thought leadership
White paper: Payment chain vs. supply chain–how they differ and why it matters
By Monica Pham, Maggie Kruger, Ethan Gunnlaugsson | November 6, 2026
As policymakers pursue reforms intended to improve prescription drug affordability and access for patients, this white paper clarifies the distinctions between the payment and supply chains, and the implications for oversight.
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Patient access to prescription pharmaceuticals relies on two interconnected but separate systems: (1) the supply chain, or the physical movement of medicines from manufacturers to pharmacies, providers, and other sites of care; and (2) the payment chain, which governs the financial and benefit arrangements that shape the coverage and reimbursement terms under which patient receive drugs through an insurance benefit.
Pharmaceutical distributors operate within the supply chain. They take physical custody and title to medicines; manage high volume inventory; oversee the logistics, storage, transportation, and delivery of medications; and assume financial, operational, and product-integrity risks. Pharmacy benefit managers (PBMs) operate within the payment chain. They administer pharmacy benefits and related service functions such as formulary administration, pharmacy network development, and manufacturer rebate negotiation. Although these entities are sometimes discussed together, their functions, incentives, responsibilities, and regulatory obligations differ.
These distinctions are important to consider as policymakers continue to pursue reforms intended to improve prescription drug affordability and access for patients. Policies are more likely to achieve their intended objectives when they are directed at the entities that control the relevant function and assume the associated risks. Policies addressing specific functions within the payment chain or supply chain may therefore not produce the same effects when applied to the other. Policymakers may avoid unintended consequences by understanding the fundamental difference between the payment chain and supply chain before applying policy changes that may not apply to each unique system.
Understanding the distinct roles, functions, and risks of payment and supply chain entities can help policymakers align policy requirements with their intended impact while preserving the safe, secure, and reliable delivery of medicines to patients and providers.
Funding for this research was provided by the Healthcare Distribution Alliance. Avalere Health retained full editorial control.