In the face of rising drug prices, insurance companies are increasingly giving doctor groups incentives to reduce their spending on drugs. Typically, doctors are given a fixed budget - calculated by multiplying a per capita fee of anything from $9 to $15 per person by the number of patients - and they have to fund all prescriptions out of that money. If they succeed, they can keep the money that remains. If they do not, then they have to incur the loss. The companies believe that doctors will behave as stakeholders in the process, reducing unnecessary tests, prescribing generic drugs, and keeping patients healthy. The incentive works in a similar manner to the capitation fee that doctors receive for each patient on their roster, regardless of the number of visits.

Some doctors' groups have spent more than their drug budgets because their patients have severe chronic illnesses such as cancer, diabetes, hypertension and depression, which require medications. The alternative is to behave unethically and deprive patients of necessary medical care. Some states like Texas have passed laws that prevent insurance companies from using financial incentives to limit medically necessary services.

(Updated December 1, 1999)