Walmart provides a nominal acquisition cost via McKesson and within the pharmacy software. I am inclined to believe the numbers are close to the true value although the true cost may not incorporate rebates and such, e.g., like $8 per IIV vaccine
Except McKesson doesn't even know what McKesson's real acquisition cost is.
http://www.nytimes.com/2005/01/13/b...es-to-pay-960-million-in-fraud-suit.html?_r=0
Drug prices are one of the few industries that allow for Hollywood accounting techniques to be a usual and customary form of the business. Walmart doesn't really know what they are paying, their distributor (McK, CAH, or ABC) doesn't really know what they are paying (unless you are one of a select few in the accounting department and that is specifically sectionalized), and industry through direct to retail rebates and exchange contracts with the distributors only know what their nominal revenue is (simply put, no one in retail or distribution ever buys a particular drug from a particular PhRMA company unless it is a scheduled med subject to the DEA quota or are willing to pay for the privilege of exactly determining what you buy, what you buy is a basket of production between such and such a date allowing leeway on pricing on the individual drug items by the purchaser based on what lots the manufacturer is running at the time and planned for the future.
The analogy I use in class to help students understand basic manufacturer contracts is buying from the manufacturer is like buying mystery boxes (Humble Bundles) where you know you buy a month at a time, but you don't necessarily know what comes in the box and you sell the individual items (game keys) on the Internet closer to their individual sales value. Some months, you get this huge surplus of one thing that the manufacturer wants out of their inventory, some months you are super starved for the same one little item as that lot run is now complete. That's where the distributors come in, to manage that sort of buy in a massive scale so that those mystery boxes average out better. Only companies with really sophisticated supply-chain management systems and don't have a stockholder problem with holding a lot of excess inventory at times (which sucks for your turns and sticks the company with the inventory valuation problem) should attempt to buy direct from the manufacturer in the present day.
In the end, the math averages out, but there are always information gaps that companies exploit. At the margins that distribution makes at a macro level, that information asymmetry is the only competitive advantage that the distributor has over direct to retail sales.
For the non-Hollywood accounting at retail, prices and CIGS are determined by the book value, but what does an individual drug really, really cost? I wish I could tell you, but no one really buys that way, and even if I did, it doesn't matter so long as my overall revenue minus cost is profitable in the end.
So you're both right, but not for the reasons that both of you attribute your claim to. This drug business is a lot dirtier than CPT maximization.
