Monday, January 01, 2007

2007 Trends: Integration (1 of 4)

Happy New Year! I’m back from vacation – tanned, rested, and ready for 2007! (Well, OK, not really tan, but definitely rested and ready. )

Here is the first of four posts about major health care trends that I am watching for 2007 along with links to relevant posts from last year.

Trend 1: Pharmacy Infrastructure Integration

I expect more consolidation within the U.S. pharmaceutical infrastructure – the network of companies that facilitate dispensing and payment of pharmaceuticals -- PBMs, GPOs, wholesalers, retailers, providers, et al. These formerly distinct sectors now find themselves competing for similar profit streams due to cross-industry consolidation. The CVS Corp (CVS) - Caremark Rx Inc (NYSE:CMX) deal, if not undone by a more traditional horizontal combination with Express Scripts Inc (NASDAQ:ESRX), illustrates this trend.

In 2007, I’d expect even more creative combinations as profit models continue to converge. I would not be surprised to see a Big 3 drug wholesaler acquire an acute care GPO such as Amerinet, Novations, Premier, or MedAssets, or a chain pharmacy to combine with a provider a la CVS Corp (NYSE:CVS) and MinuteClinic. However, I do not expect pharmaceutical manufacturers to forward-integrate into the pharmacy infrastructure so as to avoid strategic debacles such as Merck-Medco.

Trend #2 coming tomorrow!

P.S. I was fortunate to vacation in Jamaica with my family in December. You may be surprised – or perhaps disappointed – that I was not perusing pages from the December 22 Federal Register on the beach. Instead, I enjoyed Walter Isaacson’s highly readable and thoroughly fascinating biography of Ben Franklin, Philadelphia’s second most famous citizen (after Rocky Balboa, of course).

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