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Specialty pharmacy, explained

February 22, 2018

    Specialty pharmacy continues to be a hot topic for health system leaders. To help you get up to speed, I've provided answers to some of your most frequently asked questions.

    Let's start with the basics. What is specialty pharmacy?

    Specialty pharmacy is a loosely defined term. Generally speaking, specialty drugs are expensive, outpatient drugs that treat rare and complex conditions, such as HIV, autoimmune diseases, and organ transplant patients. They often require special handling, such as refrigeration, and patients frequently need additional support (e.g. prior authorization, financial assistance, education) to access their medications, adhere to their drug regimen, and manage side effects.

    What does the specialty pharmacy business look like for health systems?

    When health systems talk about getting into the specialty pharmacy business, they're generally referring to buying and selling patient-administered outpatient drugs that are covered under patients' pharmaceutical benefit (as opposed to the medical benefit). Many health systems start in specialty pharmacy by dispensing oral oncolytics or Hepatitis C drugs, which are often open-source and so don't require specialty pharmacy accreditation to buy and dispense. Others would argue that those models don't meet the bar for specialty pharmacy, but that instead true specialty pharmacies are accredited by one or more agencies and can access the full-array of specialty drugs, including limited-distribution drugs.

    Why is specialty pharmacy a hot topic right now?

    Specialty pharmacy gets a lot of attention because of the drugs' high prices. Although pharmacies typically only mark-up drug prices by a few percentage points, the profits can be significant because the drug acquisition costs are so high.

    Specialty drugs account for a large and growing portion of the drug development pipeline—up to 50% by some estimates—and have helped to make pharmaceutical costs the fastest growing driver of health care spending. Consequently, they are an area of growing concern for insurers, employers, and providers as risk for the total costs of their patients' care.

    In a fee-for-service environment, specialty pharmacy has the potential to be an important new revenue stream for health systems, which has attracted many organizations.

    How many health systems have a specialty pharmacy?

    According to the American Society of Health-System Pharmacists' 2016 national survey of pharmacy practice, 8.7% of hospitals have a specialty pharmacy operation. Not surprisingly, larger hospitals are more likely than smaller ones to be in the specialty pharmacy business.

    Based on an analysis from Pembroke Consulting, there are now more than 2,500 accredited specialty pharmacies, and health systems are the fastest growing segment. Anecdotally, the two primary specialty pharmacy accreditors have a backlog of applications.

    How is the specialty pharmacy business evolving?

    A few years ago, many speculated that health system entry into specialty pharmacy would begin to slow. The rationale was that only large health systems had the scale to make the investment worthwhile and that as providers took on more risk for patient care, the business would become less attractive. In fact, as noted above, it appears that the number of new health systems entrants continues to grow each year.

    One reason is that the transition from fee-for-service to risk-based payments has been slower than many had previously thought. Another reason is that health systems increasingly believe that integrating pharmacy services in a population health environment confers an advantage and positions them to compete, not only with third party specialty pharmacies, but also with pharmacy benefits managers (PBMs).

    How can health systems compete with established specialty pharmacies?

    The specialty pharmacy business is dominated by a handful of large players, including CVS Health, Walgreens Specialty's Pharmacy, and Accredo (ExpressScripts). While health systems will never be able to compete with them on scale, they do have a couple of advantages.

    • Access to patients' medical records and care team. Unlike a third-party specialty pharmacy, a health system-owned specialty pharmacy can more easily gain access to the patients' medical records and care team, thus providing increased care continuity and better service for patients and prescribers. This is a major advantage for acutely ill patients whose medications or dosing may need to be changed on a week by week basis. It also has the potential to help increase patient adherence.
    • Access to patient data. Drug manufacturers are eager for data on utilization of their specialty drugs and patient outcomes, and health systems have the potential to collect more data than third-party specialty pharmacies. Thus there is a potential for partnership.

    How can I learn more?

    Read the Pharmacy Executive Forum's briefing, "Health System Specialty Pharmacy." Later this year, we'll release more research on models for health system entry into the specialty pharmacy business. If you have questions you'd like us to address in the research, please email me.

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