1.2 Role and Functions of Wholesalers
Drug wholesalers serve as middlemen between drug manufacturers and prescription drug dispensers (i.e., retail outlets and institutions). Wholesalers provide a cost-effective means for the purchase, delivery, and sale of prescription drugs. They improve purchasing economies and lower manufacturer costs by reducing the number of small volume sales by drug manufacturers. They also relieve retailers and institutions from the burden of dealing with each individual manufacturer for drug purchases.
Typically, major wholesalers have sophisticated ordering systems that allow customers to place and confirm orders electronically and to determine the availability and prices of wholesalers' stock. Wholesalers' inventory management systems help customers minimize carrying costs while maintaining adequate supplies to meet patients' needs. In most cases, wholesalers can also provide products within 24 hours. In addition to the delivery of drugs, wholesalers also provide a broad range of value-added services to pharmaceutical manufacturers, dispensers, and other customers, such as pharmacy benefit management companies (PBMs), clinical research organizations (CROs), group purchasing organizations (GPOs), and integrated delivery networks (IDNs). The major supplemental services offered by wholesalers include the following:
- Private label/Control label programs- Number of wholesalers offer packaging and labeling operations in accordance with current Good Manufacturing Practices (CGMPs). The services offered typically include package configuration and product label design, filling and capping, labeling, and printing of bar coded product identification stickers.
- Voluntary and/or co-op advertising programs -The cooperative advertising program is one in which the wholesaler provides marketing materials (i.e., store displays, flyers, etc.) to and reimburses the retail pharmacy for part or all of the retail pharmacy's advertising expenditures on selected products purchased from the wholesaler.
- Special handling services for vaccines, frozen products, and orphan drugs.
- Generic source programs - The program enables a wholesaler to combine the purchase volumes of its customers and negotiate prices with generic manufacturers. This results in competitive pricing of generic pharmaceuticals for the customers of the wholesaler.
- Pharmacy computer systems - The pharmacy computer system facilitates the processing of prescriptions, drug interactions monitoring and claims processing.
- Third-party claims processing - The claims processing system, which is integrated into the pharmacy computer system, facilitates real-time review and adjudication of prescriptions by third-party payers (i.e., health insurance companies). The system allows the pharmacist to establish patient eligibility, perform prospective drug utilization review (DUR), and notify the patient of any formulary requirements or prior authorization restrictions.
- Retail-zone pricing systemsThe products are delivered to the retail pharmacy with price labels already affixed to the individual containers so that the products can be immediately shelved.
- Point-of-sale (POS) systems - The information technology (IT) system allows pharmacies to manage their inventory and ensure drug pricing accuracy. Typically, the POS systems feature bar code scanning and electronic credit card processing capabilities, which promote faster checkout at the cash register. The system also tracks product movement, identifying best and worst sellers, and facilitates better utilization of product shelf space. The system can generate a multitude of customized business management reports, including hourly product sales, monthly profit trends, and various cashier activities.
Table 1-2 describes the percentage of wholesalers providing each common type of value-added service discussed above.
Despite the broad range of services available from a full-line wholesaler, most dispensing customers of wholesalers use both a primary, usually a major full-line wholesaler and a backup wholesaler. The backup wholesaler provides products when the primary wholesaler cannot fill the order (U.S. District Court for the District of Columbia, 1998).