1. What was the rationale for PBMs?
Medco Cost Containment Services was a pharmacy benefit manager (PBM). Pharmacy benefit managers (PBMs) are private companies that administer pharmacy benefits and manage the purchasing, dispensing and reimbursing of prescription drugs. PBMs provide their services to health insurers or to large health care purchasers. PBM services to their clients may include negotiating rebates or discounts from pharmaceutical manufacturers, processing claims for prescription drugs and negotiating price discounts from retail pharmacies. PBMs also develop formularies and manage utilization of drugs through prior authorization or utilization reviews.
2. Does Medco fit with Merck’s strategy?
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.
3. What does Medco bring to Merck? What are the advantages and disadvantages?
Medco's customer base of 33 million customers at the time.
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.
Disadvantage: Merck failed to consider the second side of the coin, where in Medco can lose customer base, either US customer or other pharmaceutical companies.
4. What does Medco get from the Merck acquisition?
1. Sales force substitution: Increasingly, more and more physicians were having their choices limited by formularies that listed insurance reimbursable products.
2. Information: The sale of pharmaceuticals traditionally involved a one-way flow of information
3. Compliance: Studies indicated that 50% of patients failed to take their prescribed drugs at the recommended dosages and intervals.
4. Disease