The Pharmaceutical Supply Chain, 2013–2020

The flow of dollars in the pharmaceutical marketplace within the US healthcare system involves a variety of stakeholders and a myriad of rebates, discounts, fees, and other payments. In recent years, renewed focus on prescription medicine spending has triggered calls for greater visibility into the distribution and payment process. Against this backdrop, the market has experienced enhanced competition, resulting in higher rebates from pharmaceutical manufacturers to pharmacy benefit managers (PBMs) and payers. The goal of this paper is to bring greater clarity to the drug distribution and payment processes and estimate the share of total prescription medicine spending realized by pharmaceutical manufacturers and other stakeholders in the supply chain.

We first look at total gross drug expenditures, defined as the sum of all payments for retail and nonretail brand and generic medicines made by patients and their health plans at the point of sale (e.g., pharmacy, hospital outpatient department) prior to any payments provided by pharmaceutical manufacturers. We then take a closer look at brand medicine spending at the point of sale to determine the share of spending received by stakeholders in the supply chain.

The analysis makes it possible to measure prescription drug spending by consumers, health plans, government payers, and employers, and the portion thereof realized by manufacturer and nonmanufacturer stakeholders. Key findings include:

• Brand manufacturers retain just 37 percent of total spending on all prescription medicines (brand and generic medicines).
• For brand medicines, manufacturers retain just half (49.5 percent) of total spending.
• The share of total brand spending retained by manufacturers fell by more than 17 percentage points from 2013 to 2020.
• 2020 marks the first year on record where nonmanufacturer stakeholders—including PBMs, health plans, hospitals, the government, pharmacies, and others—received the majority of total spending on brand medicines.
• Payers—including insurers/plan sponsors, the government, and PBMs—received the largest portion (35 percent) of new spending on brand medicines between 2019 and 2020.
• The amount of brand spending received by pharmacies and providers participating in the 340B Drug Discount Program increased by a factor of 12 between 2013 and 2020.

This report builds on previous work conducted by BRG professionals published in 2017 and 2020. Our latest findings show that many of the same market dynamics first observed in the previous publications have continued and even intensified in recent years.

This study was funded by the Pharmaceutical Research and Manufacturers of America.