Who Pays For Specialty Drugs? (And Why It Matters)

My consulting assignments and speaking engagements increasingly focus on specialty pharmaceuticals—the high-cost drugs for patients who are undergoing intensive therapies for illnesses that are generally chronic, complex, relatively rare, and potentially life-threatening.

In my conversations, I’ve discovered that many people don’t fully appreciate the role of the government as a payer.

As I show below for 10 specialty drugs, Part D and Medicaid are very important payers for specialty drugs covered under a pharmacy benefit. The influence of Part D will grow because the PPACA-mandated closing of the coverage gap (donut hole) will take full effect in 2020 and give patients better coverage for specialty drugs.

Why does this matter?

• Entrepreneurial independent pharmacy owners are acquiring patients who take specialty drugs and rely on Medicare Part D or Medicaid coverage. Any Willing Provider laws require that these pharmacies be permitted into the specialty network of a Part D provider.

• Manufacturers that lack a well-designed channel strategy and use sloppy class-of-trade guidelines will discover that their specialty products are being dispensed from a much broader set of pharmacies than they expected.

THANK YOU, UNCLE SAM

The chart below is based on pages 70-71 of the HMO-PPO Rx Digest 2010-2011, which is part of the useful Sanofi-Aventis Managed Care Digest Series. The data represent retail dispensing of these specialty drugs. I picked the top ten specialty drugs based on total retail dollars. Click the chart to enlarge it.

As you can see, the prescription share of public payers—Medicare Part D or Medicaid—ranges from 25% to 43% (average =34%). Private, third-party payers account for almost all of the remaining prescriptions.

Please note that I am not expressing an opinion (or even commenting) on the channel strategy of any product shown in the chart above.

CHANNEL STRATEGY IMPACT

Manufacturers typically limit the number of specialty pharmacies that are authorized to sell their specialty products. See pages 9-10 of my pharmacy report for more details.

However, the design of the Part D benefit can inadvertently broaden a specialty network if non-authorized pharmacies can purchase a manufacturer's product via a legitimate distribution channel. That's why careful class of trade definitions are so crucial for a manufacturer's distribution agreement.

Briefly, a PDP sponsor must permit any pharmacy willing to meet the plan’s terms and conditions to participate under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173). A PDP can set up a more restrictive pharmacy network and use reduced cost-sharing to steer enrollees to in-network pharmacies, so preferred networks such as the Humana-Walmart plan are OK.

This issue will become more important because of the Patient Protection and Affordable Care Act (Public Law 111-148). Along with 50% discounts that begin in 2011, enrollee copays will be reduced to 25% of total drug costs in the coverage gap. See Key Changes to the Medicare Part D Drug Benefit Coverage Gap.

There’s your fun factoid for a random Thursday in February. Well, isn't that special?!?