Pharmaceutical Distributors Continue to Deliver Operational Efficiencies and Value to U.S. Healthcare System Amidst Economic and Regulatory Challenges
ARLINGTON, Va., Nov. 10, 2011 /PRNewswire via COMTEX/ -- Center for Healthcare Supply Chain Research Issues Third Study on Role of Distributors
Primary healthcare distributors continue to provide increased value to the healthcare sector while navigating economic, regulatory and business climate challenges in the pharmaceutical industry, according to The Role of Distributors in the U.S. Healthcare Industry released by the Center for Healthcare Supply Chain Research. The Center is the non-profit research foundation of the Healthcare Distribution Management Association (HDMA).
Building on research studies completed in 2004 and 2007, this industry assessment, conducted by Booz & Company, analyzes the dynamics affecting the healthcare supply chain in the past four years, and provides a qualitative and quantitative assessment of the unique services and value traditional distributors provide to the U.S. healthcare system.
Primary research included interviews conducted by the Booz & Company team with executives from across the healthcare supply chain -- generic and branded manufacturers; regional and national distributors; as well as providers and industry experts -- on a wide variety of issues, as well as information from Center and third-party data sources. Secondary research comprised analyst reports, IMS Health information, HDMA Factbook data, news articles and other industry studies.
"Since it was first published in 2004, The Role of Distributors in the U.S. Healthcare Industry has served as a window into the evolution of the healthcare distribution industry," said Karen J. Ribler, Executive Vice President and COO, the Center for Healthcare Supply Chain Research. "It not only demonstrates the vital role distributors play, but answers the question of how pharmaceuticals flow through the industry, highlights fundamental changes that have occurred in the past four years and underscores long-term implications for distributors."
According to the study, there has been a five percent growth in pharmaceutical sales revenues through primary distributors, who handle 87 percent of the total $307 billion market, up from 82 percent in 2006. Traditional, primary distributors specifically account for 79 percent of these figures (specialty pharmaceutical distributors account for the remainder). Distributors deliver products to 200,000 providers on a daily basis with fill rates exceeding 95 percent.
Significant investments by distributors in data and technology systems help them administer core services to lower business costs for manufacturers and providers alike. Vital financial services, activities to ensure compliance with current regulations as well as other value-added services -- including assisting with patient adherence needs and reimbursement management -- also are provided.
Improvements in efficiencies, driven by investments in technology and business operations, reduced distributors' "cost to serve" as a percentage of sales from 6.5 percent to 5.7 percent. Distributors return on equity also has remained stable at 15 percent and historically below the average for many healthcare sectors. The average operating margin for the industry has remained consistent over the past four years at 1.6 percent.
In an economic analysis conducted by Booz, The Role of Distributors compares the cost of today's distribution model with increased expenses under alternative scenarios, in which manufacturers replicate the distributor functions and service levels. Through this comparison, the study concludes that the value distributors deliver to the pharmaceutical supply chain has increased significantly since 2007 -- nearly $42 billion if manufacturers were to deliver drugs directly to providers on a daily basis.
In the four years since the last Role of Distributors study, the pharmaceutical industry has faced significant economic pressures, structural and product changes that will continue to affect the distribution sector. All of these requirements and industry changes are expected to place cost pressures for distributors as they support their manufacturer and provider partners, but also present opportunities for them to expand their services in the years ahead.
As the industry faces the "patent cliff," branded pharmaceuticals have declined. Sales of generic products increased 5 percent from $17 billion to $21 billion. Specialty/biotech product revenues remain the fastest-growing category, increasing 69 percent from 2006 to 2010 (or $7 billion to $59 billion). In the manufacturing sector, increased merger and acquisition activity has continued to affect the product pipeline, and has led to the industry seeking more cost-reduction initiatives along the way. Moreover, recent regulatory considerations -- including the FDA's Risk Evaluation and Mitigation Strategies; suspicious order monitoring requirements by the DEA; and, ongoing electronic pedigree initiatives -- will not only challenge the industry but create opportunities for distributors to expand their capabilities and support for the healthcare supply chain.
"Despite many significant industry changes that have developed since the last Role of Distributors study, the nation's primary healthcare distributors continue to improve operations, invest in technology and create efficiencies that enhance their value in the U.S. healthcare system," said HDMA President and CEO John M. Gray.
The Role of Distributors in the U.S. Healthcare Industry is available for purchase for $185 from the HDMA Marketplace, at www.ShopHDMA.org . Additionally, the Center and Booz & Company will host a webinar presenting top-line findings from this publication on November 29 from 2:00 to 3:00 p.m. EST. Further information will be available on the Center's website, www.HCSupplyChainResearch.org .
About the Center for Healthcare Supply Chain ResearchThe Center for Healthcare Supply Chain Research is a 501(c)(3) non-profit charitable organization that serves as the knowledge partner of the Healthcare Distribution Management Association (HDMA). The Center serves the healthcare industry by providing research and education focused on healthcare supply chain issues. The Center's mission is twofold: to conduct research and disseminate information that will enhance the knowledge base, efficiency and effectiveness of the total healthcare supply chain; and to provide thought leadership to further enhance the safety and security of the healthcare supply chain through future-focused study and programming.
About HDMA HDMA is the national association representing primary healthcare distributors, the vital link between the nation's pharmaceutical manufacturers and healthcare providers. Each business day, HDMA member companies ensure that nearly nine million prescription medicines and healthcare products are delivered safely and efficiently to nearly 200,000 pharmacies, hospitals, long-term care facilities, clinics and others nationwide. HDMA and its members work daily to provide value and achieve cost savings, an estimated $42 billion each year to our nation's healthcare system. For more information, visit www.HealthcareDistribution.org .
SOURCE Center for Healthcare Supply Chain Research