(FORTUNE Magazine) – EVERY ONCE in a while somebody gets a bright idea that winds up revolutionizing an industry. Martin Wygod did, and now his company, Medco Containment Systems, is turning the $60-billion-a-year pharmaceutical business on its ear. Medco is a mail-order pharmacy. Wygod, 52, didn't invent drugs-by-mail. But in 1983 he was the first to market the idea aggressively to big corporations and labor unions, for whom the cost of drugs as an employee benefit was rising 15% to 20% a year. Now Medco accounts for half the mail-order drug sales in the country, and its 1,300 customers include General Motors, Mobil, and General Electric. The company's revenues have grown an average 47% a year for the past five years, and earnings have shot up comparably, an average 45% a year since 1986. Prescriptions for drugs that patients need immediately, such as antibiotics, are almost always filled by retail pharmacists. But 70% of the prescriptions in the U.S. are for so-called maintenance drugs that patients take on a predictable schedule, such as medication for high blood pressure or arthritis. These are the kind that Medco dispenses to workers who mail their prescriptions to one of its 11 regional pharmacies. Each order is reviewed by at least two pharmacists to be sure it is properly filled, which allows the company to claim a 99.9967% accuracy rate. Because Medco's centralized dispensing costs are lower than a retailer's and the company wangles big discounts from manufacturers, it can share the savings with plan sponsors. Medco also uses cheaper generic drugs to fill prescriptions whenever possible. Two corporate clients, Commonwealth Edison in Chicago and Air Products & Chemicals in Allentown, Pennsylvania, estimate that the company saves them 15% to 20% on employee drug costs. Lately Medco has been using its muscle to change how doctors prescribe drugs, reducing costs to plan sponsors even more. When it believes a doctor has prescribed an unnecessarily expensive medicine, one of its pharmacists, who knows from a questionnaire the patient has filled out what ailments he has and what other drugs he is using, will telephone the doctor and suggest a less expensive but equally effective alternative. The doctor can refuse if he feels the patient's health will be compromised. But the company reports that doctors switch 40% of the time and sometimes start prescribing the cheaper drug for their other patients. That is a dramatic shot of savings in the arm of a medical profession long accustomed to dispensing drugs regardless of cost. The economics are great for Medco too. If five manufacturers produce virtually identical arthritis or ulcer medicines, Medco will urge doctors to prescribe the one that offers it the lowest price. The potion becomes a ''preferred'' drug, on which the company's normal 5% margins jump to 18% or 20%. Preferred drugs are enormously popular with corporate plan sponsors and account for 13% of Medco's medications. Manufacturers grumble about Medco's pricing pressure. ''I'm sure a lot of them wish we didn't exist,'' says Wygod. A senior official at one big drug company, who did not want to be identified, calls Medco ''aggressive in strategy and tactics.'' He accepts the fact that his industry will never be the same, sighing, ''Medco won't be the last of this kind of company.''

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