Biopharmaceutical Supply Chains Distribution, Regulatory, Systemsand Structural Changes Ahead
No work of this sort is completed by the author, who but serves as a vehicle for bringing together diverse thoughts, points of view, and ideas into a single forum. In putting together this book, there are surely too many people to thank. Those who stand out in my mind include the people at Cardinal Health with whom I worked, among them Mike Kaufman, Frank Segrave, Steve Lawrence, Linda Wiant, Tom Donohue, and Brian Ellis. Porter Bertelson was instrumental in introducing me to the inno-vative West Coast pharmacists who were the early adopters and thought leaders for automated dispensing and replenishment. A number of oth-ers in the biologics and pharmaceutical industries helped me to under-stand the dynamics of industry relationships, including, among many others, Jim Bacon at Talecris, Vicky Sanchez at J&J, Ken Thomas at Eli Lilly, Rod Smith at Astra, Lux Bennett at Abbott Labs, Scot Buesow at Genentech, Michael Gillaine at GSK, Tara Stevens at Sanofi, and Charlie Bennett at Wyeth. Analyst interviews provided a great third-party point of view, including discussions with Eric Coldwell at Robin Baird, and John Kreger at William Blair. The pharmaceutical benefits managers also iden-tified what is proving to be one of the major forces in the supply chain, so thanks go to Dan Cordes at ExpressScripts, Bill Barre at MedImpact, and Janet Miller at Caremark. I also developed some fascinating insights at a number of conferences, including the 2011 Tracelink Nexus conference where a lot of the discussions on GS1 and serialization took place, the IDN Summit in September 2011 in Phoenix where I learned a lot about the regulatory fireball that is headed this way, and the Fee-for-Service confer-ences that took place during 2005–2008 in a number of different venues.
All of the people involved here helped, but there are countless others. Thanks so much. I hope that this book helps to bring together thinking in this field that will help us manage the challenging times that lie ahead.
Biopharmaceutical Distribution: Early Structural Developments and the Changes Ahead
The biopharmaceutical industry is in the throes of disruptive change. The nature of this change can be traced in some measure to the evolution of the industry and the resulting pattern of third- party distribution, global regulation, government healthcare policy, healthcare funding, as well as how the general population views the biopharmaceutical industry. This book was written in an effort to trace the history of the bizarre struc-tures that underlie biopharmaceutical distribution in the United States, and to hopefully understand what bodes for the future of the industry.
I will also seek to provide some rationale regarding the boundaries I have drawn in putting together this book. First, the book focuses on biophar-maceutical distribution—which refers to the point at which manufactur-ers release a finished product to the time that it is administered (whether by the individual to themselves or by a physician) and to the complicated set of distribution channels that exists between these two points. Implicit in this boundary are the numerous decision points and third parties that play a role, including manufacturers, payers, physicians, hospitals, phar-macies, transportation companies, healthcare education providers, third- party marketing organizations, government regulators, and numerous other enterprises all seeking to influence the demand and sale of drugs. We should also note that the term biopharmaceutical is used in this context to encompass biologics, pharmaceuticals, and vaccines.
Key Forces and Myths of Distribution in the BPS Supply Chain
To better understand the changes occurring in the biopharmaceutical supply chain (BPS), I have spent the last eight years working alongside a number of key industry participants. I have spent a good amount of time working with one of the largest pharmaceutical wholesalers in the United States. During this time I interviewed hundreds of executives working for hospitals, biopharmaceutical manufacturing companies (including both clinical and commercial managers), group purchasing organiza-tions (GPOs), and insurance companies. In addition, data were analyzed from an extensive literature review (over 750 practitioner press articles), and detailed interviews with industry thought leaders took place over this time.
The goal of this activity was to identify major forces and the underly-ing trends that would impact the BPS in the future. Based on this work, it has become clear that in the space from manufacturing to patients, three mega forces have emerged that will shape the distribution and delivery of biopharmaceutical products in the United States. What is happening in the United States is a leading indicator for what will also take place glob-ally, although the dynamics are certain to be different.
Regulatory Trends
Any actions in the biopharmaceutical supply chain (BPS), regardless of their scale, scope, or breadth, are subject to regulatory requirements by various government agencies. Hence, ensuring compliance to the letter of the law remains a particular challenge for companies in the BPS. Not only are such laws changing on a regular basis, but the interpretation of these regulations are also difficult to interpret and are subject to wide variations in what it means to be “compliant.” Further, government officials struggle to be able to even explain what these regulations mean. A host of consult-ing industries has arisen from former government regulators who have found it profitable to take on the task of explaining regulations to partici-pants in the supply chain and defining in specific and measurable terms what it means to comply with these regulations.
A text describing every possible regulatory requirement for the BPS is beyond the scope of this book. Rather, we have attempted here to identify the major regulatory issues that participants in the distribution channel need to be aware of as well as emerging areas of regulation that require monitoring over time. By becoming involved in the legislative process, organizations can help to influence regulations and ensure that they are reasonable and that the cost of compliance is not excessive relative to the potential hazards.
The Last Mile: Changes in the Hospital Environment That Impact the Life Sciences
As noted in earlier chapters, the cost of healthcare is a significant concern not only to governments but also to patients and life sciences companies. This is most acutely felt in the hospital operating environment. Hospitals are facing mandates from local and federal governments to reduce operating costs, improve patient safety, reduce budgets, and cut Medicare reimburse-ments. This is especially true in many hospitals, which are facing a major problem in profitability. In the current healthcare operating environment, the financial health of hospitals is showing an alarming trend, as operating margins are shrinking at a rapid rate. In the last three years, the median operating margin of hospitals continued a three- year slide to 1.5% in 2008 compared with 2.1%, 2.5%, and 2.8% in 2007, 2006, and 2005, respectively*: In 2008, 29% of hospitals lost money on operations. Finally, according to new statistics from the American Hospital Association, the nation’s 5,010 nonfederal community hospitals posted a $17 billion overall profit in fiscal 2008, down 61% from the previous year, amid a punishing recession that caused a $20.5 billion reversal in hospitals’ investment portfolios.
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