Below are seven key reasons behind the coming boom in specialty drug dispensing. As I see it, the projected growth in specialty drug dispensing is encouraging market entry, drawing investment capital into the pharmacy industry, and increasing competition for specialty pharmacy services. Dispensing of specialty pharmaceuticals will become less concentrated as regional chains and independents penetrate this market. Manufacturers will face enormous pressure to broaden limited distribution networks.
Next week, I’ll be at the Specialty Pharmacy Business Forum in Las Vegas. Send me an email if you’d like to meet one-on-one to talk about specialty pharmacy’s future, or chat about my work helping pharmaceutical manufacturers with commercial and channel strategies for specialty drugs. I'd also be pleased to play a few hands of blackjack with you!
SPECIALTY PHARMACY TODAY
Revenues in the pharmaceutical industry will shift from traditional brand-name drugs to specialty drugs over the next few years. Seven of the top 10 best-selling drugs (by revenue) are projected to be specialty drugs in 2016, compared with 3 in 2010. See Top Ten Drugs of 2016 for the list.
Right now, four companies generate 65% of revenues from pharmacy-dispensed specialty drugs. Here is the chart from my 2011-12 economic report that first appeared in Pharmacy Market Share for Specialty Drugs, 2010.
As a result, numerous pharmacies with specialty drug capabilities compete vigorously to dispense these expensive therapies. Other pharmacies dispensing specialty drugs are operated by such organizations as health plans, pharmaceutical wholesalers, retail pharmacy chains, home healthcare providers, and other PBMs. There are also many independent specialty pharmacies.
THE SPECIALTY DISPENSING BOOM
In addition to the many pharmacies that already have specialty capabilities, new sources of competition are rapidly emerging. Looking ahead, dispensing of specialty pharmaceuticals will become less concentrated and limited distribution networks will become larger and more open. Here are seven reasons why:
1. Independent retail community pharmacies are organizing into collaborative networks to penetrate the specialty market. Examples include the Armada Specialty Pharmacy Network, the Community Specialty Pharmacy Network, and Specialty First. These networks support retail community pharmacy dispensing of specialty drugs by providing contracting, clinical support, and other services. They are slowly gaining traction with manufacturers and payers. Industry data are starting to reflect entrepreneurial pharmacy owners going after the specialty market. (See 2010: A Good Year for Independent Pharmacies.)
2. Regional and national chains are launching “specialty at retail” programs. For example, Kerr Drug, a 76-store chain with $570 million in prescription sales, launched its Kerr Health subsidiary focused on specialty pharmacy and clinical services. Grocery chain Schnucks opened four specialty pharmacies in 2010—two are within Schnucks stores and two are stand-alone facilities within medical clinics. For patients taking specialty drugs, Per Lofberg of CVS Caremark talks about a "seamless experience" across channels.
3. Private, independent specialty pharmacies are growing fast. There are 10 independent specialty pharmacies on the 2011 Inc. magazine list of the fastest-growing private companies in the U.S. Average revenues for these 10 pharmacies was $111.7 million. The average 3-year revenue growth rate was 208%. (For the list, see Exhibit 54 of the 2011-12 Economic Report on Retail and Specialty Pharmacies.) All but one of these companies were founded within the past 15 years. No non-specialty pharmacies appear on the Inc. magazine list.
4. Retail pharmacies are leveraging open government payer networks. Some entrepreneurial independent-pharmacy owners are focusing on patients who take specialty drugs and rely on Medicare Part D or Medicaid, which pay for about one-third of specialty drugs. “Any Willing Provider” regulations require that these pharmacies be permitted into the specialty network of a Medicare Part D Prescription Drug Plan (PDP). See Who Pays For Specialty Drugs? (And Why It Matters).
5. Accreditation is lowering barriers to entry. Independent accreditation organizations help community pharmacies develop and verify their capabilities to manufacturers and third-party payers. In this way, accreditation creates a pathway by which any pharmacy can build specialty pharmacy capabilities. According to the EMD Serono Digest, more than two thirds of health plans identify URAC's Specialty Pharmacy program as the most important third-party accreditation for a specialty pharmacy.
6. Private-equity firms are targeting specialty pharmacy for growth capital investments. Here’s a look at deal activity related to specialty pharmacy, from a Braff Group report. Investors are also putting money into platform deals—initial acquisitions that are usually followed by other acquisitions to grow the business. Expect more deals as private equity firms try to roll-up high-growth companies in this high-growth market.
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Anything to add to my list?
Very interesting.
ReplyDeleteA substantial increase in REMS (and/or patient registry) requirements for both large and small molecules could drive new business through the specialty mail channel. Thanks for your article.
ReplyDeleteThe demise of buy and bill will increase overall healthcare costs substantially by driving patients to hospital outpatient infusion services (the unintended consequence of removing ALL profit margin from the provider's office). MCO contracting still lags in addressing the payment formulas of UB-04 billing.
ReplyDeleteThere are only 3 recognized sties of service: provider office, home, and hospital outpatient infusion center. (Freestanding ambulatory infusion suites are licensing challenges by the states and the feds.) If the provider opts out of infusing, chemo certainly isn't going to be given at home. The hidden costs of white bagging are nefarious. What happens if a patient doesn't show up for an injection of a $10,000 drug at the provider's office? It is dispensed and federal law prohibits transfer to another patient. But the plan has to pay for it. And talk about fraud and abuse? There is no closed loop in ensuring the drug is actually infused. The MCO is getting bills from two different providers on different dates of service. There is no audit mechanism to say Drug X dispensed by Pharmacy X on Date X is actually administered to Patient Y on Date Y by Provider Y (since the provider doesn't submit a bill to the MCO for Drug X).