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The Pharmaceutical Supply Chain and Prescription Drug Cost

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Over the past two years, the pharmacy industry has seen unprecedented increases in the prices of generic drugs, causing unexpected cost increases for payers and consumers, and spurring an investigation by the United States Congress.

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The pharmaceutical supply chain is the means through which prescription medicines are delivered to patients. Pharmaceuticals originate in manufacturing sites; are transferred to wholesale distributors; stocked at retail, mail-order, and other types of pharmacies; subject to price negotiations and processed through quality and utilization management screens by pharmacy benefit management companies (PBMs); dispensed by pharmacies; and ultimately delivered to and taken by patients

There are many variations on this basic structure, as the players in the supply chain are constantly evolving, and commercial relationships vary considerably by geography, type of medication, and other factors.

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The problem with prescription drug pricing does not lie with health plans, wholesalers, pharmacies, providers, or patients. The cost crisis is a direct result of actions by the pharmaceutical industry to take advantage of a broken market. As the committee explores strategies for reducing prescription drug prices, we urge you to consider our recommendations for effective, market-based solutions in three areas: (1) delivering real competition; (2) ensuring open and honest drug pricing; and (3) delivering value to patients. Many of these recommendations were raised in a report recently released by the National Academies of Sciences, Engineering, and Medicine entitled, “Making Medicines Affordable: A National Imperative.”

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Finally, those lobbying efforts are going into overdrive because the drug-supply chain is facing real pressure as health care costs have become a rare bipartisan issue. Over the last two years there has been increasing recognition by state and federal legislatures that something needs to be done. Consumers and patients—it’s worth remembering—are also voters. That makes them one link in the supply chain that Washington ignores at its peril.

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National Academies of Sciences, Engineering, and Medicine. 2017. Making Medicines Affordable: A National Imperative. Washington, DC: The National Academies Press.

Prescription Drug Pricing in the Private Sector,” Congressional Budget Office, 2007.

The Henry J. Kaiser Family Foundation. “New Analysis Finds Out-of-Pocket Prescription Drug Spending Decreasing on Average, But More People Spending in Excess of $1,000 a Year.” October 2016.

“Employer Health Benefits 2016 Annual Survey” (exhibit 7.36), Kaiser Family Foundation and Health Research and Educational Trust, 2016.

“High Priced Drugs: Estimates for Annual Per-Patient Expenditures for 150 Specialty Medications,” AHIP, April 2016.

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