Essay Merck - Medco

1795 Words Apr 3rd, 2009 8 Pages

1. Pharmacy Benefit Management

Pharmacy benefit managers (PBMs) are companies that administer drug benefit programs for employers and health insurance carriers. PBMs contract with managed care organizations, self-insured employers, insurance companies, unions, Medicaid and Medicare managed care plans, the Federal Employees Health Benefits Program and other federal, state, and local government entities to provide managed prescription drug benefits.

They designed the pharmacy benefit plan, processed prescription drug claims, reviewed prescriptions, encouraged the use of lower cost, generic and branded drugs and dispensed drugs through mail service pharmacies. Essentially, PBMs reduced the cost of health care by improving
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Manufacturers pay rebates to PBMs retroactively based on the PBM’s ability to meet both of these goals. These rebates are passed in whole or in part back to the employer. According to the California HealthCare Foundation, PBMs are often able to secure rebates of 5-25% for branded drugs. While they complemented each other by getting business, there were frictions in the relationship as PBMs were interested to go with generic drugs for costing than with drugs from pharmaceuticals.

3. Merck’s Strategy:
Merck's two main growth strategies for the 1990s, were to utilize research to discover new medicines and to demonstrate the value of its products to patients, buyers, and medical providers. The company's three priorities were: to maximize revenue growth through research, new product launches, and successful marketing campaigns. Medco did fit Merck’s growth strategy.
Having lost their virtually unrestrained ability to raise prices, many prescription drug makers are striking deals to get their products into other segments of the market in the hopes of keeping sales and profits growing. Medco’s customer base at that time was of 33 million US customers. Facing the same problem Merck found acquiring Medco with a growth rate of 35% and customer base of 33 million US customer as an attractive deal.
Advantage: By acquiring Medco and including its drug in Medco’s formulary it would be really easy to supply Merck’s drug to a huge customer base.

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