The fundamental components of managed-care plans are described; the development of managed-care programs is discussed; and the impact of managed care on pharmacy services and the price, quality, and accessibility of health care are reviewed. Health care can be considered to be managed when at least one of the following fundamental components is present: prospective pricing, "UCR" (usual, customary, and reasonable) pricing of services, peer review, mandatory use review, benefit redesign, capitation payments, channeling, quality criteria, and health promotion. The managed-care industry consists of health maintenance organizations (HMOs), preferred provider organizations (PPOs), and managed fee-for-service plans. Managed-care reimbursement principles involve transferring some or all of the impetus for controlling use of services to the health-care provider. Means by which this is done include prospective pricing, services bundling, price discounts and negotiated fees, and capitation financing and reimbursement. Financial risk-sharing arrangements with providers--including hospitals, physicians, pharmacies, and home-care companies--are necessary for any managed-care plan to attain true control over its service costs. Use-review and use-management services are also fundamental to containing health-care spending. These include retrospective, concurrent, and prospective reviews of the necessity and appropriateness of medical services. Use management, like services bundling and prospective pricing, has been more effective in reducing costs of hospital inpatient services than costs associated with ambulatory care. Per case payments and services bundling have made individual charges for items irrelevant to hospital revenue. This has forced hospital pharmacy managers to become more sensitive to cost management. Drug formularies, improved productivity, and use of prescribing protocols are means by which hospital pharmacies have controlled costs. However, since shorter hospital stays are not associated with a linear decline in the need for drug therapy, reducing pharmacy operating expenses in proportion to the decline in hospital occupancy is probably not possible. Community pharmacies have responded to managed care by forming pharmacy services administrative organizations. Application of managed-care principles has reduced the use of inpatient hospital services by Medicare beneficiaries, helped HMOs and PPOs to lower prices for some services, reduced use of hospital services by HMO members, and redirected some inpatient hospital care to alternate-care providers.(ABSTRACT TRUNCATED AT 400 WORDS)