Connecting Patients
With Specialty Products
Part 2: The future of specialty drug distribution
Previously, this series described distribution channels through which
specialty drugs move to patients. This installment discusses changes
and challenges that lie ahead, especially at the dispensing end.
BY JACK MCCAIN
B
y 2018, 7 of the 10 topselling drugs in the United
States are expected to be
specialty pharmaceuticals,
compared with 3 in 10 today. Costs
associated with this shift will be
tempered by plummeting sales of
popular brand-name drugs owing to
the emergence of generic substitutes.
In fact, aggregate U.S. spending for
the top 10 drugs in 2018 could be
lower (in constant dollars) than it is
for the top 10 sellers today.
With that, we’ll soon need a new
definition of blockbuster, says Adam
J. Fein, PhD, president of Pembroke
Consulting, in Philadelphia.
The change may forever alter
the way prescription drugs are
distributed and dispensed. Today,
distribution channels rely heavily
on the dominance of brand-name
drug manufacturers, though specialty pharmaceuticals have begun
to force an evolution of that system.
Specialty drugs are shaking up retail
pharmacy; their complexity challenges specialty pharmacies (SPs) to
sharpen support services; and their
cost gives new importance to the
pharmacy benefit manager (PBM).
Getting drugs to patients
The basic way distribution channels affect payers’ costs is that the
fees collected from manufacturers by
wholesalers, specialty distributors,
and large national SPs — the three
main players on this stage — get
wrapped into the price of the drugs.
“There’s nothing a health plan can
do about that,” says Ron Krawczyk,
managing partner of Chesterfield,
Mo.-based Blue Fin Group, a lifesciences management and technology consultancy. Wholesalers and
specialty distributors frequently ship
products to physicians, small SPs,
and retail pharmacies for dispensing,
placing the flow of products through
these channels largely beyond the
sphere of payer influence.
Health plans have more opportunity to manage distribution channels
to their advantage by working with
the large SPs. “One of the services
SPs advertise is saving money for
payers,” Krawczyk notes, “so health
plans will partner with an SP and
negotiate the services it will provide. In turn, the SP will negotiate
with manufacturers for price and
services.” Such services may include
compliance programs and diseasespecific patient education.
In a 2011 survey of medical and
pharmacy directors at 102 health
plans representing 122 million
lives, 81 percent of the plans said
they required members to use the
services of at least one SP in their
specialty pharmacy networks (EMD
Serono 2012). About half the commercial plans mandated use of an
SP for about half a dozen therapeutic categories. Medicare Advantage
The move by legacy retail pharmacies
into specialty pharmaceuticals reflects
the future of pharmacy, says Adam
J. Fein, PhD, president of Pembroke
Consulting, in Philadelphia.
prescription drug plans mandated
SP use in these categories to a lesser
extent (Figure 1, page 14); plans
without mandates allowed members
to obtain self-administered specialty
drugs through a retail or mail-order
pharmacy or on their own through
an SP.
Fein sees good times ahead for
independent SPs. He points to 10
such enterprises on Inc.’s 2011 list
of the fastest-growing private U.S.
companies — all but one has been
started since 1996. Fein calculates
the average 3-year growth rate for
this group at 208 percent. The oldest of this group, Diplomat Specialty
Pharmacy, founded in 1975, has
grown large enough to earn a slice
of the SP pie (Figure 2, page 15).
Community retail pharmacists
FALL 2012 · BIOTECHNOLOGY HEALTHCARE 13
Specialty Distribution Models
are anxiously watching as the influx
of inexpensive generics trim their
revenues. “Within 5 years, generics
will account for 85 to 90 percent of
retail dispensing,” says Fein. “Pharmacies will sell them like over-thecounter drugs at lower profits. If you
want to stay involved in pharmacy,
you will need to get involved in specialty pharmaceuticals.”
But, says Fein, most retail pharmacies aren’t well suited to deal
with issues associated with specialty
drugs, such as special handling —
a “must have” service in the eyes
of most payers. A more successful
strategy, he says, would be to focus
on disease areas, such as hepatitis
C or HIV, where fewer handling
concerns translate to fewer manufacturer restrictions on distribution
channels — thus giving pharmacies
easier access to specialty products.
Small retailers taking this approach
tend to focus on a single disease area
and market their expertise to physicians in that area.
That opens tremendous potential
for specialty pharmacy. Krawczyk
says that at a recent large SP conference, attendees were bullish about
the future of SPs, particularly because of retailers’ interest. “Retail
pharmacies are trying to recreate
themselves as SPs because of their
loss in brands,” says Krawczyk.
Chain pharmacies, in particular, are
chasing the action — as CVS has
done so well since merging with
Caremark and as Walgreens is now
doing (see page 16).
If retailers are interested in adding SP capabilities, wholesalers and
specialty distributors are interested
in helping them for one simple reason — they want to hold on to their
customer base. “It’s in the wholesalers’ interest to find a solution for
retailers who want to become SPs,”
says Krawczyk. “Otherwise, their
business will decline as well.”
Bye-bye to buy-and-bill?
With oral oncolytics, the channel
matters a great deal to both payers
and physicians. As oral oncolytics
replace infused products, oncologists see a growth opportunity, says
Fein, because so many oral oncolytics are in the pipeline. For their part,
payers see an opportunity to curtail
costs by distributing oral oncolytics through SPs rather than having
physicians purchase and administer them. Oncologists argue that
care is best when they provide the
Looking ahead, says Ron Krawczyk, at
Blue Fin Group, there’s plenty of room
in the distribution models for hubs to
provide services such as assistance
with adherence or coordination of
care related to innovative new drugs.
drugs and see patients when a drug
must be administered, but payers
want greater control over utilization. Fein says the evidence supports
both viewpoints. “Many market participants advocate for different positions, depending on where they sit.”
Although some medical and
pharmacy directors would like to
see buy-and-bill fade into oblivion,
Krawczyk thinks rumors of its demise are greatly exaggerated. “If buyand-bill is dead, why are McKesson
Specialty Care Solutions, Oncology
Supply, Besse Medical, and ASD [the
FIGURE 1
Commercial and Medicare Advantage plans mandating use of specialty pharmacies, by therapy category
Commercial 2010
60
51
50
54
44
47
Commercial 2011
MA-PD 2010
52
50 49
41 43
40
48
47
39
MA-PD 2011
52
47 48
43
36
47
46
36
30
20
10
0
GH disorders
Hepatitis C
MS (IM, SC)
Psoriasis
RA/CD (SC)
CD=Crohn’s disease, GH=growth hormone, IM=intramuscular, MA-PD=Medicare Advantage Prescription Drug Plan,
MS=multiple sclerosis, RA=rheumatoid arthritis, SC=subcutaneous.
Source: EMD Serono 2012
14 BIOTECHNOLOGY HEALTHCARE · FALL 2012
Specialty Distribution Models
four major specialty distributors] so
bullish on it? AmerisourceBergen’s
specialty businesses support buyand-bill, and they invest in infrastructure to support their customers in what may be greater than $18
billion in sales to physician offices.
Buy-and-bill is not going away.”
And while payers might try to diminish buy-and-bill by encouraging
use of patient-administered drugs
over office-administered medications, Krawczyk says there aren’t yet
enough self-administered alternatives for that approach to succeed.
Moreover, he says, payers that encourage patients to self-administer
may encounter stiff resistance from
physicians who have legitimate concerns about the safety of home-based
administration. For many patients,
Krawczyk says, the physician’s office
is, in fact, the ideal site of care.
Buy-and-bill conducted through
manufacturer-stipulated channels
provides one safeguard for health
plans and members: protection from
counterfeit medications. The high
prices of specialty drugs could spur
the growth of electronic methods of
tracking a product to guarantee that
the product is legitimate. If physicians acquire office-administered
products through authorized distribution channels, counterfeit drugs
should never be a problem.
Role of the PBM
Outside the supply chain, consolidation among wholesalers and PBMs
FIGURE 2
Estimated revenues from specialty drugs, by specialty pharmacy, 2011
$ in billions;
% indicates market share
All other retail &
specialty pharmacy
$15.6, 33%
CVS Caremark
$10.6, 23%
Accredo
(Medco)
$9.2, 20%
Omnicare $0.7, 1%
Diplomat Specialty
Pharmacy $0.8, 2%
BioScrip $1.1, 2%
CuraScript
(Express
Scripts)
$5.1, 11%
Walgreens $3.8, 8%
Striping indicates corporate mergers finalized in 2012.
In 2011, retail and specialty pharmacies dispensed $47 billion in specialty
pharmaceuticals, or 17% of total pharmacy revenues. The top 4 companies
accounted for 62% of revenues in this sector. Walgreens acquired some of
BioScrip’s assets in May (see page 16), and is now the third largest company
in this sector. The combined market share of Express Scripts and Medco
is likely to decline in 2012 and 2013 owing to the loss of various contracts:
Walgreens withdrew from Express Scripts’ retail pharmacy network; Medco lost
UnitedHealth’s commercial business and the contract for the Federal Employee
Program, which went to Caremark.
Source: Pembroke Consulting 2012
continues. The chief importance of
PBMs to payers is that the largest
PBMs own the largest SPs, and the
big PBMs — by virtue of their size —
are positioned to negotiate the most
favorable prices with the manufacturers of specialty products.
One of the major services PBMs
provide is to construct P&T committees, whose members recommend drugs for placement on a
plan’s formulary. The PBM’s size
matters during negotiations with
the drug manufacturers. Assuming
a drug is efficacious and safe, if the
manufacturer provides competitive
pricing and rebates, then the PBM
often will recommend that it receive
preferred formulary status. PBMs
share rebates with sponsors as a flat,
guaranteed per-script rebate or as a
percentage of rebates with or without a guaranteed minimum.
Overall, PBMs share about 80 percent of rebates with plan sponsors,
Fein says, but sponsors may contract
for up to 100 percent of rebates if
they have negotiating clout with
the PBM. Though rebates apply to
specialty products and traditional
drugs alike, specialty drugs generally do not come with substantial
rebates, he says — the exceptions
being categories with many therapeutically comparable alternatives,
such as growth hormone.
Distribution channels don’t figure
directly into formulary placement,
but they could indirectly affect formulary placement in an important
way, says Krawczyk. If a payer’s SP is
unable to fill a prescription because
of the drug’s flow through restricted
channels, the payer would be able
to provide access to the product
through another SP in the manufacturer’s distribution network. Lack of
easy access (and higher costs) could
lead the plan’s SP partner to recommend placing this drug on a higher
tier, such as a fourth tier, or on a
specialty tier.
FALL 2012 · BIOTECHNOLOGY HEALTHCARE 15
Specialty Distribution Models
‘If you’re in pharmacy today, you’re in specialty pharmaceuticals’
W
algreens, the nation’s largest drugstore
chain, is an example of a company
that made its name in retail pharmacy,
starting with its founding in 1901, and has been
branching out to capture a substantial portion of
the specialty pharmaceuticals business.
Ray Tancredi, RPh, MBA, now in his fourth year
as Walgreens’ vice president for specialty pharmacy development, says Walgreens embraced
specialty products for the same reason the rest
of the industry did: A substantial percentage of
drugs in the pipeline are specialty pharmaceuticals. “If you’re in pharmacy today, you’re in
specialty pharmaceuticals,” he says.
Or, at least, you should be, adds Ron Krawczyk,
managing partner of Blue Fin Group, a life sciences consultancy. “It is good to be Walgreens.”
Walgreens began expanding into specialty
pharmacy services in 2005. Its largest acquisition was the 2007 $850 million purchase of
Option Care, which gave Walgreens a network
of 100 specialty pharmacies and home-infusion
businesses in 34 states, plus specialty pharmacy contracts with more than 400 MCOs. The
company’s diverse specialty pharmaceutical
distribution channels include workplace health
centers and outpatient pharmacies within health
systems. And last May, Walgreens acquired some
A bright future
Looking to the future, Krawczyk
sees abundant opportunities arising
from the anticipated onslaught of
new specialty pharmaceuticals. He
says there’s plenty of room in the distribution models for hubs to provide
basic services — attracting patients
to therapy, initiating therapy, and
keeping patients on therapy. Despite
the notion that cancer patients are
highly motivated to stay on therapy,
poor adherence is a major problem
— rates have been documented as
low as 16 percent (Ruddy 2009).
Beyond adherence support, Krawczyk envisions the development of
important new services as innovative specialty products come to market. Should any of the anti-amyloid
BioScrip assets, including centralized specialty
and mail-service businesses and 30 community
specialty pharmacies in 16 states and the District
of Columbia.
That positions Walgreens to get specialty drugs
to patients via every channel available. The company says its multichannel approach sets it apart
from competitors that tend to rely on central fill.1
Initially, specialty pharmaceuticals meant injectables, but now the industry is leaning toward oral
drugs, Tancredi says. That trend has facilitated
Walgreens’ entry into the specialty arena because
it reduces the need for special storage facilities.
To solidify its position in specialty products,
Tancredi says, Walgreens has developed the
“specialty-at-retail” approach by which the
company’s Specialty Pharmacy Resource Center
enables pharmacists at most of its retail outlets to
handle specialty drugs. The resource center coordinates prior authorization activities and handles
other issues, thus lightening the workload of the
local pharmacist. Limited-access products often
must be acquired via central fill, but from the
patient’s perspective, says Tancredi, the process is
seamless.
1
Central fill is a pharmacy that fills prescriptions from a
central location and then delivers them directly to the
consumer’s home. Mail pharmacies are central fill.
agents in development gain U.S.
Food and Drug Administration approval, for instance, hubs could offer
services to coordinate the care of
Alzheimer’s patients prior to therapy
initiation, and dedicated neurology
infusion suites could emerge for
intravenous products.
Specialty pharmaceuticals are
rapidly gaining market share, and
continued growth of the specialty
sector is expected to the extent that
it will dominate U.S. drug sales.
Manufacturers exert ultimate
control over the design of distribution channels, but health plans
and employers have opportunities
to seek contracts with PBMs that
work to the benefit of members and
employees who use specialty drugs.
16 BIOTECHNOLOGY HEALTHCARE · FALL 2012
In the future, patients are likely to
gain convenience in acquiring selfadministered specialty pharmaceuticals along with a broad array of services from PBMs and pharmacists.
References
EMD Serono Specialty Digest. 8th ed.
Rockland, MA: EMD Serono; 2012.
Fein AJ. 2011–12 Economic report on
retail and specialty pharmacies.
Philadelphia, PA: Pembroke Consulting; 2012.
Ruddy K, Mayer E, Partridge A. Patient
adherence and persistence with oral
anticancer treatment. CA Cancer J
Clin. 2009;59:56–66.
Jack McCain is an independent medical writer who resides in Durham,
Conn. He can be reached at
editor@biotechnologyhealthcare.com.