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With drug manufacturers being hit with new fees from distributors, providers and GPOs face new pricing pressures
In July, William Larkin got a letter from a large generic-drug manufacturer based in Chicago alerting him that because of increased costs drug distributors are assessing drug manufacturers, those costs would be passed on to New York hospitals in the form of a surcharge. Larkin, senior vice president of pharmacy at GNYHA Ventures, the for-profit subsidiary of the Greater New York Hospital Association, markets and manages hospital alliance Premier's pharmaceutical contracts for more than 100 New York hospitals. Those hospitals buy $1 billion in drugs annually through Premier contracts, 95% of which flow through drug distributors, Larkin said. As a result even 1% or 2% increases in drug acquisition costs translate into millions of dollars in added expenses.
Larkin declined to name the manufacturer but said he responded in no uncertain terms that although he was sorry that the company's costs had risen, GNYHA Ventures was going to hold both the manufacturer and the distributors to the terms of their current contracts. When the contracts expired, Larkin said, he trusted those costs could be recouped "in a fair and equitable manner subject to competitive market forces."
Larkin's response forestalled at least for the moment what appears to be the inevitable. The middlemen known as pharmaceutical distributors are quietly reforming the way they earn their keep. The transformation threatens to wallop the beleaguered hospital industry while challenging the negotiating prowess of the group purchasing industry at a time when it is furiously working to prove its viability as it faces the risk of legislative oversight (see related story, p. 10).
"There is a major change in how the wholesale (drug) industry finances itself, and I think the impact will eventually come back and be felt in some way by providers in increased cost or lack of product. Not today or tomorrow, but eventually," said Larry Dooley, vice president of contract and program services for Novation, the joint GPO of VHA and University HealthSystem Consortium.
The big three drug distributors-McKesson, San Francisco; Cardinal Health, Dublin, Ohio; and AmerisourceBergen Corp., Valley Forge, Pa.-are independently moving in the same general direction away from the socalled "forward-buying" revenue model that has historically...