A T A N G L E D

A TANGLED WEB

AN EXAMINATION OF THE DRUG SUPPLY AND PAYMENT CHAINS

Prepared by the Minority Staff of the U.S. Senate Committee on Finance June 2018

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A TANGLED WEB

AN EXAMINATION OF THE DRUG SUPPLY AND PAYMENT CHAINS

U.S. SENATE COMMITTEE ON FINANCE, MINORITY STAFF JUNE 2018

[THIS PAGE IS INTENTIONALLY BLANK]

TABLE OF CONTENTS

Foreword

ii

Acronyms & Figures

iii

Introduction

vi

Executive Summary

vii

Part I: Medicare Parts B and D

1

Part B

1

Part D

2

Part II: Drug Manufacturers

4

The Role of Manufacturers

4

Setting a Drug's List Price

4

Medicare's Influence on List Prices

9

Factors in Generic and Biosimilar Competition

11

Market Considerations: Specialty and Orphan Drugs

14

Key Financial Relationships

15

Part III: Wholesale Distributors

21

The Role of Distributors

21

Market Considerations

21

Key Financial Relationships

23

Part IV: Pharmacy Benefit Managers

26

The Role of PBMs

26

Factors Affecting Drug Pricing

26

Market Considerations

30

Key Financial Relationships

32

Part V: Part D Plan Sponsors

35

Role of Part D Sponsors

35

Factors Affecting Drug Pricing

35

Key Financial Relationships

38

Part VI: Pharmacies

39

The role of Pharmacies

39

Types of Pharmacies

39

Key Financial Relationships

43

Conclusion

44

Endnotes

46

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