Access & Coverage

How Does Drug Distribution and Payment Work in the United States?

Before we can go to the pharmacy to pick up a prescription, the medicine must make its way from where it is produced, at the drug manufacturer.

The first step involves Wholesalers that help distribute drugs. The business model for wholesalers relies on the ability to purchase large orders of drug products from manufacturers. They have a warehouse and distribution center, and then handle the shipments of the products directly to the pharmacy. Then, at the Pharmacy, drugs are prepared and dispensed to the patients. Once a patient receives a medication, the drug distribution system is complete. The funding flow, however, is not. This is where the cycle becomes complicated.

Funding Cycle

Health insurance companies utilize pharmacy benefit managers (PBMs) to manage their pharmacy benefits. This includes developing the formulary, which is a list of drugs that the insurance company will cover, and negotiating prices with drug companies.

• You may be familiar with how rebates work with other consumer goods. If you purchase a brand a contact lens, you may be able to mail in your receipt and receive money back, which is called a rebate.
• But when it comes to prescription drugs, rebate work a little differently. Drug companies set the price.
• PBMs act as an intermediary between pharmaceutical companies and insurance companies and are a critical decision maker in determining when and how patients access their medicines. Pharmaceutical companies negotiate with PBMs to ensure that a medicine “stays on formulary” – an approved list of medicines that will be covered by a patient’s insurance company for a specific illness in a cost-effective way. To help patients access their medicines by keeping them on formulary, pharmaceutical companies negotiate rebates with the PBMs.

Formulary is a list of medications available to enrollees on insurance plans. When used appropriately, formularies can help manage drug costs imposed on the insurance policy. However, for drugs that are not on formulary, patients must pay a larger percentage of the cost of the drug, sometimes 100%. Formularies vary between drug plans and differ in the breadth of drugs covered and costs of co-pay and premiums. Most formularies cover at least one drug in each drug class, and encourage generic substitution (also known as a preferred drug list). The list of covered drug is called a formulary.

Private and public payers alike or insurers as we’ve labeled here, have powerful levers to control drug expenses. Each of these stakeholders have funds that flow in from drug distribution, and in order to assess the challenges we face with drug pricing and coverage, we need to ensure they are all in the conversations.

Coverage Decisions

Patient advocates have a powerful role in coverage and access decisions.

State Medicaid DUR Boards
When new medications become available, the therapy must go through a review by the state in order to decide where the therapy is placed on the state Medicaid formulary. These reviews take place by Drug Utilization Review Boards (DUR Boards) or Pharmacy and Therapeutics (P&T) Committees. These boards and committees must include certain treatments on the formulary, like treatments approved for rare diseases.

Power of the Patient Voice
These meetings typically involve state Medicaid officials and medical providers. The patient voice is often missing. A patient perspective is the most important piece of coverage decision, because only a patient truly understands how their disease impacts their day-to-day life.

How Can Patient Advocates Get Involved

Each DUR Board meeting has space for patient testimony – in either oral or written form.
Patient advocates can do the following:

• Write Letters to the DUR Board and/or P&T Committee prior to the meeting.
• Attend meetings and speak if allowed
• Speak up, share patient stories in other ways, e.g., write op-eds
• Talk to state legislators or the Governor about DUR Board procedures if patients are not allowed to attend.

Learn about how to advocate locally using our State-by-State Advocacy Resource Map: