The High Cost of Access: Fact or Fiction?
Five myths about the value of the pharmaceutical distributor
Pharmaceutical distributors actually make money by charging manufacturers a percentage of their product’s wholesale acquisition cost (WAC), or list price, for distribution services. Even though our distribution infrastructure investments are significant and position us to ship more than three million medication units per day, this fee covers a broad range of services beyond logistics. Those services include:
- Contract, order and pricing management
- Aggregated data on pricing, orders and inventory across all classes of trade and products
- Activities and investments that protect the supply chain against fraud that harms patients
- Customer service and sales outreach to tens of thousands of healthcare organizations
- Strategic investments to grow key markets
And perhaps most importantly, distributors take on financial risk by taking title to and carrying inventory. We also extend credit for the products we buy from manufacturers and sell to customers. Distributors infuse critical cash into manufacturers’ areas of core competency (like R&D) and ensure critical products are on pharmacy shelves for the customers who need them.
"Distributors take title
to truckloads of inventory. In turn, [we] carry the economic risk of selling manufacturers' products and the financial risk of collecting payment. A change to this model should recognize the likelihood of reduced valuations for our manufacturer partners when they extend revenue cycles."
The compensation distributors receive is not driven by the "spread."
To put the value of taking on financial risk for costly specialty products in perspective, consider some examples. When you take out a mortgage for a home purchase, you end up paying more dollars in interest when the purchase price of the home is higher (even if the interest rate is the same). This compensates the lender for the financial risk it takes on in extending a home loan to you. Similarly, the average interest rate on a credit card hovers around 15 percent.1 The cost of financing is regularly tied to risk.
Without distributors, costs to the entire healthcare system would go up:
- Distributors save providers 6.5% in financing costs for specialty drugs2
- The specialty drug supply chain without distributors would generate incremental distribution costs of $8.6 billion3
- A subset of distributors’ value-added services for physician practices (e.g., reimbursement support) exceeds $1 billion per year4
models make what is already a highly efficient model far more complex.
Learn more about how we drive access to the most efficient form of healthcare.
2. The Role of Distributors in the U.S. Specialty Pharmaceuticals Value Chain. Center for Healthcare Supply Chain Research. December 2015. Accessed August 2018. Available online at https://www.healthcaredistribution.org/resources/role-of-the-specialty-distributor-in-the-pharmaceutical-value-chain