Kaiser Report Examines Pharmaceutical Supply Chain

The pharmaceutical supply chain involves multiple organizations playing sometimes overlapping roles in product distribution and contracting, but drugmakers clearly have the most influence in establishing prices, according to a new report that explains the multistep path a drug takes from manufacturer to patient.

The complexity of the system can result in considerable price variability for the same product, says the report prepared by Health Strategies Consultancy for the Kaiser Family Foundation. "Increased understanding of these issues on the part of policymakers should assist in making rational policy decisions for the Medicare and Medicaid programs," the report says.

Drugmakers play the most important role in establishing prices, the foundation says. A relatively few, large multinational firms comprise the bulk of the brand industry, according to the report. Ten firms accounted for 60 percent of total U.S. sales in 2004. Manufacturers determine initial prices through a process of assessing expected demand, future competition and projected marketing costs. The firms are then able to establish the wholesale acquisition cost (WAC), which is the baseline price at which.