Download Hence small distributors must pay the ACTUAL price

An Illustration of How the
Media’s Report on “Price
Gouging” by Small Drug
Distributors is Misleading and
Untruthful, in Most Situations
As Presented by Pat Earl,
Principal and CEO of Secure
Pharma Distributor Network
RISING DRUG SHORTAGES IN U.S.
Source: U.S. Food and Drug Administration
Year
2005
2006
2007
No. of Reported Shortages
61
56
90
2008
2009
110
157
2010
2011
178
200 and growing
Reasons for Rising Drug Shortages in U.S.
Source: U.S. Food and Drug Administration
Rank
Why Drug is Short Supply
1
2
Quality Problems
Delays Related to Capacity
54%
21%
3
Company Discontinuing
Production
Raw Material Supply
11%
5
Increased Demand Due to
Another Shortage
4%
6
Loss of Manufacturing Site
3%
7
Shortage of Packaging
Components
2%
4
% of Reasons
5%
Pharmacist Michael O'Neal, manager of procurement at
VUMC, holds the drug propofol, which has been in
short supply. / Samuel M. Simpkins / The Tennessean
Growing Drug Shortage Leaves Patients in the
Lurch… as reported in The Tennessean on October 6, 2011
• According to a pharmacist who is manager
of procurement at Vanderbilt University
Medical Center “…I don’t know if this is a
market adjustment because the whole
generic drug industry has become so
commodified that you can buy a bottle
propofol that can be used in surgery much
cheaper than you can buy a bottle of
water.”
Propofol is the generic version of Diprivan, the
anesthetic drug used in Hospital Operation Rooms
Price: When No-Adverse Market
Supply Issue:
On Major GPO
Contracts
Manufacturer A Published Wholesale
Acquisition Cost (WAC)
$5.60
GPO Contract Price
$0.48
Discount off Published Wholesale
Acquisition Cost (WAC)
$5.12
Percent Discount Savings
91.43%
Actual Pricing that a Small Distributor Pays for
Propofol when Purchasing for Normal Supply
Price Between Two Distributor Trading
Partners, i.e. an ADR to Distributor
No GPO
Contract
The WAC Price to Authorized Distributors
$5.60
ADR Invoice Price to Small Distributor
$6.60
Cost Plus Invoice Price to Distributor
$1.00
Percent Markup on ADR to Distributor
17.86%
Selling Price that a Small Distributor Offers to
Hospital at15% Markup on its Purchase Price
Price If Market Supply Channel is Disrupted:
Market
Price
Small Distributor Acquisition Price from ADR
$6.60
Sell Price to Hospital - Non GPO Eligible
$7.60
Cost Plus Mark-up on Sale to Hospital
$1.00
Percent Markup on Small Distributor Price
15.15%
These Illustrations Show a 15%-18% Markup to
Cover the Costs of Picking, Packing and Shipping
Transactions for Propofol… NO GOUGING HERE!
Cost Impact on hospital pricing as
reported to GPO:
On vs. Off
Contract
GPO negotiated contract price on APP
product
$0.48
Non-GPO authorized distributor sale at
WAC+
$7.60
Additional Cost to Purchase Off-Contract
Alternative
$7.12
Cost Impact for hospital reporting to GPO
1483.33%
Drugs in the “Market”
• Manufacturers bid low
prices in exchange for sole
source GPO awards
• One supplier then corners
the market for multiple
years of contracts
• Artificial price controls drive
competition to discontinue
that product
• Limited distribution
conspires to drive drugs into
commodity exchanges
• Artificially low pricing leads
to unnecessary shortages
Growing Drug Shortage Leaves Patients in the
Lurch… as reported in The Tennessean on October 6, 2011
• Many of the drugs are old-line treatments
with low profit margins for their makers
• The general public reads the headlines
about the drug shortage crisis, and they
assume we are talking about these
blockbuster drugs that are so…expensive .
• In reality, we are talking about generics
that are $2 each that are proven to work,
that patients are now not able to obtain
Drug Shortages are a direct result of GPO favoritism
and their loss-leader pricing strategies…
No other manufacturer will produce a drug at a loss!
.
Perceived “gouging” alluded to is A DIRECT cause of GPO and their chosen
partners’ policies that create ”artificial price controls” for their favored member
customers.
Small distributors are “restricted” by the manufacturers and the GPO’s from
selling these contract items at the exclusive, artificially-set contract pricing
between
… GPO and selected partners.
Hence small distributors must pay the ACTUAL price
Pat Earl, Principal and CEO of Secure
Pharma Distributor Network
From my viewpoint as an industry veteran…
“I believe that it is rather disingenuous for
Premier Purchasing Partners, the other
large national GPO’s and their partner
manufacturers, in general, to point their
fingers at the small drug distributors, who
must pay a significantly higher price for
their products. The market share for the
smaller distributors is comparatively
speaking…relatively insignificant.”