Big Business vs. Big Pharma

What happens when dozens of the nation's biggest businesses get together and try to negotiate lower prescription drug prices from the nation's biggest drug makers? Maybe nothing. Maybe something big. No one seems to agree, but we may soon find out.

According to a recent report in TheNew York Times, the Human Resources Policy Association (HRPA) -- an organization of HR executives from companies that employ 12% of the private sector U.S. workforce -- is working to create a prescription drug "buyer's club," with the help of HR management firm Hewitt Associates (NYSE: HEW).

By leaning directly on drug providers like Merck (NYSE: MRK), Abbott Laboratories (NYSE: ABT), AstraZeneca (NYSE: AZN), Pfizer (NYSE: PFE), Wyeth (NYSE: WYE), and Aventis (NYSE: AVE), members such as Caterpillar hope to get better prices than they have been receiving through the pharmacy benefit management (PBMs) companies that they normally use to negotiate their prices.

The trouble, from the firms' point of view, is that the PBMs and pharmaceutical industry hide the true cost of drugs behind a Byzantine system of rebates. For their part, PBM managers told The Times that they recognize the problems with the system, but they doubt that an industry coalition can do any better.

Do shareholders in the big pharmaceuticals need to worry about big cuts in revenue? It doesn't look like it. The industry may be taking heat from some directions, but it could appease most bargain hunters by simply giving them the same price it currently gives the middlemen. Moreover, big pharma's lobbyists made sure that the upcoming 800-pound gorilla of prescription drug purchasing, Medicare, would be prohibited from negotiating lower drug prices.

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Fool contributor Seth Jayson owns no company mentioned. View his Fool profile here.