One important update to the figures below: We (and many others) had significantly underestimated Walgreens' revenues and market share. As we discuss below, its market share is closer to 10%, compared with the 3% that we originally reported.
Click here to see the original post from April 2024.
We have identified nearly 1,800 dispensing sites with specialty pharmacy accreditation—about 40% of which are owned by hospitals, physician practices, and other healthcare providers.
Alas, specialty pharmacies owned by the three largest pharmacy benefit managers (PBMs) have the most brass in their pocket, as they accounted for two-thirds of prescription revenues from pharmacy-dispensed specialty drugs.
Read on for DCI’s latest overview of the 2023 marketplace and revenues of the biggest market participants, along with key specialty pharmacy trends.
GONNA MAKE YOU NOTICE
This is our third market analyses adapted from DCI’s new 2024 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
Here are the first two articles:
I’M SPECIAL
For 2023, DCI estimates that U.S. prescription dispensing revenues from specialty pharmaceuticals reached $243 billion. Specialty drugs accounted for nearly 40% of the pharmacy industry’s prescription revenues (but a higher share of payers’ net spending).
Pharmacies that compete to dispense specialty therapies are owned by a diverse set of organizations. These pharmacies are operated by pharmacy benefit managers, retail chains, health plans, pharmaceutical wholesalers, physician practices, hospital systems, and other organizations. There are also many independent specialty pharmacies.
The chart below quantifies this diversity by categorizing, per corporate ownership, the number of pharmacies with specialty accreditation. Our methodology accounts for the fact that some pharmacy locations have accreditation from more than one organization.
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For 2023, DCI’s exclusive analysis identified 1,749 unique pharmacy locations with accreditation from one or both of the two organizations that now dominate accreditation for specialty pharmacies: Accreditation Commission for Health Care (ACHC) and URAC. Only about 3% of total U.S. pharmacy locations are accredited as a specialty pharmacy. The overall number of accredited locations grew slowly in 2023 compared to the previous year, but was more than five times larger than the 2015 figure.
Consistent with DCI’s previous analyses and predictions, hospitals and health systems have emerged as the fastest-growing participants in the specialty pharmacy market. For 2023, they accounted for one out of four accredited specialty pharmacies. Hospital-owned pharmacies are able to generate significant profits by participating directly in the 340B Drug Pricing Program. In response to changes in manufacturers’ policies regarding external contract pharmacies, hospitals continue to build in-house specialty pharmacy operations.
Other healthcare providers accounted for a further 14% of accredited specialty pharmacies. This category includes medical practices and physician-owned clinics. Most of these locations focus on two medical specialties—oncology and urology—that frequently prescribe patient-administered specialty drugs.
SO SPECIAL
The chart below ranks the largest pharmacies based on estimated revenues from the dispensing of specialty pharmaceuticals. We discuss many of the individual companies listed below in Section 3.3. of our new report.
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Observations on the figures above:
- Market share for the dispensing of specialty drugs remains highly concentrated with the largest PBMs. Despite the wide diversity of industry participants shown by the accreditation figures, the top three companies accounted for two-thirds of prescription revenues from pharmacy-dispensed specialty drugs: CVS Health, Cigna, and UnitedHealth Group. These businesses are all owned by vertically integrated organizations that also own a PBM.
The concentration of specialty dispensing revenues results largely from strategies used by payers and manufacturers to narrow specialty drug channels. Payers generally beleive that the capabilities of these large specialty pharmacies are superior to those of a typical retail pharmacy. These factors have shifted dispensing to the largest specialty pharmacies owned by vertically integrated organizations.
- Mail pharmacies accounted for more than three-quarters of the industry’s $243 billion total prescription revenues from specialty drugs. Due to the presence of PBM-owned pharmacies, retail pharmacies have limited exposure to the dispensing of specialty drugs. As a result, many retail chains operate central fill specialty mail pharmacies to participate in the specialty market. The revenue figures above include all dispensing formats of the respective businesses.
For example, the figure for Walgreens includes AllianceRx Walgreens Pharmacy (ARxWP), Walgreens specialty pharmacy locations inside hospitals, the Walgreens retail specialty pharmacies, and specialty drugs dispensed within Walgreens retail drugstores. The ARxWP business suffered significant revenue and customer losses during 2022 and 2023.
Note that the figures for Walgreens Boots Alliance have been updated from the original publication. Our $8.4 billion figure was roughly accurate for the AllianceRx Walgreens Pharmacy business. However, Walgreens disclosed that it also generates about $16 billion in specialty revenues from its retail pharmacies and nearly 300 community-based specialty pharmacy locations. See Walgreens Launches Gene and Cell Services as Part of Newly Integrated Walgreens Specialty Pharmacy Business.
- Specialty drugs’ share of revenues declined slightly for 2023. Specialty drugs’ share of the pharmacy industry’s total prescription dispensing revenues has grown significantly, from 24% in 2013 to nearly 40% in 2023. Specialty drugs’ share of plan sponsors’ pharmacy benefit costs is higher than their share of prescription revenues, because rebates do not impact prescription dispensing revenues.
Specialty’s share declined slightly during 2023. Factors behind the slower growth in specialty drugs’ share relative to traditional drugs included the launch of generic nonbiological specialty drugs, slower growth in list prices for some specialty drugs, the high level of sales from of anti-obesity GLP-1 drugs, and the launch of specialty products with list prices below those of competitive products.
- Independent specialty pharmacies retain a small but significant presence. Independent pharmacies are the largest category of accredited specialty pharmacies but account for a minority of total specialty dispensing revenues. Many of the largest independent specialty pharmacies operate fully or wholly as central fill mail pharmacies.
The specialty pharmacy shakeout began about six years ago. Since then, fewer new specialty pharmacies have started up, while many of the largest independent companies have been acquired. Over the past few years, buying and selling activity for specialty pharmacy companies has slowed significantly. The remaining independent specialty pharmacies are generally well-capitalized, often with the financial backing of private equity firms.
The Federal Trade Commission’s (FTC) ongoing inquiry into the PBM industry and its business practices will surely be evaluating the specialty pharmacy market. We’ll see if each of the PBMs can make the FTC see that there's no one like me.
NOTES FOR NERDS
Here are some further thoughts on the specialty pharmacy market. Click here if you can’t see the video.
NOTES FOR NERDS
- Most companies do not report prescription revenues from specialty drugs. DCI has therefore used various methods and primary sources to estimate the data. In some cases, the companies provided us with revenue figures. Certain data have been updated based upon new disclosures since the previous edition of our report.
- As noted in the exhibit’s footnotes, DCI has made various adjustments to account for the pro forma impact of mergers and acquisitions as well as certain client transitions among the largest PBMs. Pro forma revenues are computed based on the year in which an acquisition was completed. Year-over-year growth rates were also computed based on the prior year’s pro forma revenues.
- Revenues in the “All other retail, mail, long-term care, and specialty pharmacies” category come from the many pharmacies now competing to dispense these expensive therapies. As we discuss in Chapter 3 of the full report, the specialty market’s growth continues to draw many companies into the business of dispensing specialty drugs.
- The market size figure excludes estimated revenues from provider-administered specialty drugs billed under a patient’s medical benefit.
Here are some further thoughts on the specialty pharmacy market. Click here if you can’t see the video.
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