Daily Briefing

In-house specialty pharmacies are booming. But can they survive?

The in-house pharmacy opportunity

In recent years, most of the new treatments approved by FDA have been classified as specialty drugs, which are high-cost treatments used for complex conditions. Since early 2021, FDA has approved nearly 80 specialty drugs.

Meanwhile, health systems have started adding in-house specialty pharmacy operations or maintaining existing ones to increase revenue and pass potential cost savings to patients and providers. According to Hudson, many health systems "view the initial financial outlay and other challenges as a long-term investment."

"It really enables the health system to take that patient, as they present with initial diagnosis or pursuant to an acute care visit on the inpatient side, and ensure that these drugs that are very high-touch, high-cost, high-risk medications are being handled in a very seamless way with a team that is all working together," said David Chen, AVP for pharmacy leadership and planning at the American Society of Health-System Pharmacists (ASHP).

According to an ASHP survey, roughly 26% of hospitals were operating a specialty pharmacy in 2019—a significant increase from 8% in 2015.

Challenges with in-house pharmacy services

Experts agree that establishing an in-house specialty pharmacy is often expensive and challenging.

Before they can gain full access to some drug, health systems must gather data to demonstrate better outcomes to pharmaceutical companies, which can take at least two years, McCluskey said. In addition, insurance companies require new specialty pharmacies to become accredited before they will work with them, Chamberlin added.

"Practical barriers loom to entry -- such as ensuring enough storage space and equipment exists to keep drugs at the proper temperature," Hudson writes. "Then there are the industry politics."

Health systems often do not have access to certain drugs under limited distribution, which means that the manufacturer has restricted access to select pharmacies. "Pharmacy benefit managers [PBMs] often have their own specialty pharmacies, steering that patient revenue toward themselves rather than to an outside pharmacy," Hudson writes.

Hospital organizations have denounced white bagging—an agreement payers and pharmacies make to send drugs directly to care sites—citing compromised hospital safety checks and delayed patient care. "Payers and PBMs argue this distribution model can be more cost-effective, potentially passing on savings to patients," Hudson notes.

"There is high competition in the specialty space," McCluskey said. "Ultimately, when you decide that it's something you either want to do or need to do, you're going to be jumping into a space where there are multiple rules and barriers in order to be successful." (Hudson, Modern Healthcare, 10/31)

Advisory Board's take

Specialty pharmacy is often seen as a win/win for health systems and patients. But can it last?

By Chloe Bakst and Gina Lohr

For many health systems, investment in specialty pharmacy can generate positive patient outcomes alongside substantial revenues. We've seen tremendous growth of health system owned specialty pharmacies (HSSPs) across the decade. In fact, Advisory Board wrote about the movement towards HSSPs in 2016, and has since published a library of resources to support pharmacy leaders as they start and grow their specialty pharmacy.

Still, health systems are grappling with how to transition their specialty pharmacy from a strategic investment to a sustainable, mature business. A lot of this pressure can be traced back to three key challenges.

1. Anticipating the future of 340B savings

HSSPs invest substantial resources into patient care, which helps them garner high patient satisfaction rates and, in some cases, superior clinical outcomes. However, most HSSP leaders say that these levels of care would not be possible without the benefit of 340B savings. Health system leaders are wrestling with whether to continue investing in robust staffing to support growth and superior outcomes, or to experiment with leaner staffing models in anticipation of changes in the 340B program.

Health systems can be reassured by the fact that 340B is unlikely to completely disappear. However, they must monitor key issues that may influence their ability to access 340B savings in the future.

Pharmaceutical manufacturers are increasing barriers for health systems to access 340B discounts, such as with the ongoing 340B contract pharmacy debate.

States like New York are making moves to shrink their participation in the 340B program through requiring Medicaid patients to purchase their medication through the state.

Some health plans are requiring pharmacies within 340B covered entities to pass through 340B savings to the health plan instead of retaining it within the covered entity.

2. Managing access to and complexity in the pipeline of specialty drugs

The specialty pharmacy market is poised for growth, largely driven by new-to-market drugs. On the surface, this growth could be a win for HSSPs: drugs with bigger margins, treatments for patients who may not have had such options previously, and improvement in the overall quality of care. However, these new drugs are also introducing new complexities.

Some of the specialty drugs with the highest spend are about to lose patent protection, opening them up to biosimilar competition. At least six biosimilars for Humira are anticipated to enter the market next year and biosimilars for Stelara, Prolia, and other top specialty drugs are following close behind.

Manufacturers are creating new versions of drugs that were once administered by providers but can now be self-administered. This also may create new opportunities for HSSPs as drugs move out of the infusion center and into the specialty pharmacy.

Many of the new-to-market drugs can only be dispensed by a limited number of specialty pharmacies that demonstrate their ability to provide additional patient education, monitoring, and other protocols. Competition to dispense these drugs is fierce.

3. Demonstrating and communicating value

Successful HSSPs are finding that the ability to demonstrate outcomes and communicate the specialty pharmacy's value is becoming increasingly critical to access both limited distribution drugs and to be included in health plan pharmacy networks. Emerging value-based care models may also increase the demand for specialty pharmacy outcomes data, including the impact on total cost of care. However, challenges remain to effectively collecting and analyzing data related to patient outcomes.

Tracking outcomes data is time-intensive and laborious, and many HSSPs don't have the staff expertise or bandwidth to manage it at a population level.

Pharmaceutical manufacturers may be uncertain of how to interpret or leverage outcomes data when evaluating potential LDD partners.

Six years ago, Advisory Board began writing about specialty pharmacy. Since then, we've seen massive growth in HSSPs across the country. We anticipate that the next six years will be full of many more changes in this rapidly evolving space. We continue to ask: what will specialty pharmacy look like in the future? One thing is clear. HSSPs will need to adapt to market changes and think beyond the initial investment to meet future challenges head on.

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