Issues of transparency in the pharmaceutical supply chain

Pharmaceutical industry trends may end up benefiting drug prices and transparency




Rising prices, opaque pharmaceutical supply chain

Spending on specialty drugs is on the rise. New developments in medicine are becoming increasingly complex, and pharmaceutical developers and manufacturers invest accordingly. The decision to invest and spend on expensive specialty pharmaceuticals then affects what the supply chain towards consumers looks like.

The route of a prescription drug may be highly-distributive, or more limited; the ease with which a patient may receive drugs from their physician may alter; the interaction with human operators may be absent or constant. With endemic political pressure in the UK, EU, and US for pharmaceutical firms and third-party managers to appear more transparent in their pricing, there is a chance that the supply chain and cost for the consumer could start to change.

You might be interested in: disruption to pharma supply chains.

Barriers, bombast, and global pharmaceutical industry events

The road to universally-lower costs isn’t paved with gold, if paved at all. Nirmal Mulye is the man currently in the sights of the press and his peers. Following in the tradition of Martin Shkreli, the founder and president of Nostrum Laboratories claimed to be following the “moral requirement to make money” that all businesses adhere to.

He went on at length in his interview with the Financial Times and even accused the FDA of acting like highwaymen by reducing his profits with their fee increases. With jackasses Shkreli – his own words, not ours – working in the pharmaceutical industry, it’s clear why even Donald Trump has taken to high rhetoric to implore some sort of change to the current system.

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Similar antics have occurred on the other side of the pond, with the UK's National Pharmacy Association facing pressure from pharmacists to begin lobbying for drug wholesalers to lower prices. The Pharmaceutical Journal reported on a recent conference and quoted an NPA spokesperson’s concerns about impending shortages of generic medicines, and the associated increases in price.

Pharmacists cannot be expected to distribute medicines at a loss for very long, nor can they hike prices in line with the gouging some firms seem prepared to undertake with abandon.

A consortium of health professionals in the Netherlands have also taken action against a pharmaceutical company who have massively hiked the price of a vital medicine, beating even Nirmal Mulye’s 400% increase with a price surge of 500 times the original cost. Having successfully monopolized the drug in question (CDCA) through an acquisition, Italian firm Leadiant now have to face the inevitable undercutting by firms capable of cheaper manufacturing and content with smaller profit margins.

Uneasy lies the head that wears a crown, after all.

Will pharmaceutical trends ever change?

It is very easy to view these infrequent yet still harmful incidents as representative of the new pharmaceutical landscape. However, the US government, in particular, is hopeful that change may be just around the corner. Donald Trump is weighing into the debate, and HHS Secretary Alex Azar has suggested that both the government and the industry may have a hand to play in stopping rebates, and preventing the sort of insane price hikes that still haunt pharmaceuticals.

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With very little to prevent big-hitters from price-gouging, spread pricing, or monopolizing through M&A, the consumer is vulnerable at the downstream end of the supply chain. The pharmaceutical industry may be fickle, but there really isn’t anything stopping a movement in the other direction.

Managers and manufacturers could agree on discount prices or to eschew rebates, and while there may be more that drug manufacturers could do to disclose their costs directly to consumers, Congress should also pull their weight and enforce some elements of a fixed-price strategy. However, a cynic might maintain that the most profitable drugs will never be the ones to receive the best price-reduction treatment.

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Opacity and spread pricing

Not only is the supply chain opaque for the vast majority of consumers, but many key decision-makers in the downstream are unaware of the extent to which pricing can be used to manipulate the market.

In a recent piece, Bloomberg examined the spread pricing tactics used by CVS Health Corp. in one county in Iowa. They reported a price differential of $192.49 on a single bottle of generic medication – charging the county $198.22, but reimbursing the distributor a little over $5.  Acting as a middleman, CVS isn’t breaking the law by marking-up prices, as nearly all medications in the US experience a similar pricing strategy. However, as with the hiking of prices, when financial manipulation is so extreme, people take notice.

Want more content on pricing? Read our piece on bad business practice.

This sort of occurrence is perhaps part of the reason the US Senate recently passed an amendment calling for all pharmaceutical firms to declare the price of their prescription medications to the public – much like declaring side-effects or nutritional information. This may sound like a revolutionary idea, but there is still a chance that the prices listed may be calculated in the favor of the pharmaceutical firms: listing the lowest- or highest-value medicines, an aggregate, or simply an average.

The end of the current pharmaceutical supply chain?

The pharmaceutical industry is continually under fire for shielding its pricing from view - flak intended to expose how much money is being siphoned off by middlemen, and how inflated prices have become as a result of immoral larger manufacturers.

To have a transparent market is not the end goal, but simply a medium through which affordable and sensibly-priced medications can be assured. Somewhat inevitably, into this arena steps Amazon – the behemoth of affordability and (ostensibly) transparency.

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With a very real chance of rapidly capturing a huge market share, Amazon might just be the hero the pharmaceutical industry needs. Goldman Sachs foresee a bright new dawn, with Amazon catalyzing a consumer awareness of Big Pharma’s profit margins – in turn creating a more open dialogue with the public. If the consumer understands how Amazon operates outside of the pharmaceutical industry, then they may understand what makes Amazon different to its competitors when it enters the space. This may lead to the consumer realizing that their money is better off with Amazon, and perhaps discovering why their medications are so much more expensive with the brands they’ve been trusting until now.

It is unlikely (not to mention undesirable!) for the pharmaceutical industry to suffer severe setbacks as a result of Amazon’s entry. It is more probable that the major players will have to adapt to compete, thrive, or survive. Here’s to hoping the pharmaceutical industry embraces transparency and goodwill with regards to pricing strategy. Here's to hoping the pharmaceutical supply chain can stay transparent for the foreseeable future.

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