Drug Distributors Say Ouch

"If manufacturers can consistently maintain the same service levels with direct distribution as wholesalers, then this shift of inventory would have no apparent impact on patients, providers or pharmacies," Fein wrote. But "this assumption is highly questionable, given the current capabilities and distribution networks of most manufacturers."

Fein recommends a shift away from IMAs to the fee-for-service contracts that the industry is, in fact, rapidly adopting this year. Under the new contracts, manufacturers simply pay wholesalers a fair price for the services they offer.

Fein points to a recent deal between Eli Lilly (LLY Quote) and Cardinal Health as a "step in the right direction."

"Fee-for-service payments by manufacturers to wholesalers should be designed to reward concrete actions that lower overall supply-chain costs," he says, "not merely encourage an inventory shell game."

Still, Fein does favor the return of some speculative drug-buying. He believes the abrupt shift away from speculative buying came as a radical change that may have unintentionally driven supply-chain costs higher and increased the risk of drug shortages. Thus, he suggests controlled investment buying -- with "tight limits and strict accountability" -- as a source of secondary, more modest, wholesaler profits.

At the same time, he feels that customers should start paying their share as well. He acknowledges that drug buyers will resist paying for that which they previously received for free. So he recommends that wholesalers further expand their offerings beyond drug distribution to those value-added services -- such as on-site inventory management, pharmacy automation and technology consulting -- that have already proven to be more profitable anyway.