Understanding Healthcare Distributors and The Industry’s Role in the Supply Chain
There is a lot of talk right now in Washington about healthcare “middlemen.” However, this term is sometimes used too broadly, lumping together sectors with dramatically different roles and contributions to the overall healthcare system.
Healthcare distributors are logistics experts that play a central role in the healthcare supply chain. In fact, the industry delivers 10 million medicines, vaccines and healthcare products safely, efficiently and reliably every day. Here are three things to know about the industry.
1. Distributors’ logistics expertise helps streamline the supply chain and adds value to the overall healthcare system.
Distributors connect 1,200 manufacturers to nearly 330,000 frontline providers and pharmacies. They handle a range of products, from common over-the-counter medicines to specialty products that require unique handling and constant temperature monitoring. By leveraging advanced technologies, real-time data and robust infrastructure, distributors ensure patients can access lifesaving treatments exactly when and where they are needed. Distributors do this while operating on the narrowest profit margins in healthcare (0.3 percent).
Unlike other entities, such as pharmacy benefit managers (PBMs) and group purchasing organizations (GPOs), which rarely touch or handle products, distributors are responsible for the physical handling and security of products as they move through the supply chain. Distributors take legal ownership, financial risk and physical possession of medicines — warehousing and then delivering them to healthcare settings across the country.
As Lisa Gill, Managing Director at J.P. Morgan, said in a recent CNBC interview: “At the end of the day, the drug distributors provide a service of getting the product very safely from Point A to Point B and saving the U.S. healthcare system billions of billions of dollars each year.”
2. Distributors are creating cost savings in healthcare — not increasing costs for patients.
By streamlining the supply chain, distributors generate significant efficiencies that save the healthcare system up to $63 billion annually. These savings benefit the healthcare system and, ultimately, patients.
Moreover, a recent report by BRG shows that distributors’ margins account for less than 1 percent of the cost of brand drugs.
Importantly, distributors do not determine the amount patients pay for their medicines. In contrast to others in the supply chain like health insurance plans and PBMs, distributors have no control over formulary decisions, benefit design or reimbursement rates for dispensing pharmacies. Instead, their focus remains on making the supply chain as efficient and effective as possible, reducing unnecessary costs along the way.
3. Distributors’ central role provides support at both ends of the pharmaceutical supply chain.
Distributors’ central focus on leveraging their logistics expertise allows their supply chain partners to focus on their own areas of expertise. The industry’s services range from pick, pack and ship operations to specialized offerings such as cold chain management, data analytics and customer service, among other offerings.
This means providers can focus on patient care, and manufacturers can focus their efforts on research and development. Without distributors, pharmacists would have to maintain relationships with each manufacturer and vice versa, adding time and complexity to what is now a safe and efficient process.
Beyond HDA healthcare distributor members’ core role in distributing medicines, many provide several services across the continuum of care to empower community pharmacies and providers and support patient access.
The distribution industry’s efforts help ensure patients have access to the medicines and healthcare products they need, when they need it. As the healthcare industry evolves, distributors remain committed to working collaboratively — with supply chain partners, the public sector and beyond — to enhance the efficiency, reliability and affordability of the supply chain.
Learn more about the role and value of distributors at hda.org/health-delivered.