HDMA Annual Factbook: Primary Healthcare Distributors Handle 85% of Prescription Drug Sales

Published annually by the Center for Healthcare Supply Chain Research, the research foundation of HDMA, this year’s Factbook records total sales of $253.3 billion in sales through primary healthcare distributors (essentially, the HDMA membership). That figure is up 5.2% over the year before. Those products were delivered to nearly 165,000 pharmacies, hospitals, clinics and other destinations nationwide.

The Factbook says that distributors maintain collaborative planning, forecasting & replenishment (CPF&R) with 88% of their suppliers (who would be the pharma manufacturers, primarily)—a figure that differs somewhat from figures collected by Accenture, which estimated that only 19% of manufacturers have such agreements. Part of this disparity may be caused by differing poll of respondents; HDMA’s data is based on surveys of its manufacturer-members, while Accenture looked at both US and non-US manufacturers.

CPF&R arrangements usually occur in the context of contractural relationships between manufacturers and wholesalers, and these, in turn, are part of the switchover to fee-for-service agreements between the parties. The Factbook figures show that distributors have inventory-management agreements with 74% of their suppliers, and have vendor-managed inventory agreements with 46% of their suppliers (and 32% of their customers).

The biggest wholesalers have been busy at adding ancillary services to their basic distribution, as shown in Fig. 1. The single-highest-percentage service (to manufacturers) is shared by disease management programs, and services to indigent patients. Some of these services—particularly third-party claims processing, refill reminder programs, and services to LTC facilities, are outsourced by the wholesaler to a contractor.

The median figure for total annual chargebacks generated is $4.47 billion, with a third of distributors sending the chargeback submission to the manufacturer on a daily basis, and half on a weekly basis. Manufacturers polled say that, as an average, 9.9 full-time-equivalent employees are associated with chargeback and contract administration, and average monthly cost associated with the process is $124,000. Contract pricing covers 64% of prescription sales.

Data capture

How wholesalers and manufacturers adapt to e-commerce and electronic data sharing is a broad topic that affects everything from patient safety to supply-chain track-and-tracing. According to the Factbook, essentially all manufacturers and distributors use EDI, but the specific EDI transaction sets differ in their acceptance, from 100% for invoicing and product transfer (EDI 867), to a lesser percentage (83%) for advanced shipping notice (EDI 856) or return shipping notice (EDI 180).

The practical way, usually, to confirm that one of these transactions has occurred is to capture the barcode of incoming product, which is performed essentially by everyone at the manufacturer and distributor ends, but here, too, there is variability in how detailed the capture is. All (100%) of distributors say that they capture linear barcodes of incoming product, and 17% say that they capture 2D Data Matrix barcodes. Regardless of the type of barcode, the information captured includes NDC number (100%), but only 17% of the time for lot number or expiration date. And distributors say that 0% of serial numbers are being captured.

For their part (Table 2), manufacturers say that the majority of the time they are barcoding at either the pallet, case, shelf-pack or item level, and are serializing 22% of pallets, and 10% of items. Item-level serialization is the holy grail of track-and-trace programs, but, after about five years of pilot programs and one-off projects (Pharmaceutical Commerce, September, p. 21), the best that can be said is that some manufacturers are invested in the process, but for the most part, distributors seem to be holding off, despite significant pilots that were set up over the past couple years. On the other hand, other survey findings data indicate that distributors have the capability of capturing barcodes at any level of packaging (pallet through item level).

Industry business markers

The bulk of the Factbook presents data on distributor operations and financial performance. Overall, the primary-service distributors showed an operating profit (as a percent of sales) of 1.94% (median figure). (HDMA’s news release also cites a figure of 0.9%—down from 2007’s 1.38%—as net profit after taxes to net sales.) Median turnover is running at 6.47. The median net stock sales per distribution center is $1.735 billion.

“This important research highlights the crucial role HDMA’s distributor members play in the supply chain,” says HDMA president and CEO John Gray. “Distributors continue to deliver the right medicines and healthcare products to the right people, at the right time — and they do so safely and efficiently, saving the industry millions of dollars each year. The Factbook lays it all out in black and white.”

The report is available for purchase at HDMA’s website, hdmanet.org. PC