Cooperative partnerships and pricing in the pharmaceutical supply chain

The pharmaceutical supply chain has become highly consolidated. Currently, over 70% of all prescriptions are handled by three pharmacy benefit managers which each own a mail-order pharmacy. To compete in this environment, small and midsized pharmacies must seek efficiencies in their operations. The paper considers the value of cooperative partnerships between mail-order and chain pharmacies to leverage strengths of both players. To examine the viability of the strategy we develop a mathematical model that assesses the value of partnerships between independent organizations operating in different channels. The model is used to determine whether and to what extent pharmacies should consider partnerships that leverage a competing channel to allow mail-order customers to pick up prescriptions at chain stores in particular regions. Computational results provide insight into the impact of drug prices, reimbursement contracts, and revenue/cost-sharing policies on the optimal supply chain design and highlight conditions under which it is beneficial for chain and/or mail-order pharmacies to enter partnerships.