The Pharmacy Supply Chain: More Challenges?


And as with what seems like every area of healthcare, changes and challenges to the vital supply chain have been coming and will continue to come for the foreseeable future.

The pharmacy supply chain is invisible to the average person. It is pretty much invisible even to most people who work in healthcare. But rather like the earth, you may not think about it until there is a dramatic movement or change-and then the effects are widely felt.

And as with what seems like every area of healthcare, changes and challenges to the vital supply chain have been coming and will continue to come for the foreseeable future.

Taken at its simplest, in the pharmacy supply chain an item is made by a manufacturer and is transferred to a wholesaler who distributes it to outlets including retail, specialty, and mail-order pharmacies (along with healthcare facilities like hospitals and nursing homes and some healthcare provider offices). They then dispense it to a consumer.

Taking part in this chain are all the stakeholders along the line, who may not actually take possession of the product at any point. They include entities such as health insurers, pharmacy benefits managers (PBMs), and group purchasing organizations (GPOs) who may negotiate prices and process payments, and even the consumer who pays out of pocket or has a large copayment.


The Numbers

The pharmacy supply chain, also called the pharmaceutical supply chain, is big. Here are some numbers. More than 91% of pharmaceutical products (around $350 billion worth) in the U.S. are handled by members of the Healthcare Distribution Alliance (HDA, formerly known as HDMA), according to that organization.1 Its member distributors deal with 1,500 pharmaceutical manufacturers. 

Chain drug stores are the largest group of customers for HDA members, with about $123 billion in sales, or one third of all sales in 2014. The next two groups of customers-independent drug stores and hospitals and HMOs account for nearly $54 billion in sales. A typical distribution center manages around 4,300 orders a day and has an inventory of approximately 47,000 stock keeping units (SKUs).1

The pharmaceutical distribution system is remarkable, said Perry L. Fri, executive vice president for industry relations, membership, and education for the in Arlington, VA. “Each day, HDA members deliver more than 15 million prescription medicines and healthcare products safely and efficiently to over 200,000 chain drug stores, independent pharmacies, hospitals, and other locations across the country.” The entire pharmacy supply chain, Fri added, is a collaborative system.



The Current Challenges

The entire healthcare system has been dealing with changes and challenges over the past several years-challenges that include the implementation of Obamacare, spiraling drug prices and other costs, the rise in frequency of drugs shortages, and even the epidemic of opioid abuse.

Hashim Zaibak, PharmDPrices of both brand and generic drugs have spiraled upwards. When costs rise quickly, pharmacists are often left paying more for a given drug and waiting for the reimbursement rate from third-party payers to rise, which might not happen for weeks or months. “Some things that used to cost $100 yesterday, tomorrow morning could cost $200,” said Hashim Zaibak, PharmD, owner of nine Hayat Pharmacies in the Milwaukee area. The result is that the pharmacy gets reimbursed below what the medication cost until the payer makes an adjustment. This rarely happened when he started his chain five years ago, but now being reimbursed below cost because the drug price went up happens every day, he added.

“The cost of goods is definitely an issue, especially with the generics,” said Zaibak. “The wholesalers say it is not their fault and that it is the manufacturers’. The manufacturers say it is the wholesalers’. We don’t have any transparency on whose fault it is.” With brand drugs, things are more standardized, he pointed out. Discounts and rebates are usually known in advance and the price will be almost the same between wholesalers, unlike the larger price variations seen between wholesalers with generic drugs, he said.

Kyle McHugh, RPh“If you were to ask last year, we were struggling to get product because of all the generic prices going all over the place,” said Kyle McHugh, RPh, of Gaston, SC, president of McHugh Pharmacy and owner of a six retail pharmacies in South Carolina. “No one could figure out what they wanted to charge and where they were going to keep [the price]. It was a mess.”

“We’ve seen a lot of blockbuster brands moving to generic,” said Henry C. Eickelberg of Lighthouse Point, FL, managing director with the Terry Group, a consultant firm to healthcare provider organizations. “The mail order people used to be able to leverage the brand buys because they could get better deals from the manufacturer or wholesaler.” Said Eickelberg, the author of “The Prescription Drug Supply Chain ‘Black Box’: How It Works and Why You Should Care,” a 2015 report on the pharmaceutical supply chain.2

Drug shortages, both intermittent and ongoing, have continued to plague the system. Shortages have usually involved generic drugs, causing unsettling disruptions at the dispensing level.


Shortages of drugs have leveled off somewhat, said Brian D. Lenich, RPh, administrator for pharmacy services for Lehigh Valley Health Network in Allentown, PA.  The network operates three retail pharmacies in the region. “I would not at this time say that it is trending down, but at least it is not trending up.”

Drug shortages and price increases can sometimes arise unexpectedly, making it hard for a pharmacy to react quickly, said Lenich. Dispensing a substitute or a cheaper alternative often requires discussing the situation with the physician. “Every once in a while, we will get caught off guard.”

Increases in price have also caused some drugs to be designated as specialty medications, which means that PBMs prevent retail pharmacies from dispensing them, said McHugh. The specialty designation was once used only for drugs that required special administration or needed special handling. “Now, even if it is a regular tablet that is taken every day, if it costs more than a thousand dollars, it is specialty.” According to McHugh, the change in designation means that the patient must use a specialty or mail-order pharmacy instead of one of his.

Another challenge to the supply chain is the federal Drug Supply Chain Security Act (DSCSA), which became law in 2013, according to Fri. This act requires stakeholders to be accountable for identifying and reporting suspect drug products and related issues. There is also greater scrutiny of the movement of drugs that have a potential for abuse, which is adding some wrinkles to how some of these drugs are distributed.

Manufacturers and distributors have already had to learn how to exchange detailed information about products at the lot or batch level, Fri said. The act also has requirements that pharmacies must meet, which includes receiving and storing product tracing information from the distributors.

The stricter controls over the drug supply have added some problems at the pharmacy level when it comes to dispensing certain drugs, said Zaibak. When one of his pharmacies has an unexpected increase in the sale of some pain relievers, it can run through its supply faster than usual. But the wholesaler may have applied thresholds to the amount of the drug that the pharmacy is allowed to order in a given month, which prevents restocking until the next month, he explained. “This is a bit challenging because sometimes we have to turn away customers. It is not the wholesalers fault,” he added. “It is the system the way it is.”



The Coming Challenges?

The DSCSA will continue to present challenges to the supply chain, which will go through dramatic changes over the next few years because of the continuing implementation of this act. “By 2017, manufacturers are expected to serialize all individual units that they release into the commercial supply chain,” Fri said. Pharmacies may already be seeing some products with 2D barcodes (representing the unit serial number and other information), but they will have until 2020 before they are required to use that barcode, he noted.

“It is critical that pharmacists learn as much as they can, as soon as they can, about what they are required to do now and in the future,” said Fri about the DSCSA. “It is especially important for pharmacies to be part of the discussions with wholesalers and manufacturers about how stakeholders can make this process work across the supply chain, from the scanning of individual serialized units to the exchange of transactional data at the item level.”

However, the entire pharmacy supply system must be made more transparent and rational, said Eickelberg. One change that may come will involve more direct patient contact from pharmacists and pharmacies. “I look at medication therapy management as a precursor to how the healthcare supply chain could be rationalized,” he said. A greater direct role in patient care in the future is a change that will also increase foot traffic in retail pharmacies. “There is going to have to be some real rethinking on how healthcare is delivered in the United States and I think that pharmacists stand to be really big gainers.”


A Wish List

When asked what kinds of changes they would like to see happen within the pharmacy supply chain, the pharmacists interviewed had several suggestions. They almost uniformly wanted to see lowering-or at least stabilizing-the prices of generic drugs.

“It would be really awesome if we could get a more reasonable price on generics,” said Zaibak.

            “My wish list would be price stability and no drug shortages, if you wanted to get crazy,” said Lenich.

 “If we could get access to some of the specialty drugs to take care of patients who need it, I would love that,” said McHugh.

And getting any of these wishes made into realities will need communication. “I encourage pharmacies to reach out directly to their distributor trading partners and to participate in available forums, such as those offered by HDA, to further enhance these partnerships and ensure that patients continue to have access to the medications they need when they need them,” Fri said.


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