A new American Society of Hospital Pharmacists (ASHP) survey of health system pharmacies offers fresh insights into how these systems steer prescriptions to their internal specialty pharmacies:
- For most health systems' in-house specialty pharmacies, more than 90% of specialty prescriptions are written by system-employed physicians.
- Nearly two-thirds of the larger health system specialty pharmacies operate as the exclusive pharmacy within self-insured health systems’ networks.
The 340B Drug Pricing Program’s explosive growth plays a crucial role in the economics of the health system specialty pharmacy channel. As manufacturers challenge external 340B contract pharmacies, health systems will become even more aggressive about guiding volume to their internal pharmacies.
P.S. I'll be presenting my "State of Specialty Pharmacy 2021," live and in-person at next week's Asembia Specialty Pharmacy Summit. (I'm speaking at 8:15 AM on 10/27 during the "Post-Pandemic Outlook for Specialty Pharmacy" session with Doug Long.) Hope to see you there!
DATA
As regular Drug Channels readers know, hospitals and health systems are pursuing specialty pharmacy dispensing revenues. The most common strategy involves building their own full-service specialty pharmacy, as I have described in Hospitals Continue Their Startling Expansion into Specialty Pharmacy and The Specialty Pharmacy Accreditation Boom Slows: DCI’s Exclusive Update on the U.S. Market.
To profile health systems’ specialty pharmacy strategies, we rely on the inaugural ASHP National Survey of Health-System Specialty Pharmacy Practice. (The full article from the American Journal of Health-System Pharmacy is available for purchase.) It’s filled with useful insights and data.
The results are based on 122 health system specialty pharmacies. Many of the respondents were relatively small, with less than $50 million in revenues. However, some health system pharmacies are much larger, with revenues of more than $400 million. As we discuss below, the 340B Drug Pricing Program helps these pharmacies generate profits disproportionate to their revenues.
NETWORK BARRIERS
Manufacturers typically limit and manage the specialty pharmacies eligible to dispense these expensive medications. To manage costs and improve patient management, PBMs and health plans often further limit the number of specialty pharmacies available to a beneficiary. These network strategies have concentrated the market share for dispensing specialty drugs into the largest, PBM-owned specialty pharmacies. For more on narrow networks, see Chapter 7 of our 2021 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
Like smaller retail pharmacies, health systems are not always able to access drugs in limited specialty pharmacy dispensing networks.
When asked about network access barriers, 80% or more of health systems reported that “pharmaceutical manufacturers refused to engage” whenever the specialty pharmacies attempted to access limited distribution drugs. More than 70% of health systems reported that their specialty pharmacy was “frozen out or blocked by payers.” Larger specialty pharmacies reported greater success in gaining access from manufacturers and/or payers. (See the article's Table 8.)
PRESCRIBING CONTROL FOR NETWORK ACCESS
Vertical integration between hospitals and physician practices is helping reduce network access barriers from manufacturers. Physicians can direct prescriptions to the health system’s specialty pharmacy and pressure manufacturers to permit network access.
The ASHP data show evidence of this:
- 31% of health system specialty pharmacies fill a majority of the specialty prescriptions written by a health system’s prescribers. (See the article’s Figure 2.)
- More than 80% of health systems have formal metrics for tracking the prescription capture rate, which measures the number of prescriptions sent to the health system’s specialty pharmacy and/or the number of specialty prescriptions written.
“70.4% of respondents reported greater than 90% of all health-system specialty pharmacy referrals originate from providers within the health system, indicating specialty pharmacies primarily serve the health systems in which they reside.”What’s more, health systems can influence manufacturers’ pharmacy network strategies far more than can other retail and specialty pharmacies. Hence, most manufacturers find it undesirable to decline a hospital pharmacy’s “request” to become part of a network.
For instance, hospital-employed physicians can demand that the hospital’s pharmacy gain access to a manufacturer’s limited dispensing network. Physicians employed by a health system may choose not to prescribe a new specialty drug unless the manufacturer includes that system’s pharmacy in the network. A hospital could also direct its employed physicians not to prescribe a new specialty drug—or exclude the product from the hospital’s formulary—unless the manufacturer includes the hospital's specialty pharmacy.
Health systems’ power to gain network access continues to grow. The share of physicians directly employed by a hospital or working in a practice with hospital ownership has grown, to 40% of physician employment in 2020. This employment shift—and the overall shift in site of drug administration—has occurred primarily because hospital and health systems have been acquiring physician practices. As practices become integrated into a hospital or health system, physicians become direct or indirect hospital employees. For more details, see Section 6.3.1. of our new 2021-22 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.
STEERING PRESCRIPTIONS WITH BENEFIT DESIGN
Self-insured health systems have discovered another powerful tool for overcoming network access barriers: steering prescriptions to in-house specialty pharmacies.
Self-insured health systems are using benefit and network design to maximize their employees’ use of internal specialty pharmacies. Many health systems with an in-house pharmacy require employees to fill specialty prescriptions at that pharmacy. Consequently, a health system’s own plan designates the in-house entity as the exclusive specialty pharmacy in its plan’s network. (See chart below.) Others ensure that the health systems’ pharmacy is a preferred option, which means that employees will have lower copays or coinsurance when filling prescriptions at the in-house specialty pharmacy.
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Given these results, it’s unsurprising that most health system pharmacies filled a majority of employees’ specialty prescriptions. (See the article’s Figure 2.)
Specialty pharmacies are also becoming a key source of provider-administered drugs used by a health system’s outpatient department. See White Bagging Update: PBMs’ Specialty Pharmacies Keep Gaining on Buy-and-Bill Oncology Channels.
Health systems are using their internal specialty pharmacies to self-disrupt their own buy-and-bill business. According to the ASHP survey:
- Only 57% of health systems permit white bagging, in which an external specialty pharmacy ships a patient’s prescription directly to the provider.
- However, 88% of health systems permit clear bagging, in which the systems’ own internal specialty pharmacy dispenses the patient’s prescription and transports the product to the health system’s site of drug administration.
The 340B Drug Pricing Program enables health system pharmacies to generate profits that far exceed a typical specialty pharmacy. Ninety-five percent of the health system specialty pharmacies in the ASHP survey are owned by 340B covered entities.
Most hospitals rely on external pharmacies to profit from the specialty prescriptions. Multi-billion-dollar, for-profit, publicly traded pharmacy chains and PBMs—Walgreens, CVS Health, Express Scripts, OptumRx, and Walmart—dominate 340B contract pharmacy relationships with covered entities. See 340B Continues Its Unbridled Takeover of Pharmacies and PBMs.
Some manufacturers—including AstraZeneca, Boehringer Ingelheim, Eli Lilly, Merck, Novartis, Novo Nordisk, and Sanofi—have altered policies regarding 340B discounts available at contract pharmacies. These actions have prompted litigation by many of the affected parties. I reviewed this situation in my video webinar Drug Channels Update: 340B Controversies and Outlook.
External 340B contract pharmacies often coexist with a hospital’s internal specialty pharmacy. An in-house pharmacy alleviates a health system’s risk of having the contract pharmacy guidance vanish. Consider the 340B dollar flow here: How Hospitals and PBMs Profit—and Patients Lose—From 340B Contract Pharmacies. In the article’s examples, a hospital using its own internal specialty pharmacy will earn a gross profit equal line [6] minus line [7]. For a typical 340B-eligible specialty prescription, gross profits will be thousands of dollars per prescription.
Hospitals seem ready to garner a growing share of the specialty pharmacy market. Be sure to keep a close eye on how they do it.
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