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U.S. Department of Health and Human Services

Regulatory Information

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1.2 Role and Functions of Wholesalers

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Previous Section: 1.1 Regulatory Framework for the Distribution of Prescription Drugs

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.

 

 Table 1-1
State Wholesale Distributor Licensure Requirements, Renewal Schedules,
And the Number of In-State and Out-of-State Wholesale Distributor Licenses Issued by State
State Does State License
Out-of-State Wholesalers?
License Renewal Schedule Number of
Wholesale Licenses
      In-State Out-of-State Total
Alabama <Yes 1 year NA NA 745
Alaska No 2 years 9 147 156
Arizona No[a] 2 years 15 185 200[e]
Arkansas Yes 1 year NA NA 495
California Yes 1 year 427 276 703
Colorado Yes[b] 1 year NA NA 282
Connecticut Yes 1 year NA NA 362
Delaware Yes 2 years 32 444 476
District of Columbia Yes 1 year NA NA 0
Florida Yes 2 years 530 764 1,294
Georgia Yes 2 years NA NA 644
Hawaii No[c] 2 years NA NA 45
Idaho Yes 1 year NA NA 475[e]
Illinois Yes 2 years NA NA 685
Indiana Yes 2 years 192 450 642
Iowa Yes 1 year NA NA 579
Kansas Yes 1 year NA NA 526
Kentucky Yes 1 year NA NA 450
Louisiana Yes 1 year 180 606 786
Maine Yes 1 year 5 277 282
Maryland Yes 1 year NA NA 1,500[e]
Massachusetts No 1 year 0 140 140[e]
Michigan Yes 2 years NA NA 580
Minnesota Yes 1 year NA NA 352
Mississippi Yes 2 years NA NA 726
Missouri Yes 1 year NA NA 780
Montana Yes 1 year NA NA 298
Nebraska No 1 year NA NA 61
Nevada Yes 2 years 83 340 423
New Hampshire Yes 1 year 8 493 501
New Jersey No NA NA NA 1,000[e]
New Mexico Yes 1 year NA NA 482
New York No 3 years 349 0 349
North Carolina Yes 1 year 154 251 405
North Dakota Yes 1 year 6 450 456
Ohio Yes 1 year 491 599 1,090
Oklahoma Yes 1 year 34 335 369
Oregon Yes 1 year 825 325 1,150
Pennsylvania NA [d] 1 year 525 0 525
Rhode Island Yes 1 year 48 210 258
South Carolina No 1 year NA NA 419
South Dakota Yes 1 year 29 382 411
Tennessee Yes Cyclical 350 518 868
Texas Yes [d] 1 year 1,832 604 2,436[f]
Utah No 2 years 52 0 52
Vermont Yes 2 years 3 311 314
Virginia Yes 1 year 238 432 670
Washington Yes 1 year 72 301 373
West Virginia Yes 1 year NA NA 412
Wisconsin Yes 2 years 194 314 508
Wyoming Yes 1 year 50 431 481
Total NA NA 6,733 9,585 28,216[g]
Source: NABP, 1999, PDA, 2000a, and Texas Department of Health, 2001
"NA" = Not available
[a] Will begin licensing (permitting) non-resident wholesale drug distributors in the year 2000 pursuant tomethamphetamine legislation requirement.
[b] For controlled substances only.
[c] However, per Board's informal interpretation, if the out-of-state wholesaler has a vendor-managed inventorysystem within the State, a wholesale distributor license is required.
[d] Wholesalers are regulated and licensed by Department of Health.
[e] Indicates that the figure is approximate.
[f] The figure represents the number of wholesale distributor licenses that are current as of January 17, 2001 (Texas Department of Health, 2001).
[g] The figure represents the total number of licenses for wholesale operation. Multi-state wholesalers presumably hold licenses in all states where they operate and are required. The total number of licenses does not represent an estimate of the number of unique wholesalers.

 

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 systems—The 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.

 Table 1-2
Percent of Wholesalers Offering Each Type of Value-Added Service
Type of Service Percent of
Wholesalers (1998)
Private Label/Control Label Program 71%
Voluntary and/or Co-op Advertising Program 62%
Special Handling Services  
 Vaccines 100%
 Frozen Products 100%
 Orphan Drugs 35%
Generic Source Programs 84%
Pharmacy Computer Systems 34%
Third Party Claims Processing 32%
Print Universal and Other Claim
Forms
33%
 Electronic Transmission 100%
 Tape-to-tape Transmission 33%
 On-line Adjudication 92%
Connectivity (Customer-to-
customer communication)
33%
Retail Zone Pricing Systems 63%
 Rx Drugs - Branded 38%
 Rx Drugs - Generic 46%
 OTC Drugs 96%
 Health and Personal Care 96%
 General Merchandise 54%
Durable Medical Equipment/
Home Health Care
52%
Point-of-Sale (POS) Systems 34%
Source: NWDA, 1999
Notes:
[1] Based on a survey of NWDA member wholesalers.
[2] The total number of responses received is 39.

 

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).

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Next Section: 1.3 Major Categories of Wholesalers