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Abstract
Merck''s acquisition of Medco Containment Services in November 1993 set off a wave of controversial mergers between pharmaceutical companies and prescription-benefits-management companies. Drug-company executives argue that PBMs can provide valuable information about the way drugs are prescribed and used. But critics of the mergers question the PBMs'' practice of offering incentives to retail pharmacists who persuade physicians to prescribe certain drugs. Critics also speculate that aggressive growth of acquired PBMs contributes to price competition, which may decrease profits and incentives for new-drug research. The PBM acquisitions are attempts to confront profound changes in the industry, but does ownership of PBMs create competitive advantage? Proponents of the mergers argue that a PBM can provide a pharmaceutical company with superior information, better access to customers, and the opportunity to introduce new products, such as capitation and disease management. But before drug companies can fully exploit the potential of alliances with PBMs, they face enormous challenges, including an environment that may favor less investment in R&D and important ethical and legal questions.
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Abstract
Merck''s acquisition of Medco Containment Services in November 1993 set off a wave of controversial mergers between pharmaceutical companies and prescription-benefits-management companies. Drug-company executives argue that PBMs can provide valuable information about the way drugs are prescribed and used. But critics of the mergers question the PBMs'' practice of offering incentives to retail pharmacists who persuade physicians to prescribe certain drugs. Critics also speculate that aggressive growth of acquired PBMs contributes to price competition, which may decrease profits and incentives for new-drug research. The PBM acquisitions are attempts to confront profound changes in the industry, but does ownership of PBMs create competitive advantage? Proponents of the mergers argue that a PBM can provide a pharmaceutical company with superior information, better access to customers, and the opportunity to introduce new products, such as capitation and disease management. But before drug companies can fully exploit the potential of alliances with PBMs, they face enormous challenges, including an environment that may favor less investment in R&D and important ethical and legal questions.