Hey, what’s this supply chain stuff?

Call it an example of unintended consequences: When Pharmaceutical Commerce began publication in 2005, supply chain issues were relatively unrecognized, and poorly reported. Now, a just-released study sponsored by PhRMA, the industry’s trade association, is entitled The Pharmaceutical Supply Chain: Gross Drug Expenditures Realized by Stakeholders,* and goes on to say that 37% of brand manufacturer gross revenue is rebated back to PBMs, health plans and the government, or retained by other stakeholders in the biopharmaceutical supply chain. And that percentage has been rising over the past five or so years.

We’re not taking credit for discovering the pharma supply chain, and certainly not for the growth of non-pharma stakeholders’ revenue in that supply chain. And coming from PhRMA sponsorship, the study bears closer study than we can do here. Moreover, it’s one more piece of information in the ongoing dialogue (to be polite) between the industry, payers and their pharmacy benefit managers and the federal government—the latter two of which take more and more bites out of the medicine revenue pie (see the 340b article).

This debate blew open publicly when Mylan, last fall, made the contention that raising the price of its EpiPen product from around $100 to $600 over the past several years was driven in part by PBMs demanding a bigger piece of the product’s revenue; the list price went up, but the revenue to Mylan stayed relatively flat (at least in the latter years of this trend). The argument didn’t sway much public criticism in Mylan’s favor, but it did serve to highlight the growing complexity—and dogfighting—in commercial trade practices within the supply chain.

“The study begs an important question: Are we doing enough to ensure the growing amount of rebates and discounts flow to the patient?” said Stephen J. Ubl, PhRMA CEO, in a statement.

“We always want more competition and bigger price concessions that can be passed back to our customers in the form of lower premiums and cost-sharing,” Mark Merritt, CEO of the PBM’s trade association, the Pharmaceutical Care Management Assn., in an interview** with Pharmaceutical Commerce last summer.

From our perspective, it’s worth noting that a trend that many in the pharma industry (and nearly all commentators on the future of the industry) have been asserting for years: the consumerization of healthcare. It’s almost axiomatic that if pharma is engaging more directly with consumers, it’s going to need to do more than negotiate a price with wholesalers and distributors and wait for the revenue to pour in; it’s going to have to build (or hire, and pay for) the expertise to manage patient education programs, adherence programs, follow-up counseling and the like. It’s also paying for patient-reimbursement management services to deal with the complexities of prior authorization requirements, patient-assistance services and the like. All of this is accelerated as the nature of medicine changes from pills to specialty products with a growing list of ancillary services.

That topic—patient support—is the core subject matter of our next issue, our annual Hub Services report. Stay tuned.

One comment on “Hey, what’s this supply chain stuff?

  1. […] January, PhRMA issued another report noting that 37% of retail drug revenues are retained in the pharma “supply chain” (i.e., the […]

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