After Heparin
Protecting Consumers from the Risks of Substandard and Counterfeit Drugs

Overview

The risk of stolen or counterfeit products reaching patients through the drug distribution system is small, but real. Pharmaceuticals move from manufacturer to patient through a variety of pathways. Most commonly, the product moves from a manufacturer to a major wholesaler to a pharmacy or hospital, which dispenses the drug to a patient. Manufacturers, wholesalers and pharmacies have taken steps to reduce the opportunity for drug diversion in recent years, but risks persist. Federal and state regulations are inconsistent, and no national system for tracking or validating drugs exists.

Numerous entities are involved in drug distribution, and the routes to market can be circuitous. Drugs can be bought and sold by wholesalers and their subsidiaries that move whole or partial lots, repackage or relabel product and/or handle importation. Drugs may be traded between distributors, and may travel back from distributors and pharmacies in local markets to major wholesalers through sales or returns before ultimately reaching patients. Distributors may also provide logistics services to manufacturers without actually purchasing lots of a drug; that is, the physical movement of drugs does not always conform to transfers of ownership, further complicating legitimate drug tracking.

In the United States, most drugs sold by manufacturers move initially through the three large national wholesalers: McKesson Corp., Cardinal Health and AmerisourceBergen, which collectively generated 85 percent of revenues in the drug wholesale market in 2010.⁴⁵⁶ These major wholesalers, as well as large regional wholesalers, sell to national pharmacy chains, hospitals or smaller "secondary" wholesalers. Secondary wholesalers often supply small hospitals, clinics and pharmacies that are unable to purchase pharmaceuticals in the large quantities sold by national and regional wholesalers. Similarly, small wholesalers may purchase product from regional or national distributors because they are unable to meet minimum requirements for purchase directly from the manufacturer. There were an estimated 7,000 secondary wholesalers in the United States in 2003,457 down to fewer than 1,803 by 2007. ^458,a Wholesale trade of pharmaceuticals is not always unidirectional. For example, wholesalers sell to other wholesalers discounted products that they acquire from manufacturer clearances or pharmacy or wholesaler over-stocks.4⁵⁹ In some cases, products travel from small wholesalers back into the distribution chain through national or regional wholesalers. In 2001, the National Wholesale Druggists Association—the trade association for major distributors (now called the Healthcare Distribution Management Association, or HDMA)—reported to the FDA that up to 4 percent of the products handled by its members came from sources other than manufacturers.⁴⁶⁰ While it is only a small proportion of total sales, this represents a substantial absolute volume. According to HDMA, to its knowledge, the practice of a large wholesaler purchasing from secondary wholesalers no longer occurs.⁴⁶¹

^{* The trend is principally attributable to a shift in the business model away from wholesaler arbitrage of rising drug prices, a practice that accounted for up to 40 percent of wholesaler margin. The 2007 U.S. Census reported 1,803 U.S. wholesalers of prescription drugs, which would also include national and regional wholesalers.}

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