|The Healthcare Distribution Management Assn. is the lead trade group for what it calls “primary” wholesalers—the companies that acquire products directly from manufacturers, and then distribute to retail pharmacies, hospitals and clinics throughout the US. The formal scope of the association is US trade, although some of its members have international operations and, as will be seen here, this globalization is affecting HDMA’s outlook.|
HDMA, founded as the Western Wholesale Druggists’ Assn. in 1876, became the National Wholesale Druggists’ Assn. in 1882, and took its current name in 2000. HDMA’s 32 members distribute nearly 90% of all pharmaceutical products in the nation, and derive 98% of their revenue from that distribution activity, according to the association’s annual Factbook. They send products from approximately 150 distribution centers to more than 200,000 locations—and do that, on average, five days a week. Pharmaceutical Commerce sat down with John Gray, president and CEO of the organization, to get his views on the past and future of drug wholesaling. Here’s what he had to say.
2004 was the year that drug diversion and pedigree became a hot topic, and just as I joined, the state of Florida was in the midst of implementing one of the most robust pedigree programs in the nation. While there had been concern from some supply chain stakeholders, eventually, a system that the wholesaling industry could live with was established, passing almost literally at the stroke of midnight in 2006. Pedigree and track and trace—now focused mostly on California’s 2015 mandate and the action on Capitol Hill—have been a constant concern over the years.
Pedigree also figures in a big change our association underwent in 2005. As more and more states began implementing their own pedigree standards, we shifted our membership to focus solely on the primary wholesaling market, no longer including secondary wholesalers. This membership rule change resulted in a decrease in our membership, from around 90 members to the low 40s (consolidation among those companies leads to our current membership of 32).
A bill has passed the House (H.R. 1919), and there is one in the Senate (S. 959). There has been criticism of these bills because they require drug traceability initially at the lot level, and not the item level until Phase Two; and the timetables for implementation. But I say, the legislature does its work by setting the overall goals, and then the private sector will kick in with higher performance standards in a competitive marketplace. Lot level traceability is a step in the right direction, and both bills get to item level tracing over time. I think passage of these laws is now more a question of “when” rather than “if.”
There’s one other regulatory issue that’s important to mention: drug diversion and the problem of drug abuse. We’d like to see a more collaborative effort, where manufacturers, retail and distributors could sit down together with the Drug Enforcement Administration to work out a better way to deal with these issues. DEA has had a recent policy of attempting to choke off access to abused drugs by going after distributors and retailers. It’s not clear that that is making any difference in addressing these problems, and at the same time, it creates difficulties for access for needed drugs for healthcare providers and their patients. Again, we’d like to work on these problems collaboratively with regulators, but that hasn’t happened yet.
Starting in 2007, and every two years after that, we’ve sponsored a study by Booz & Co. (Ed. note: “The Role of Distributors in the US Healthcare Industry”). The latest study shows that the wholesale distribution industry provides the healthcare system the equivalent of $42 billion in savings, compared to if pharma manufacturers handled distribution themselves. When this first came out, many thought it was a self-serving document—that was a time when the industry was converting to a fee-for-service basis, and there were a lot of mixed feelings. But we said, “You can question the numbers, but not the logic—put your own distribution cost numbers in and see.” When the second and third editions came out, there was much less questioning of the value proposition we were making.
It’s interesting, too, that while PhRMA and GPhA have roughly 75 members combined, we have 145 pharma manufacturers as associate members. They value our meetings and research as educational forums and as sources of best practices in pharma distribution, in such issues like cold chain management or returns processing. Manufacturers are more aware of logistics and supply chain issues than they were a decade ago.
Today, there’s tremendous change occurring in specialty pharma, both for us and for manufacturers. Time will tell where all that will sort out. I would say, never count out independents. Regional players can thrive in this environment and I believe that those who stick it out will be glad they did.
Negotiations are under way right now to hold an international distribution-management meeting in China next year. IFPW will be holding their annual meeting there at the same time, and the China equivalent of the FDA (SFDA) will be involved; our membership is onboard as well. HDMA has an important educational role to play in bringing the advanced practices that are common here to the rest of the world.
We would also like to get closer to the great university schools of logistics and supply chain management across the country, to make them better informed about supply chain issues in healthcare.
It’s not there yet, but I think that passage of the federal traceability law will be a landmark event in the industry. For me, it’s been nine years and we’re very close to getting it done. It will be a big lift for the entire industry when it happens.