics and opportunities related to separate third‐party reimbursement for clinical services.159 Following the conceptualization of pharmacy as a clinical profession in Hepler and Strand’s landmark 1990 paper, and a successful pharmaceutical care pilot project in Minnesota, the Iowa Center for Pharmaceutical Care (ICPC) was founded in 1994.160 This program focused on redesign of pharmacies and training of pharmacists to provide a more patient care‐oriented practice of pharmacy. Materials from this program were purchased by the APhA to create a similar program nationally, and ICPC leaders authored the 1998 first edition of APhA’s A Practical Guide to Pharmaceutical Care. The 1999 founding of Outcomes Pharmaceutical Health Care in Iowa created broader reimbursement opportunities for pharmaceutical care services beyond dispensing. Additionally, medication therapy management became a mandatory Part D benefit with the 2003 Medicare Prescription Drug, Improvement, and Modernization Act.
Throughout these more recent changes, FFS has remained the foundation for prescription drug reimbursement. Pharmacy Benefit Managers (PBMs), third parties which administer pharmacy benefits on behalf of insurers and employers, rely on list prices and opaque mechanisms for determining prescription drug reimbursement. Many large PBMs also own their own retail or specialty pharmacies, a practice subjected to legal scrutiny. Community pharmacy owners have faulted PBMs for recent pharmacy closures, perceiving many PBM business tactics to be unfair and anti‐competitive.161
Since the mid 2010s, PBMs have offered incentives for high‐quality pharmacy services, typically through quality measure‐based penalties and rewards that augment the underlying FFS structure.162 Pharmacists have reacted negatively to these models, viewing penalties as unfair and quality measures as outside of pharmacists’ control. Separate FFS payments for enhanced services exist, but these are rarely enough to sustain a full practice. Dispensing remains the main source of revenue for pharmacies, and this is especially true for independent pharmacies, which place a greater emphasis on patient care but sell fewer front‐end products like groceries, convenience items, etc.163
Capitation for pharmacy services has never been attempted on a broad scale in the US since the end of the Iowa Capitation Project, and there is little to suggest that such a model would be well‐accepted by pharmacists today as a mechanism for prescription drug reimbursement. Capitation may, however, still serve as a mechanism for remunerating pharmacies for non‐dispensing enhanced patient care services for a panel of attributed patients. This model remains a common form of payment to providers and health plans, and a capitated model could align well as part of broader value‐based care arrangements. The experiment in Iowa highlights the challenges of payment reform for community pharmacies and provides helpful retrospection for pharmacists seeking alternatives to traditional third‐party payment models, regardless of the chosen payment methodology.
Acknowledgements
The authors would like to thank Kate Gainer and the Iowa Pharmacy Association as well as Ron Hadsall for their support with documents related to this project. The authors would also like to thank Tom Temple, Joe Norwood, and Bob Osterhaus for contributing oral history relevant to this work.
Footnotes
↵1. Glenn Sonnedecker, “Economic and Structural Development,” in Kremers and Urdang’s History of Pharmacy, 4th ed., ed. Glenn Sonnedecker (American Institute of the History of Pharmacy 1986), 290–338.
↵2. Eugene White and David A Latif, “Office‐Based Pharmacy Practice: Past, Present, and Future,” Annals of Pharmacotherapy 40, no. 7–8 (2006): 1409, https://doi.org/10.1345/aph.1H257.
↵3. Sonnedecker, “Economic and Structural Development.”
↵4. “Code of Ethics of the American Pharmaceutical Association,” Journal of the American Pharmaceutical Association 41, no. 2 (1952): 20–21, https://doi.org/10.1002/JPS.3030411310.
↵5. William S. Apple, “Reformation in Pharmaceutical Practice,” Journal of the American Pharmaceutical Association 5, no. 4 (1965): 188–216, https://doi.org/10.1016/S0003-0465(15)33819-2.
↵6. “APhA Code of Ethics,” Journal of the American Pharmaceutical Association 9, no. 11 (1969): 552, https://doi.org/10.1016/S0003-0465(16)31026-6.
↵7. Eugene White, “The Metamorphosis of the Pharmacist,” in The Office‐Based Family Pharmacist (pub. by author, 1978), 36.
↵8. Sonnedecker, “Economic and Structural Development,” 314.
↵9. A. James Lee, Dennis Hefner, Allen Dobson, and Ralph Hardy, Jr., “Evaluation of the Maximum Allowable Cost Program,” Healthcare Financing Review 4, no. 3 (1983): 73–74. Caspar Weinberger, “Limitations on Payment or Reimbursement for Drugs,” Federal Register 40, no. 148 (July 31, 1975): 32284.
↵10. Usual and customary rate (UCR) were highly variable across pharmacies and protected as proprietary information. This markup typically covered overhead costs associated with operating a pharmacy. One master’s thesis from 1982 found that Michigan pharmacies added an average of 36.5 percent UCR from July 1980 to July 1981. Joseph Hawkins, “The Influence of Third Party Payment Programs on Prescription Price Variation in Michigan” (master’s thesis, Wayne State University, 1982), 46.
↵11. Richard R. Abood, “Federal Regulation of Pharmacy Practice,” in Pharmacy Practice and the Law, 5th ed. ed. Richard R Abood (Jones and Bartlett Publishers, Inc., 2008), 286–87; Lee Anderson and Kathy Pennington, eds., “Clinical Pharmacy to Pharmaceutical Care: The Association and Iowa Pharmacy, 1980–1997,” in Transitions Through Innovation: The Iowa Pharmacists Association and Iowa Pharmacy: 1945–1997 (A&P Historical Resources, 1997), 157–159.
↵12. “An Expanding Healthcare Economy: The Association and Iowa Pharmacy, 1965–1980” Transitions Through Innovation, 107–109.
↵13. White, “The Metamorphosis of the Pharmacist,” 36.
↵14. Tom Temple, interview with the authors, July 1, 2020. Transcript available by request; Bob Osterhaus, interview with the authors, August 26, 2020. Transcript available by request.
↵15. Charles Yesalis, G. Joseph Norwood, David Lipson, Dennis Helling, Leon Burmeister and Wayne Fisher , “Use and Costs under the Iowa Capitation Drug Program,” Health Care Financing Review 3, no. 1 (1981): 128, https://www.ncbi.nlm.nih.gov/pubmed/10309472; Benjamin Y. Urick and Emily V. Meggs, “Towards a Greater Professional Standing: Evolution of Pharmacy Practice and Education, 1920–2020,” Pharmacy (Basel, Switzerland) 7, no. 3 (2019), https://doi.org/10.3390/pharmacy7030098; John T. Cirn, “History of the Capitation Program in Iowa,” in Capitation for Pharmacy Services, ed. Charles Yesalis, G. Joseph Norwood, and David Lipson (Technomic Pub. Co, 1982), 12–13; Iowa Pharmacist Association Board of Trustees, “An Open Letter to All IPA Members,” Iowa Pharmacist, July 1981. Charles Yesalis, G. Joseph Norwood, David Lipson, Dennis Helling, Wayne Fisher, and Leon Burmeister, “Capitation Payment for Pharmacy Services: Impact on Generic Substitution.,” Medical Care 18, no. 8 (1980): 817, https://doi.org/10.1097/00005650-198008000-00003.
↵16. G. Joseph Norwood, Charles Yesalis, and David Lipson, “Introduction,” in Capitation for Pharmacy Services, eds. Charles Yesalis et al. (Technomic Pub. Co, 1982), 6.
↵17. G. Joseph Norwood, interview with author BYU, February 2019. Transcript available by request.
↵18. Cirn, “History of the Capitation Program,” 22–27.
↵19. Norwood, interview. Norwood believed that shifting drug utilization review (DUR) was a stipulation of DSS support, but Temple does not recall this project being associated with the IPA conducting DUR (Temple, interview).
↵20. Cirn, “History of the Capitation Program,” 22–27; William H Shrank, Joshua N. Liberman, Michael A. Fisher, Jerry Avorn, Elaine Kilabuk, Andrew Chang et al., “The Consequences of Requesting ‘Dispense as Written,’” The American Journal of Medicine 124, no. 4 (2011): 309, https://doi.org/10.1016/j.amjmed.2010.11.020.
↵21. The Iowa Board of Pharmacy was instrumental in passing anti‐substitution laws through the Iowa legislature, despite objections from medical professionals (Osterhaus, interview). DPS studies during this time focused on the effects of anti‐substitution law repeals at the state level. There are little contemporary data available for prevalence of Dispense‐as‐Written (DAW). An estimate from 2011 states that 2.7 percent of prescriptions were designated DAW by physicians (Shrank, “Consequences of Requesting,” 311). Cirn estimates that DAW was low for Medicaid prescriptions during the project (Cirn, “Provider Acceptance,” 129–133).
↵22. Ronald Hadsall, “Capitation Payment for Pharmacy Services: The Iowa Experience” (Iowa Pharmacists Association, 1983), 14; Cirn, “History of the Capitation Program,” 13.
↵23. “APhA Code of Ethics”; Cirn, “History of the Capitation Program,” 24–25.
↵24. Cirn, “History of the Capitation Program,” 24–25; “The Research Environment: A Case Study,” 1983. Of note, “The Research Environment” does not have an author attribution, but the report does use the first person in the final “Summary” section. It is believed that the report authors were not associated with the research team, payors, opposition, or political parties, but may have been “two former newspaper reports in graduate school at the University of Iowa” earlier referred to in the third person. On page two, the report details that many interviewees “were lying, misrepresenting, or being evasive. Other times, people were reacting to misconceptions and misunderstandings. [The interviewers] did not interpret their mission as one of digging out ‘the truth’ of what happened or finding out ‘what actually happened.’ They sought to find people’s perceptions of their and others’ participation.”
↵25. Charles Yesalis, G. Joseph Norwood, Leon Burmeister, and David Lipson, “General Methods,” in Capitation for Pharmacy Services, ed. Charles Yesalis et al. (Technomic Pub. Co, 1982), 45–50.
↵26. The original plan approved by HEW was for one year of capitation. This was extended on a quarter‐by‐quarter basis until the project evaluation team secured another grant from the National Center for Health Services Research and Development (NCHSR); See: Cirn, “History of the Capitation Program,” 19.
↵27. Yesalis et al., “Capitation Payment for Pharmacy Services: Impact on Generic Substitution,” 18.; David Lipson, Charles Yesalis, Frank Kohout, and Joseph Norwood, “Capitation Payment for Medicaid Pharmacy Services: Impact on Non‐Medicaid Prescriptions,” Medical Care 19, no. 3 (1981): 343, https://doi.org/10.1097/00005650-198103000-00009.
↵28. Iowa Medicaid eligibility was determined on a monthly basis. Maintaining accurate eligibility lists was a challenge during the project as it was difficult to obtain responses from Medicaid enrollees (Cirn, “History of the Capitation Program,” 32–37).
↵29. Cirn, “History of the Capitation Program,” 39; G. Joseph Norwood, Charles Yesalis, David Lipson, and Norman Johnson, “Reimbursement by Capitation: It’s New, Controversial, and Strengthens Incentive,” American Pharmacy 19, no. 1 (1979): 38, https://doi.org/10.1016/s0160-3450(15)32729-x.
↵30. Cirn, “History of the Capitation Program,” 33.
↵31. John T. Cirn, “The Iowa Experiment: Capitation Reimbursement for Pharmacists,” Perspectives in Medicare and Medicaid Management (November 1980), 23.
↵32. Norwood, interview.
↵33. Darwyn Williams, Robert Comito, Winifred Mote, William Pletch, Kenneth Schultheis, and Phillip Weidner, “Capitation: Stranglehold on Pharmacy,” NARD Journal, July 1981, 37; Dennis K Helling, Charles Yesalis, G. Joseph Norwood, Leon Burmeister, Wayne Fisher, and David Lipson, “Effects of Capitation Payment for Pharmacy Services on Pharmacist‐Dispensing and Physician‐Prescribing Behavior: I. Prescription Quantity and Dose Analysis,” Drug Intelligence & Clinical Pharmacy 15, no. 7–8 (1981): 582, https://doi.org/10.1177/1060028081015007-810.
↵34. Dennis Helling et al., “Effects of Capitation Payment for Pharmacy Services,” 583.
↵35. U.S. Bureau of Labor Statistics, “Consumer Price Index for All Urban Consumers: Medical Care in U.S. City Average [CPIMEDSL],” FRED, Federal Reserve Bank of St. Louis, accessed August 25, 2025. https://fred.stlouisfed.org/series/CPIMEDSL.
↵36. Cirn, “History of the Capitation Program,” 39–42.
↵37. Osterhaus, interview.
↵38. Cirn, “History of the Capitation Program,” 30–31.
↵39. Norwood, interview.
↵40. Cirn, “History of the Capitation Program,” 29.
↵41. Ron Hadsall, phone conversation with Charles Yesalis, June 17, 1983.
↵42. Cirn, “History of the Capitation Program,” 20.
↵43. Yesalis et al., “Use and Costs,” 136.
↵44. G. Joseph Norwood, Charles Yesalis, David Lipson, Leon Burmeister, Robert Capettini, and John T. Cirn et al., “Capitation for the Iowa Medicaid Drug Program” (NCHSR, 1980).
↵45. Charles Standridge, Robert Capettini, Gerald Myers, and Narasinga Rao, “Administrative Costs,” in Capitation for Pharmacy Services, ed. Charles Yesalis et al. (Technomic Pub. Co, 1982), 119.
↵46. John T. Cirn, “Provider Acceptance,” in Capitation for Pharmacy Services, ed. Charles Yesalis et al. (Technomic Pub. Co, 1982), 126.
↵47. Cirn, “Provider Acceptance,” 132.
↵48. Between October 1976 and May 1981, the UI team made at least 12 presentations concerning capitation to the American Public Health Association, the National Council of State Pharmaceutical Associations, and others. Of note, two presentations were given to representatives from New York, and two presentations took place in Versailles, France. Additional presentations were delivered during and after the expanded phase (Norwood et al., “Capitation for the Iowa Medicaid Drug Program”); “Dr. Charles E. Yesalis, III,” The Pennsylvania State University, accessed June 27, 2020. http://www.personal.psu.edu/faculty/c/e/cey2/YesaliCV.htm).
↵49. According to Yesalis and Levitz, confrontation ensued when research team members attended informational meetings with pharmacists. The source of animosity was “a perceived threat to a pharmacist’s or drug company’s economic well‐being.” Presumably, these meetings occurred circa the expanded phase, but the exact timeline is unclear. (“The Life and Death of a Field Experiment: A Case Study of Health Care Research in a Hostile Environment,” Journal of Health Politics, Policy and Law 9, no. 4 (1985): 624, https://doi.org/10.1215/03616878-9-4-611).
↵50. David Lipson, Charles Yesalis, and G. Joseph Norwood, “Capitation for Pharmacy Services: Rationale, Findings, and Future Plans,” Medical Marketing & Media 15, no. 10 (1980): 26–27, https://www.ncbi.nlm.nih.gov/pubmed/10249119; G. Joseph Norwood, Charles Yesalis, David Lipson, Wayne Fisher, and Charles Standridge, “Future Direction,” in Capitation for Pharmacy Services, ed. Charles Yesalis et al. (Technomic Pub. Co, 1982), 168–76.
↵51. DSS was experiencing reorganization and layoffs during this time, therefore it was especially difficult to maintain adequate eligibility lists (Yesalis and Levitz, “Life and Death,” 615).
↵52. Norwood, interview.
↵53. Davis Lipson, Charles Yesalis, Frank Kohout, and G. Joseph Norwood, “Capitation Payment for Medicaid Pharmacy Services: Impact on Non‐Medicaid Prescriptions,” 349–52; Theodore Goldberg, Gerald W. Aldridge, Carolee A. DeVito, Jerry Vidis, Willis E. Moore and W. Michael Dickson, “Impact of Drug Substitution Legislation: A Report of the First Year’s Experience,” Journal of the American Pharmaceutical Association 17, no. 4 (1977): 216, https://doi.org/10.1016/s0003-0465(16)33963-5.
↵54. In the 1950s, pharmacy groups supported anti‐substitutions laws to protect them from counterfeit drugs, but this issue had died down by the 1970s and 1980s, and the contribution of brand name drugs to rising healthcare costs was more pressing (Albert I. Wertheimer, “The Irony of Drug Product Selection.” American Journal of Public Health 70, no. 5 (1980): 473, https://doi.org/10.2105/ajph.70.5.473).
↵55. Yesalis and Levitz, “Life and Death,” 619.
↵56. Jean Paul Gagnon and Raymond A. Gosselin, “Capitation‐Reimbursement for Pharmacy Services” Carolina Journal of Pharmacy 61, no. 6 (June 1981): 16–17, https://hsl.lib.unc.edu/specialcollections/nchealthhistory/NCHH-38. Professor Gagnon had been based at the University of Iowa just prior to the start of the capitation project.
↵57. Norwood, interview.
↵58. Steven Walters and Thomas Witosky, “Preisser Resigns Social Services Job,” Des Moines Tribune, March 7, 1979; “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 11.
↵59. Temple, interview.
↵60. Yesalis and Levitz, “Life and Death,” 628.
↵61. Yesalis and Lipson, opening remarks at the capitation site visit, January 1982. SDC won the lowest bid by a landslide, at almost two‐thirds of the higher bids. This was because SDC was trying to outcompete another insurer, Electronic Data Systems (EDS). As it were, EDS dropped out of the bidding, and SDC chose not to re‐evaluate its bid, ostensibly because SDC could negotiate capitation fees separately (“The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,”35–36).
↵62. Cirn, “History of the Capitation Program,” 16.
↵63. Cirn, “History of the Capitation Program,” 16; “The Research Environment: A Case Study,” section “Systems Development Corporation,” 1.
↵64. Hadsall, “Capitation Payment for Pharmacy Services,” 36.
↵65. Yesalis and Levitz, “Life and Death,” 623.
↵66. Impressively, the SDC completed the waivers in approximately two weeks. Also, DSS enjoyed working with SDC and found the company to be responsive and helpful (“The Research Environment: A Case Study,” section “Systems Development Corporation,” 3).
↵67. During the project years, a waiver was required to permit lock‐in, however in 1983, lock‐in became permissible without a waiver for those suspected of fraud or overuse due to an amendment to the DSS charter (IAB Vol. V, No. 11 (11/24/82) p. 731, ARC 9938).
↵68. Temple, interview; Anderson and Lee, Transitions Through Innovation, 159.
↵69. Yesalis and Levitz, “Life and Death,” 619; Osterhaus, interview.
↵70. Temple, interview.
↵71. Yesalis and Levitz, “Life and Death,” 618–19; “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 1.
↵72. William Pletch et al., “CIP Letter Number 3,” April 1981.
↵73. In fact, the idea for the capitation project came from Johnson and Norwood. The government did not become involved until the pilot project proposal was presented to DSS. Furthermore, there were pharmacists involved in the project planning, namely Johnson, Dennis Helling, Mahrenholz, and others. The UI team and DSS objected to the word “forced,” among others, in this letter, and CIP did begrudgingly amend that statement in a subsequent letter (Pletch et al., “CIP Letter Number 3”).
↵74. William Pletch et al., “CIP Letter Number 1,” March 1981.
↵75. “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 18.
↵76. Pletch et al., “CIP Letter Number 3.”
↵77. Pletch et al., “CIP Letter Number 1.”
↵78. “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 18.
↵79. Iowa Pharmacists Association, “Final Report Capitation Survey #2,” April 1981.
↵80. Temple, interview.
↵81. “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 20.
↵82. Hadsall, “Capitation Payment for Pharmacy Services,” 17; Norwood, interview.
↵83. Charles Yesalis David Lipson, G. Joseph Norwood, Dennis Helling, Leon Burmeister, Mark E. Jones, et al., “Capitation Payment for Pharmacy Services. I. Impact on Drug Use and Pharmacist Dispensing Behavior,” Medical Care 22, no. 8 (1984): 738, https://www.ncbi.nlm.nih.gov/pubmed/6381921. The original plan, according to the project proposal to DSS, called for capitation in one‐half of IA counties, but this was later changed to one‐third (Hadsall, “Capitation Payment for Pharmacy Services,” 19).
↵84. Norwood et al., “Future Direction,” 169.
↵85. Charles Yesalis, G. Joseph Norwood, Dennis Helling, David Lipson, Ronald Mahrenholz, Leon Burmeister et al., “Capitation Payment for Pharmacy Services. II. Impact on Costs,” Medical Care 22, no. 8 (1984): 746, https://doi.org/10.1097/00005650-198408000-00006; Hadsall, “Capitation Payment for Pharmacy Services,” 56.
↵86. Yesalis et al., “Impact on Drug Use and Pharmacist Dispensing Behavior,” 739; Norwood et al., “Future Direction,” 175.
↵87. Yesalis et al., “Impact on Costs,” 749.
↵88. Norwood et al., “Future Direction,” 172; Hadsall, “Capitation Payment for Pharmacy Services,” 55.
↵89. The August 1981 issue of the NARD Newsletter states that NARD executives met with Dr. Paul Willging, the deputy administrator of the HCFA, precursor to the Centers for Medicare and Medicaid Services, who “fully endorsed NARD’s position on the frank sharing of views between” the HHS, HCFA, and NARD.
↵90. Yesalis et al., “Impact on Costs,” 752; Hadsall, phone conversation with Charles Yesalis.
↵91. “The Research Environment: A Case Study,” section “Department of Social Services,” 4; Yesalis and Lipson, opening remarks at the capitation site visit, January 1982.
↵92. Norwood et al., “Future Direction,” 172–73.
↵93. Hyman Joseph, Leon Burmeister, Wayne Fisher, David Lipson, G. Joseph Norwood, Charles Standridge et al., “Pharmacy Costs: Capitation versus Fee‐for‐Service,” Quarterly Journal of Business and Economics 22, no. 4 (1983): 46, https://www.jstor.org/stable/40472774.
↵94. Around this time, a 50‐cent copay was added to Medicaid prescriptions, and this appears to be unrelated to the capitation project (Yesalis and Lipson, opening remarks at the capitation site visit, January 1982).
↵95. Norwood, interview; Norwood et al., “Future Direction,” 168.
↵96. Hadsall, “Capitation Payment for Pharmacy Services,” 74.
↵97. Norwood, interview.
↵98. Charles Yesalis and David Lipson, noncompeting continuation application for grant funding, 1982.
↵99. Hadsall, “Capitation Payment for Pharmacy Services,” 74.
↵100. “The Research Environment: A Case Study,” section “Pharmacists,” 8; Cirn, “Provider Acceptance,” 134–35.
↵101. Williams et al., “Capitation: Stranglehold on Pharmacy”; Yesalis et al., “Impact on Costs”; “The Research Environment: A Case Study,” section “Summary,” 5.
↵102. Hadsall, “Capitation Payment for Pharmacy Services,” 24.
↵103. Yesalis et al., “Impact on Costs,” 752; “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 13.
↵104. Norwood, interview.
↵105. Joseph et al., “Capitation versus Fee‐for‐Service,” 48.
↵106. Yesalis et al., “Impact on Costs,” 746.
↵107. Yesalis et al., “Impact on Costs,” 750; Hadsall, “Capitation Payment for Pharmacy Services,” 35; Standridge et al., “Administrative Costs,” 116.
↵108. Yesalis et al., “Impact on Costs,” 748–49.
↵109. Hadsall, “Capitation Payment for Pharmacy Services,” 50; Yesalis et al., “Impact on Drug Use and Pharmacist Dispensing Behavior,” 739; Yesalis et al., “Impact on Costs,” 749.
↵110. Norwood, “Introduction,” 8; Iowa Pharmacist Association Board of Trustees, “An Open Letter to All IPA Members.”
↵111. Norwood, interview; Hadsall, “Capitation Payment for Pharmacy Services,” 38.
↵112. This may be of greater benefit today under the Nursing Home Reform Act of 1987, which mandated pharmacist review medications for nursing home residents.
↵113. Yesalis et al., “Impact on Drug Use and Pharmacist Dispensing Behavior,” 743.
↵114. National Pharmaceutical Council, “NPC Report on Capitation,” 1980.
↵115. Tom Temple and William Pletch, “Choosing Generic Drugs for Medicaid Patients,” Des Moines Register, April 15, 1981.
↵116. Goldberg et al., “Impact of Drug Substitution Legislation”; John C. Wilkie, Lawrence H. Block, Kenneth G. Mehrle, “Professional Drug Product Selection,” The Carolina Journal of Pharmacy 61, no. 2 (1981): 12–13.
↵117. Dan Kushner, “Reports on Medicaid Conference,” American Druggist, 1982.
↵118. James G. Dickinson, “Quiet Medicaid Revolution Aborning,” Drug Topics (March 1982); Kushner, “Reports on Medicaid Conference.”
↵119. Dickinson, “Quiet Medicaid Revolution Aborning.”
↵120. Temple, interview.
↵121. Richard C. Fitzpatrick, “Pharmacy Capitation,” Michigan Pharmacist (February 1981); Larry E Sanberg, “Capitation– One Possible Danger,” Iowa Pharmacist (April 1981).
↵122. Hadsall, “Capitation Payment for Pharmacy Services,” 82; Stephen Schondelmeyer and Joseph Thomas, “Trends in Retail Prescription Expenditures.,” Health Affairs (Project Hope) 9, no. 3 (1990): 131–45, https://doi.org/10.1377/hlthaff.9.3.131; E. R. Berndt, “The U.S. Pharmaceutical Industry: Why Major Growth in Times of Cost Containment?,” Health Affairs (Project Hope) 20, no. 2 (2001): 100–114, https://doi.org/10.1377/hlthaff.20.2.100.
↵123. Yesalis et al., “Impact on Costs,” 754; Williams et al., “Capitation: Stranglehold on Pharmacy,” 38.
↵124. Thomas Temple, letter to Pfizer representatives Fowler and Coakley, May 1981.
↵125. Dan Coakley, letter to Tom Temple from Pfizer, June 1981.
↵126. Williams et al., “Capitation: Stranglehold on Pharmacy,”41.
↵127. Thomas R. Temple, letter to Pfizer representative Dan Coakley, May 1981; Hadsall, “Capitation Payment for Pharmacy Services,” section “Executive Summary,” 7; Pletch et al., “CIP Letter Number 3.”
↵128. Iowa Pharmacist Association Board of Trustees, “An Open Letter to All IPA Members.”
↵129. William E. Woods and Ben H. Calvin, “SAN ANTONIO CONVENTION: NARD’s Biggest in Biggest State! Big Registration – Most Exhibitors Record-size Journal,” NARD NewsLetter 103, no. 9 (1981); Norwood, interview.
↵130. Norwood, interview.
↵131. Temple, interview.
↵132. National Pharmaceutical Council, “NPC Report on Capitation.”
↵133. Some pharmacists who submitted free response replies to IPA surveys agreed with NARD and NPC opinion: “I feel the capitation allowance was too low. We had too much inflation, and cuts in the program just about ruined any chance of proving its merit. I’d guess I’m saying ‘an honest day’s wage for an honest day’s work’ in place of promises” (Hadsall, “Capitation Payment for Pharmacy Services,” 76).
↵134. Temple, interview; “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 37; Yesalis and Lipson, noncompeting continuation application for grant funding.
↵135. Tom Temple, personal notes for speech to the American Society of Consultant Pharmacists, 1981. The source is dated May 1983; however, the speech refers to the expanded phase beginning in “April of this year” and “at this point in time we have completed nearly 7 months of experience with the expanded project.” The text also states that the speech is given during 12th annual meeting of the American Society of Consultant Pharmacists, which was founded in 1969. This leads the authors to believe that this speech was given in 1981.
↵136. Osterhaus, interview.
↵137. Temple, interview.
↵138. Osterhaus, interview. Some of the free response quotes collected during the IPA survey supported Osterhaus’s preference: “I enjoyed the increased professionalism involved, and maybe the fact that some tax money is saved,” and “While creating some problems in our relations with some patients that we had to send away, it was good to know that all medications for a given patient were being filled in the same place. Apart from OTCs, you knew all the medications your patient was on, regardless of how many doctors they might be seeing” (Hadsall, “Capitation Payment for Pharmacy Services,” 76).
↵139. Fitzpatrick, “Pharmacy Capitation.”
↵140. David Hunt, “Minnesota Delivers Prepaid Health‐Care Sibling,” Private Practice (July 1983).
↵141. Hadsall, “Capitation Payment for Pharmacy Services,” 70.
↵142. The project team took a more hands‐on role in the expanded phase for a few reasons: there was less funding available to compensate DSS, which had undergone layoffs and was overextended with normal duties, and Norman Johnson and the BCBS IA had originally handled project management (Yesalis and Levitz, “Life and Death,” 615).
↵143. Norwood, interview.
↵144. Norwood, interview; Yesalis and Lipson, noncompeting continuation application for grant funding.
↵145. Of note, committee member Kenneth Hanson was also the VP of NPC.
↵146. Hadsall, “Capitation Payment for Pharmacy Services,” 37; “The Research Environment: A Case Study,” section “Summary,” 6.
↵147. James J. McCormack, “Opening Letter of the DSS Commissioned Report,” August 1982.
↵148. There is no evidence that capitation rates were arbitrarily changed during the expanded phase, but a publication from the project team reveals that the regression model did not adequately account for variation in drug expenditures (R2 = 23.9%), which influenced escrow utilization. DSS faulted the project with poor validity (Hadsall, “Capitation Payment for Pharmacy Services,” 40; Yesalis et al., “Impact on Costs,” 753.).
↵149. “The Research Environment: A Case Study,” section “Department of Social Services,” 7.
↵150. Joseph et al., “Capitation versus Fee‐for‐Service,” 50.
↵151. “The Research Environment: A Case Study,” section “The Anti‐Capitation Campaign,” 2; Williams et al., “Capitation: Stranglehold on Pharmacy,” 41. One free text response in pharmacist opinion surveys stated, “The only positive aspect was we found we will never participate in another program like this” (Hadsall, “Capitation Payment for Pharmacy Services,” 76).
↵152. Fitzpatrick, “Pharmacy Capitation.”
↵153. James J. McCormack, Lowell Anderson, Kenneth Hanson, David Kornhauser, Charlotte Muller et al., “Report of the Iowa Drug Capitation Review Committee” (Iowa Department of Social Services, 1982); “Regulation Review,” Pharmacy Newsline 8 (1982).
↵154. Yesalis and Levitz, “Life and Death,” 625.
↵155. Kushner, “Reports on Medicaid Conference.”
↵156. Donald Brodie, “Need for a Theoretical Base for Pharmacy Practice (1980),” in Harvey A. K. Whitney Award Lectures (ASHP Research and Education Foundation, 2006), 206–14.
↵157. Academy of Pharmacy Practice American Pharmaceutical Association, “APhA Community Pharmacy Residency Program: Programmatic Essentials,” American Pharmacist NS26, no. 4 (1986): 34–43.
↵158. George Cocolas, “Pharmacy in the 21st Century Conference: Executive Summary,” American Journal of Pharmaceutical Education 53, no. Winter Supplement (1989): 1S.
↵159. Cocolas, “Executive Summary”; Academy of Pharmacy Practice American Pharmaceutical Association, “APhA Community Pharmacy Residency Program: Programmatic Essentials.”
↵160. Charles Hepler and Linda Strand, “Opportunities and Responsibilities in Pharmaceutical Care,” American Journal of Hospital Pharmacy 47, no. 3 (1990): 533–43; Iowa Center for Pharmaceutical Care, “Celebrating a Decade of Progress in Shaping a New Generation of Pharmacy Practice,” 2004; Anderson and Pennington, eds., in Transitions Through Innovation, 159.
↵161. National Community Pharmacists Association, “PBM Reform,” NCPA.org, accessed August 25, 2025, https://ncpa.org/pbm-reform.
↵162. Benjamin Y. Urick, Shweta Pathak, Tamera Hughes, and Stefanie Ferreri, “Design and Effect of Performance‐Based Pharmacy Payment Models,” Journal of Managed Care & Specialty Pharmacy 27, no. 3 (2021): 309, https://doi.org/10.18553/jmcp.2021.27.3.306.
↵163. National Community Pharmacists Association, “NCPA Releases 2024 Digest Report,” NCPA.org. Accessed October 27, 2024, https://ncpa.org/newsroom/news-releases/2024/10/27/ncpa-releases-2024-digest-report.
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