A Survey of the Strategic Response of the Pharmaceutical Industry to Bargaining Power of Heal the Management Organisations (Hmos)

Abstract

Health Maintenance organisations (HMOs) have been in operation in Kenya since 1985 . In the 1990's many new players came into the market and more still continue to enter the market. HMOs are organised health plans and manage both financing and health delivery to their clients. Many salaried Kenyans have already enrolled into these schemes in search of affordable heath care. HMOs carry out a lot of cost cutting measures in the course of health delivery and have many exclusion criteria for numerous illnesses causing a lot of complaints from their clients. To the Pharmaceutical industry as a buyer group, they negotiate for price cuts and are involved in measures to maximise their profits like substitution of branded drugs with cheaper generics. HMOs constitute a powerful buyer group and are responsible to some extent for decreasing profitability in the Pharmaceutical industry .The aim of this study was to find out the response of the Pharmaceutical industry to the emergence of HMOs. The study examined various ways in which HMOs decrease profitability in the Pharmaceutical companies a~d looked at strategies that some companies have put in .; place in order to counter the reduced profitability. The study showed that HMOs are indeed a powerful buyer group and the industry should employ strategies like product differentiation and stringent credit controls to counter the effect of HMOs. The industry should also lobby with the government to introduce certain controls among the HMOs who at present do -not operate under any government act or regulatory mechanisms. This is bound to contain some of their buyers and benefit both the enrollees of the HMOs and the Pharmaceutical industry.