The pharmaceutical supply chain—the flow of medicine and money that comprises so much of healthcare—is complicated. Still, considering how many prescriptions are filled every year, you would think we would have a basic grasp of how it works. So, here is one small attempt to shed a bit of light (however incomplete it may be). And since when it comes to health care, everything could stand to be just a little bit more fun, this attempt is in the form of a poem.
The following verses describe the pharmaceutical supply chain specifically with regard to private insurance coverage. Additional rhymes would be needed to also cover publicly funded insurance plans and no insurance coverage.
(And suffice it to say: I am not a poet. Though even my tangled verses are nothing compared to the state of affairs where prescription medications are concerned.)
There are two types of manufacturers:
brand name and generic,
And the guidelines behind each of these,
Are way too esoteric.
The manufacturer makes a drug—
a pill, a liquid, a cream—
(After the FDA gives the green light,
every drug maker’s dream).
Theoretically speaking, the drug that gets made
Is ready for cold, rash, or pimple.
But nothing with pharmaceuticals,
Is ever quite that simple.
Once upon a time the wholesale distributor,
Did just this one simple service,
Now they repackage and handle and support,
Things that make some people nervous.
Then off the pill goes to the pharmacy,
Which tries to maintain a good stock,
And with so many people on drugs these days,
There’s pharmacies on every block.
Last stop for the pill is the person, of course,
Who’s also known as the consumer.
But the story gets more complicated from here.
So please keep a good sense of humor.
* * *
More than $200 billion in retail pharmacies sales,
Was logged in 2009.
A portion goes back to the maker, of course,
But who else is waiting in line?
The wholesaler, or distributor, buys the drug,
At “wholesale acquisition cost,”
Then sells to a pharmacy for a marked-up price,
So no chance for profit is lost.
But that’s just one sliver of how money flows,
And dollars must have some endurance,
To wind their way through the twists and turns,
Of private and public insurance.
Let’s say the consumer has health insurance,
Provided by his or her job,
Then first there’s a co-pay at the store counter,
Unless he or she’s planning to rob.
There’s also a portion of salary taken,
For benefits of the medical kind,
Usually not in such great amounts,
That we really start to mind.
The employer pays the insurance company,
Like Aetna, or Blue Cross and Blue Shield,
Each offering plans of various types,
Ensuring their own profit yield.
But then a mystery guest appears
At this dinner party of sorts,
The pharmacy benefit manager,
Or PBM, for short.
Who or what is a PBM?
It’s hard to give a concise description,
Even though they are known to process two thirds,
Of all U.S. prescriptions.
PBMs never handle actual drugs,
They have no physical products to sell.
And they know more about us then we know about them,
Which is probably just as well.
They negotiate prices with drug companies,
By using a drug formulary,
(That’s the list of drugs approved by the plan,
and a potential adversary).
Or they might secure a rebate for a given med,
Using the plan’s millions-of-customers clout,
And when the rebate is paid by the drug company,
The PBM keeps a preset amount.
They create networks of pharmacies, all who’ve agreed,
To conduct business in one certain way,
Which gives PBMs, when negotiating prices,
A much, much, much greater say.
So the private insurer pays the PBM,
Which then pays the pharmacies and drug makers,
And that’s how the dollars flow up and down,
Away from the eyes of drug takers.
(PBMs also do mail-order services,
Eliminating the retail shop,
Which means when the money flows back up the chain,
It has one less pocketing stop.)
Drug companies also pay rebates
To wholesalers, PBMs, and retail shops,
And though there’s probably more of the picture to tell,
Here is where this telling stops.
Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain [PDF]
Kaiser Family Foundation
Title written with great respect to Robert Frost.
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