Pharmaceutical Supply Chain Money Flow: Who Handles the Drug and Who Handles the Money?

Pharmaceutical supply chain money flow connects the manufacturer, wholesaler, pharmacy, health plan and pharmacy benefit manager through purchases, prescription payments and rebates. The drug usually moves from manufacturer to wholesaler to dispenser to patient. The money takes several routes, including payments back from the manufacturer after the prescription has been filled. If you work in distribution, contracting or reimbursement, the transaction on your screen may be only one part of what the same prescription earns elsewhere.

A pharmacy’s purchase price, its reimbursement, the manufacturer’s net proceeds and the patient’s cost share can all differ. The useful question is who received each payment, under which agreement, and how it reached the figures reported to Medicare or Medicaid.

Who Handles the Drug?

Manufacturers supply wholesalers, which supply pharmacies and healthcare providers. Retail, mail and specialty pharmacies dispense prescriptions. Physicians and hospital outpatient departments also acquire drugs to administer to patients, putting the provider into both the delivery and payment chain.

McKesson, Cencora and Cardinal Health are the three national wholesalers that recur in manufacturers’ customer disclosures. Their work includes inventory, credit, specialty distribution and delivery. AbbVie’s filing for 2025 describes distribution principally through independent wholesalers, with some sales directly to retailers, pharmacies, patients and other customers. The route depends on the product and the customer.

Buying organizations shape the purchase before the drug arrives. The fiscal 2026 filings identify McKesson’s ClarusONE venture with Walmart and Cardinal Health’s Red Oak Sourcing venture with CVS Health. Cencora’s fiscal 2025 filing describes Walgreens Boots Alliance Development negotiating generic acquisition prices on its behalf. The company negotiating the price may differ from the company delivering the product.

Group purchasing organizations also negotiate vendor contracts for providers. A hospital buyer can therefore be dealing with a manufacturer price, a group purchasing contract and a wholesaler invoice for the same medicine.

Do Pharmacy Benefit Managers Have a Role in the Prescription Drug Supply Chain?

Pharmacy benefit managers manage prescription benefits between health plans and pharmacies. They negotiate pharmacy reimbursement and manufacturer concessions, manage formularies and process claims. Their role gives them influence over which drug a plan covers and which pharmacy dispenses it.

A plan sponsor, such as an employer, buys or arranges the prescription benefit. The patient pays the required cost share when filling a prescription. The pharmacy submits the claim through the benefit’s payment system, while its purchase of the medicine remains a separate transaction with its supplier. The PBM’s pharmacy contract determines reimbursement. Its plan contract determines what it charges the plan.

Spread pricing is the difference a PBM retains when it charges the plan more for a prescription than it pays the pharmacy. The pharmacy’s acquisition cost is another number again. A plan’s claims expense and a pharmacy’s receipt can describe the same fill without showing the same amount.

Pharmacy payments can also be reduced by recoupments tied to generic or brand effective rates. Kentucky’s Medicaid PBM analysis excluded those direct and indirect remuneration fees from its measure of spread. A spread calculation can therefore leave out money taken back from the pharmacy.

Rebates Buy Access to Covered Prescriptions

Manufacturer rebates can pay for formulary access, preferred tiers, utilization terms or volume. The concession is part of the negotiation over access to insured patients.

In its analysis of Medicare Part D rebates, the Government Accountability Office found that 92.7% of categorized rebate dollars in 2021 were associated with formulary access and tier placement. That puts a concrete purpose behind the payment: a manufacturer is bargaining for a place in the benefit.

Rebates negotiated through a PBM can flow back to the plan sponsor. The amount retained by the PBM and the amount passed through depend on the arrangement. Administrative fees, payments to other companies in the same corporate family and pharmacy reimbursement sit alongside that rebate accounting. The plan’s rebate statement shows one part of the money movement.

Chargebacks and Distribution Fees Follow Other Agreements

A chargeback allows a wholesaler to recover the difference when it sells a drug at a customer’s negotiated contract price below the price on the manufacturer’s invoice. The customer purchase, the manufacturer agreement and the wholesaler’s claim connect that adjustment. This is a different transaction from the manufacturer’s rebate for formulary access.

Manufacturers also compensate distributors under distribution service agreements. McKesson’s fiscal 2026 annual report describes arrangements that pay a percentage of purchases and others that let it benefit when manufacturer prices rise and existing inventory sells at the higher price. A drug already sitting in a warehouse can become more valuable to the distributor after a price increase.

McKesson’s accounting policy generally records supplier fees and incentives connected with buying or distributing inventory as reductions in cost of sales. Looking only for a revenue line would miss how the company accounts for them.

Who Owns the Companies on Both Sides?

The corporate structures described in filings for 2025 and the Federal Trade Commission’s July 2024 report put insurers, PBMs, pharmacies and other health care businesses under shared ownership. CVS Health combines Aetna, CVS Caremark and dispensing pharmacies. The Cigna Group combines Express Scripts with specialty dispensing. UnitedHealth Group combines UnitedHealthcare, OptumRx and provider businesses.

Rebate aggregators add another contracting party. The Federal Trade Commission describes Zinc Health Services with CVS, Ascent Health Services with Cigna, Prime and Kroger, and Emisar Pharma Services with UnitedHealth. These entities negotiate manufacturer rebates and fees. They serve a different function from a hospital purchasing organization negotiating supply contracts for its members.

CVS’s filing for 2025 removes sales between its business segments before reporting consolidated revenue. The parent’s total therefore does not show every payment between the businesses it owns.

For an insider, the contracting entity and the company receiving the payment are therefore as important as the familiar brand. A rebate agreement, an affiliate’s service invoice and the parent’s financial statements answer different questions. We connect those records to establish which business received the money and how the payment was treated in the relevant government report.

Why Can the Patient Pay More While the Plan Gets a Rebate?

A patient’s deductible or coinsurance can be based on a pharmacy price before manufacturer rebates are settled with the plan. The patient pays at the counter. The concession can reach another participant later. A better net price for the plan does not automatically lower that patient’s payment.

The Association Between Drug Rebates and List Prices, a 2020 USC Schaeffer Center white paper, examined list and estimated net prices for 1,335 U.S. brand prescription drugs from 2015 through 2018. It found a positive association between increases in rebates and increases in list prices. The gap between list and net price included concessions to wholesalers and pharmacies as well as PBMs. Assigning that whole gap to one intermediary misses the other recipients.

Manufacturer assistance adds another payment. In a copay accumulator arrangement, assistance can pay for the drug without being credited toward the patient’s deductible or annual cost-sharing maximum. A maximizer can set a specialty drug’s cost share around the available annual manufacturer assistance. Those arrangements make the benefit’s treatment of the payment consequential alongside the amount the manufacturer provides.

Where the Payment Becomes a Fraud Allegation

The cases become concrete when the money can be connected to a government price report, a rebate reconciliation or a decision about which pharmacy gets a patient. The same service-fee label has appeared in different reporting systems, with different effects on public money.

Wholesaler Fees Reduced the Reported Manufacturer Price

Bristol-Myers Squibb agreed in 2021 to a $75 million settlement over allegations that it underpaid Medicaid rebates. The alleged calculation improperly deducted wholesaler service fees from average manufacturer price and excluded value from price appreciation. A pharmacist brought the whistleblower case.

Under the alleged arrangement, the treatment of the distribution agreement changed the price used to calculate what the manufacturer owed Medicaid. The wholesaler payment and the government’s rebate calculation belonged in the same examination.

A separate whistleblower complaint against Regeneron alleged that manufacturer-funded discounts reached Eylea customers through Besse Medical while being presented as the distributor’s discounts:

Here the alleged reporting effect concerned average sales price, used for Medicare Part B. Who funded the discount mattered even though another business delivered it to the customer.

Retained Rebates Became Service Fees in the Medicare Report

Rite Aid and Elixir Insurance agreed in July 2024 to pay $101 million to the United States over allegations involving Medicare Part D rebate reporting. The government alleged that retained manufacturer rebates were reported as bona fide service fees even though manufacturers had not negotiated those fees.

Part D sponsors report manufacturer rebates and other payments to the Centers for Medicare & Medicaid Services so that the government receives the benefit of price concessions. According to the allegations, Medicare lost the benefit of rebates the plan kept by calling them service fees in its reconciliation reports. The manufacturer’s agreement supplied a direct comparison with what the plan reported.

A Refill Score Decided Who Got the Next Patient

Accredo agreed to a $60 million civil settlement announced in May 2015 over its Exjade relationship with Novartis. Accredo admitted facts about a referral arrangement that rewarded the specialty pharmacy whose patients continued ordering refills.

Novartis’s scorecards measured how long patients kept refilling Exjade. Accredo admitted knowing that the scores did not exclude patients who stopped because of side effects or a physician’s instruction. The pharmacy’s next patient referral depended on a measure that still counted those patients against it.

The month after Novartis announced it would end the extra referrals for the highest-ranked pharmacy, Accredo stopped assigning nurses to make the Exjade calls. The referral allocation and the patient-call program belonged to the same commercial arrangement. Routing the prescription was itself a way to reward the pharmacy.

Where 340B Changes the Purchase

340B gives eligible providers an acquisition discount on outpatient drugs. The provider may use a contract pharmacy to dispense them and pay that pharmacy for the service. The provider’s discounted purchase, the pharmacy’s fee and the payer’s reimbursement are separate parts of the transaction.

The Government Accountability Office’s June 2018 report on contract pharmacies describes covered entities using outside pharmacies and third-party administrators to manage patient eligibility and inventory. In a replenishment model, a prescription can be dispensed from mixed inventory, classified afterward as eligible and followed by an order to replace the drug at the discounted price. The eligibility decision connects the dispensing record to the later purchase.

The program prohibits diversion to people who are not patients of the covered entity. It also prohibits duplicate discounts in which the manufacturer provides both a 340B discount and a Medicaid rebate for the same drug. Patient records, prescription claims, purchase records and the administrator’s eligibility decisions therefore have to tell a consistent story.

The statute does not require the covered entity to pass its discount to the patient. The patient can see a pharmacy charge without seeing the provider’s acquisition saving. That is another reason the receipt at the counter gives only part of the financial picture.

The Records That Connect the Chain

The key comparison is between the commercial arrangement and the amount reported or paid. We work with insiders who understand the supplier invoices, distribution contracts, chargebacks, rebate schedules, pharmacy payments, patient referrals and calculation files behind those figures. An employee who understands why a payment changed names between systems can explain something a public company total cannot.

The cases turn on different calculations: average manufacturer price feeds Medicaid rebates, while average sales price generally feeds Medicare Part B reimbursement. We connect the commercial agreement to the government calculation it affected.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know Where the Payment Went

You may see the distribution fee, rebate contract or pharmacy referral that explains where the money went. Bring that knowledge to our whistleblower experts to build your strongest pharmaceutical whistleblower case. We connect the payment chain with you, bring in pharmaceutical fraud whistleblower lawyers who know these arrangements, and stay beside you through the process.