Is this really necessary? J. Morse
4/1/19
The hot topics in the arena of dialogue will soon turn again to health care and most certainly will include discussion on the cost of prescription drugs.
We understand the fireworks.
Pharmaceutical companies invest billions in research and development. Legislation to ensure safety requires lengthy, costly trials to defend the science behind the use and application of the treatment.
OK. This part makes sense.
But there’s so much that does not make sense.
You see, pharmaceutical companies are beholden to the three (3) so-called market ‘wholesalers’. This is a term familiar only to people old enough to remember phone booths. A ‘wholesaler’ is a company in the channel of distribution that (presumably) takes a ‘risk’, a financial risk, by acquiring and taking possession of inventory based entirely on its belief that the inventory can be ‘sold’ in a reasonable period of time – at a profit.
Now under the circumstances, a logical person has to ask, do these ‘wholesalers’ really take a risk in acquiring the inventory of prescription drug medication? I mean really, does the ‘wholesaler’, namely AmerisourceBergen, Cardinal Health, and McKesson, take a financial risk in making those inventory purchases? In the old days, ‘wholesale’ distributors were critical in the channel because they would break-bulk, that is, take a financial position in product, for a negotiated discount, because they saw great profit potential in reselling the goods to the next players in the channel, the retailers.
To me, I seriously doubt McKesson breaks a sweat over their ‘purchases’. I believe they are compensated not just in the traditional model. We mortals possess not the privilege to know the Government incentives to subsidize costs. Furthermore, the models to set pricing are governed not by market forces, rather, “a wholesaler’s fees from distribution service agreements are usually computed as a percentage of a brand-name drug’s list price. Therefore, the dollar value of a wholesaler’s fee payment from the manufacturer rises whenever a manufacturer increases a drug’s list price (https://www.drugchannels.net/2018/07/buildingnew-drug-wholesaler.html).
According to U.S. Health and Human Services Secretary (HHS) Alex Azar: “Everyone in the system, from drug manufacturers to pharmacy benefit managers and wholesalers, makes their money as a share of list prices, so they have little incentive to force them down.” We estimate that in the twelve months ending June 30, 2015, U.S. drug distribution revenues at the Big Three public wholesalers—AmerisourceBergen, Cardinal Health, and McKesson—reached a record $353 billion (https://www.drugchannels.net/2015/10/how-wholesalers-profit-frombrand-name.html).
To me, the system of delivering prescription medication is ripe with abuse. As fact, “McKesson Corporation, one of the nation’s largest distributors of pharmaceutical drugs, agreed to pay a record $150 million civil penalty for alleged violations of the Controlled Substances Act (CSA) (https://www.justice.gov/opa/pr/mckesson-agrees-pay-record-150-million-settlement-failurereport-suspicious-orders).

Additionally, who can ignore the monies invested in prescription drug advertising? “Nine out of 10 big pharmaceutical companies spend more on marketing than on research. The biggest spender, Johnson & Johnson, shelled out $17.5 billion on sales and marketing in 2013, compared with $8.2 billion for R&D. Most of this marketing money is directed at the physicians who do the prescribing, rather than consumers. As Oliver pointed out, drug companies spent more than $3 billion a year marketing to consumers in the U.S. in 2012, but an estimated $24 billion marketing directly to health care professionals (https://www.washingtonpost.com/news/ wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketingthan-research/?utm_term=.e4b8ccdc3039.
Here is the question:
What force drives the inventory purchase by the big 3 wholesalers? Is it raw market-driven demand? Is it full-line enforcement to distribute product that may or may not even be prescribed? Who is the wholesaler loyal to? The Pharmaceutical Company? The Government? Or their customer. And what motivates the Physician to prescribe, is it a request by a Patient, a nudge by a Wholesaler to move product?
Then, imagine.
Imagine no wholesalers.
Imagine no drug advertising.
Imagine the savings that are passed on to Patients needing (interesting word) the prescription. Is this really necessary?

J. Morse
4/1/19