Tracking the Real Cost of Drugs for Supply Chain Management

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Drug manufacturers retain big profits. And they’re keeping expenditures low too.

Researchers discovered how drug spending is allocated across the pharmaceutical supply chain in a new study from Berkeley Research Group (BRG).

For the study, BRG researchers estimated the total initial gross drug expenditures of patients and insurers — along with the money different stakeholders in the pharmaceutical supply chain received for the drug sales — before arriving at the net amount actually earned by drugmakers. The stakeholders, or non-manufacturer entities, include distributors, pharmacy benefit manufacturers, and pharmacists.

Researchers defined “initial gross drug expenditures” as the sum of payments for prescription drugs made by patients and their health plans at the point of sale, before any rebates, discounts or fees are provided by manufacturers. The analysis uses wholesale acquisition cost sales and invoice sales data from IMS Health’s National Sales Perspectives, along with other secondary research.

In 2015, brand-name drug manufacturers retained 47% of total gross spending on medicines, or about $219 billion. Generic drug makers retained 23% — or about $108 billion — and non-manufacturing entities retained about 27% or $125 billion in 2015.

Retrospective rebates, discounts, and fees have increased from $67 billion in 2013 to $106 billion in 2015. As a result, the share gross drug expenditures retained by brand-name drugmakers declined from 41% in 2013 to 39% in 2015, while the share retained by non-manufacturer entities increased from 38% to 42% in the same time period, per the report.

“The BRG study is the first to show what happens when the list price of a medicine meets the forces of private market negotiation, costs associated with a complex supply chain, and mandated government discounts in Medicaid, the VA and the 340B program,” said Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, which commissioned the study. “The study begs an important question: Are we doing enough to ensure the growing amount of rebates and discounts flow to the patient?”

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