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 life-sciences 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 disease-specific 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 prescription drug plans mandated SP use in these categories to a lesser extent (, 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.
Commercial and Medicare Advantage plans mandating use of specialty pharmacies, by therapy category
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.
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 (, page 15).
Estimated revenues from specialty drugs, by specialty pharmacy, 2011
Community retail pharmacists 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-the-counter 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 you’re in pharmacy today, you’re in specialty pharmaceuticals’
Walgreens, 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 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.
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.”