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Short-Dated Drug Return Scheme Becomes Short-Dated

| by: Sumeet Singh, Founder & Chairman | Article Posted: July 5, 2023 |

Returns in the Drug Supply Chain 

Returns play a pivotal role in the intricate web of the pharmaceutical supply chain, posing unique challenges and considerations for stakeholders. As medicines move through various stages of distribution, including manufacturers, wholesalers, and pharmacies, the potential for returns arises due to factors such as damaged products, expired shelf life, recalls, and shifting market demands.  

Returns for Credit 

Historically, manufacturers accepted returns for credit and the practice has generally been grandfathered in, through today. Several factors contribute to why:  

1. 1. Manufacturers’ profitability used to be between 80% to 100%. 
   2. Wholesalers do not make demand, they’re just conduits. 
   3. Wholesalers, historically, do not make much profit such that they can’t afford to accept returns. 
   4. The advent of merged and outsized wholesalers forced manufacturers into complying with their terms. 

Short-Dated Drug Pricing 

At the same time, manufacturers and wholesalers also work to reduce loss from expired drugs. This results in bargain pricing for customers that buy the product – with the understanding that they can be sold to select customers that are able to immediately dispense drugs and ensure patients consume them before expiration, such as hospices and other long-term care facilities. 

Proliferation of Fraudulent Schemes 

Starting between 5 and 10 years ago, many returns companies have cropped up – and it is due to the joining of exactly these two aspects of the industry, Returns for Credit and Short-Dated Drug Pricing: enterprising companies have discovered they can purchase short-dated products at bargain prices, and then turn around and return those products at a profit. 

Combatting Fraud 

In a proactive effort to safeguard the integrity of healthcare systems and combat widespread abuse, at least one Big 3 drug distributor is stepping up their efforts to crack down on return fraud within the pharmaceutical industry this summer.  

This is due to several factors: 

1. 1. As profitability is dropping, manufacturers are being forced to push back on all loss-making aspects of their company. 
   2. DSCSA Serialization is bringing about the systems and data required to track and identify such schemes. 

Takeaway 

Independent pharmacies abusing the dynamic should be wary about clawbacks and return program participation termination starting this summer. 

Huge thanks to Sid Geller and Vicki Mangus for their insight!! 

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