Rapid Expansion Of MCOs Impacting Pharmaceutical Industry

The rapid expansion of managed care organizations (MCOs) is profoundly impacting the U.S. pharmaceutical industry, according to the latest research study by Frost & Sullivan, a marketing consulting company.

Managed Care's Impact on the Pharmaceutical Market highlights the rapid expansion of managed care systems during the 1990s that now cover most U.S. citizens. In 1993, only 81 million people were insured under an MCO plan. By 1998, this number had grown to 148 million. MCOs are now the biggest clients of pharmaceutical companies, and exhibit markedly different buying behaviors.

The Frost & Sullivan study discusses conflicts between different market players and provides analysis of where the managed care industry is going. In addition, the study focuses on the relationship between managed care and pharmaceutical companies.

"Pharmaceutical market growth and opportunities are closely tied to the ability of individual pharmaceutical companies to work and prosper in the managed care environment," says Marina Ulmishek, a Frost & Sullivan medical analyst.

Some of the major drivers of the market include:

• increasing access to pharmaceutical products which drive sales volume
• increasing availability of data allowing for better drug benefit assessment
• the transfer of Medicare patients into MCOs making pharmaceutical products more affordable to the elderly.

Major market restraints include:

• formulary lists keeping some drugs out of reach of patients
• patient desensitization to drug prices making patients less likely to pay for prescriptions out-of-pocket
• consolidated MCO customers having increased bargaining power and putting downward pressure on drug prices.

Results of the Frost & Sullivan study have determined that pharmaceutical companies have felt the impact of MCOs primarily at the later stages of the drug life cycle (especially in drug launch and the marketing stage). According to Frost & Sullivan, the impact is now spreading to other stages of the drug development process, and its effects are profound. Companies need to learn to adjust to the new environment and be able to predict how future managed care systems might impact drugs in the pipeline, the study points out. Managed care is also transforming the delivery of healthcare by changing the reimbursement structure and financial incentives of the different players in the market.

In addition, MCOs have quickly evolving structures, which pose as an even larger challenge for pharmaceutical companies. As MCOs continue to evolve, pharmaceutical companies must diligently monitor them in order to make strategic decisions about allocation of research and development. It would be advantageous for pharmaceutical companies to form strategic alliances with managed care companies, according to the study.

For more information: Frost & Sullivan, 2525 Charleston Road, Mountain View, CA 94043, USA. Telephone: 650-961-9000. Fax: 650-961-5042.