Thursday, July 22, 2010

Channel Strategy at the PBM-Wholesaler Intersection

Drug Benefit News recently published Changes Are in Store for PBM/Wholesaler Deals, an interview with yours truly about the intertwined but usually obscure interactions between drug wholesalers and Pharmacy Benefit Managers (PBMs).

As I note, drug wholesalers have a complex relationship with PBMs. Wholesalers are vendors that supply the majority of brand-name drugs purchased by a PBM’s mail-order pharmacy. At the same time, wholesalers own and operate organizations that help retail pharmacies negotiate with PBMs.

Wholesalers and PBMs are also on a collision course over the distribution channels for specialty drugs. Many pharmaceutical manufacturer clients can't detect the risks due to organizational silos and general unfamiliarity with interconnections within the drug channel system. Time to pay attention.

It's especially important to understand interactions between the Big Three wholesalers—AmerisourceBergen Corporation (NYSE:ABC), Cardinal Health, Inc. (NYSE:CAH), and McKesson Corporation (NYSE:MCK)—and the Big Three PBMs—CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS). Most drug makers will find both revenue collection and third-party contracting are concentrated with these six organizations.

If you are interested in boosting your business acumen about PBM-wholesaler relationships, I humbly suggest you invest time and money in The 2010-11 Economic Report on Pharmaceutical Wholesalers.

I describe the activities of Pharmacy Services Administration Organizations (PSAOs), the wholesaler-owned entities that negotiate and administer contracts between PBMs and independent pharmacies. I also explain why PBM mail pharmacies buy brand-name drugs from wholesalers instead of buying directly from manufacturers and provide context for understanding specialty channel conflict between PBMs and wholesalers.

Remember, a good forecaster is not smarter than everyone else; he merely has his ignorance better organized.

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