No Moss

Big Pharma Power Shift: CFOs Have the Mojo Now

I wonder how long it will be before some rationalization starts to appear in the domestic market for drugs. Americans pay more for drugs than other countries, mostly because the drug distribution system isn't rationalized in the US. Large drug plan administrators, like Caremark, purchase drugs at steep discounts to what local drug stores can. They mandate the use of generics in some cases. They prevent prescriptions with interaction problems. They maintain highly automated and efficient pharmacies that send out drugs by mail or UPS.

Because the US doesn't have a national health plan, the distribution scene is a hodge-podge of small pharmacies, regional chains, and national chains. In turn, HMOs, employers, unions, and other groups use pharmacy benefit managers in which formularies (allowed drugs) are unique and charges vary according to the membership of the plan. Customers usually get the first prescription at a local pharmacy and subsequent prescriptions by mail order from the plan.

A national prescription drug plan would greatly reduce costs and inefficiencies. The problem is that this would also decimate the pharmacy industry in the US, at least the small pharmacies. It would also create a problem as to how to distribute the business between drug plan administrators. However, the savings to the general public would be substantial.

The fact is that large-scale rationalization of this industry is on the way as baby-boomers start buying drugs in large quantities for their various ailments.

Rationalization equals declining margins. Enter the accountants.