Pharmaceutical Commerce - November/December 2011 - (Page 7)

OpEd The Battle for Control of Specialty Drugs Specialty distributors, specialty pharmacies and healthcare providers are all competing for a dominant position in drug delivery and reimbursement Adam J. Fein, PhD, Pembroke Consulting, Inc. Third-party payers are increasingly dissatisfied with the buy-andbill process for specialty pharmaceuticals covered under a patient’s medical benefit. In response, some pharmacy benefit managers (PBMs) are developing services that substitute a specialty pharmacy-to-provider channel for the currently dominant specialty distributor-toprovider distribution channel. If successful, the shift from medical to pharmacy benefit coverage will minimize buy-and-bill and diminish the role of specialty distributors. Manufacturers will need different commercial strategies and contracts to succeed as increasingly consolidated entities battle for control of specialty drugs. Specialty pharmaceutical spending today is split between a pharmacy benefit and a medical benefit, although the proportion varies dramatically based on drug and therapeutic condition. For instance, self-administered oral or injectable drugs for many chronic diseases are paid primarily under a patient’s pharmacy benefit. Examples include hepatitis C and infertility medications. Other diseases are treated with products that are injected or infused by healthcare professionals and are covered primarily by a patient’s medical benefit. Examples include cancer and blood cell deficiency. Medical benefit coverage usually corresponds to a buy-and-bill payment approach by the third-party payer. The healthcare provider, such as a hospital or physician office, will purchase the drug from a distributor, administer the drug to a patient, and then submit a medical claim to the payer for both professional services and the drug. The largest specialty distributors, which are divisions of AmerisourceBergen and McKesson, generate about 75% of total specialty distributor revenues to physician offices. The perceived and actual challenges of buy-and-bill methodologies are causing payers to migrate from medical to pharmacy benefit coverage. Key issues include: • Health plans’ ability to capture specialtydrug cost and utilization data from their medical claims systems still lags behind that of pharmacy systems. • Plan sponsors often pay higher costs for specialty drugs that are reimbursed under a patient’s medical benefit vs. those under a pharmacy benefit. • A patient’s contribution to a drug’s cost is generally higher when paid under a medical benefit vs. a pharmacy benefit, reducing adherence. • There are potentially inappropriate financial incentives when a healthcare provider generates profit from both providing care and dispensing drugs. In response, some PBMs are promoting services to accelerate the shift to pharmacy management of specialty drugs. The three largest specialty pharmacies—Accredo Health (Medco Health Solutions), CuraScript Pharmacy (Express Scripts), and CVS Caremark—are subsidiaries of the largest PBMs. This shift corresponds to the substitution of the specialty distributor-toprovider distribution channel for a specialty pharmacy-to-provider distribution channel. In a process often called white-bagging, the specialty product is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the provider, such as a hospital pharmacy or a physician office. The provider holds the patient-specific product until the patient arrives for treatment. The specialty pharmacy adjudicates the claim and collects any co-payment from the patient prior to treatment. The provider does not purchase or seek reimbursement for the drug. There is no buy-and-bill and no transaction with a specialty distributor for the product. If successful, the shift from medical to pharmacy benefit coverage will diminish the role of specialty distributors in the channel. The largest specialty pharmacies bypass distributors, so product volume would leave the wholesale distribution channel and move to the pharmacy channel. In some parts of the country, white bagging from specialty pharmacies appears to be about one-third of supplies to the physician office market. Many healthcare providers, particularly hospitals, oppose white bagging because of the lost ability to earn any profit margin on drug purchases combined with additional costs of handling and storage patient-specific doses. To ensure a successful specialty product launch, manufacturers must understand these competing pathways and the varying economic incentives within the drug channel. Each new specialty product requires a customized go-to-market strategy that analyzes the trade-offs in pharmacy vs. distributor fulfillment. These decisions will become even more complex as customers, channels, and payers consolidate. ABOUT THE AUTHOR Dr. Fein is president of Pembroke Consulting, Inc., and author of the widelyread Drug Channels website (http://www. This article is adapted from his new report, The 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors ( He is also a member of the Editorial Board of Pharmaceutical Commerce. ACOs and Their Impact on Pharma Accountable care organizations will seek ‘economic and clinical value’ for pharmaceuticals By Rita Numerof, PhD, Numerof & Associates Obamacare, officially known as the Patient Protection and Affordable Care Act (PPACA) was signed into law March 23, 2010. It’s now being challenged in the Supreme Court by the Department of Justice and 26 states on constitutional grounds, namely, that the federal government has no basis to mandate individual purchase of particular products or face financial penalties. Regardless of what happens in the courts, PPACA has set a new standard for bureaucracy (approximately 2700 pages worth), adding only complexity and cost to a system desperately needing radical reform. One centerpiece of the law, the Accountable Care Organization (ACO), exemplifies this issue. An ACO is, more or less, a healthcare provider organization that agrees to provide services to insured populations, including Medicare, Medicaid, commercial health plans and employers. Unlike the typical healthcare provider, however, reimbursement will be handled by a variety of “pay for performance” arrangements, involving potential incentives for cost savings, or shared risk for financial losses. ACOs are also supposed to provide “clinical integration”—addressing patients’ needs in a holistic manner, with coordination among providers. On October 20, CMS released final regulations for the Shared Savings Program. Industry organizations like AMA, AHA and AMGA (American Medical Group Assn.), who had been full-throated in their critiques of the proposed preliminary rules six months earlier, dashed out statements supporting elements of the program almost immediately, praising CMS’s willingness to adjust the rules, offer greater incentives for participation and actually listen to those providing the service. Regardless of whether or not ACOs actually gain momentum, physicians and hospiPharmaceutical companies also need to ensure that requirements for the ECV case are a consideration in acquisition, early develop- ment and designed into clinical trials so that compelling data is available at the time of market introduction and throughout a product’s lifecycle. In addition to demanding a strong ECV case, stakeholders across the healthcare industry are increasingly interested in outcomes-based contracts as a way to share some of the risks with manufacturers. These agreements are already in the nascent stage with payers like CIGNA, which entered into an agreement with Merck in 2009 to provide discounted pricing of Merck products (regardless of which drugs the patients are prescribed) based on positive outcomes for diabetes patients. Further consolidation of healthcare delivery systems forming ACOs will lead to the creation of oligopolies within the US. Once systems have consolidated and command significantly greater market share than the largest ones do today, they will then be in a more powerful position to leverage their purchasing clout. With ACOs and providers in general under pressure to reduce costs, they will seek ways to redirect that pressure elsewhere. Pharmaceutical manufacturers will make a good target. One thing is for certain—change is the only constant in the healthcare industry right now as all sectors face stiffer regulatory requirements and enforcement, changes in competition, technology and market expectations. At these times of transition, innovative companies able to challenge base assumptions about their business—their customers, the products and services they offer and how they go to market—will be the winners. ABOUT THE AUTHOR Rita Numerof, PhD, is co-founder and president of Numerof & Associates, Inc. (St. Louis, MO;, a strategic consulting firm that specializes in healthcare and life sciences, and other dynamically changing industries. She has degrees from Syracuse University and Bryn Mawr College, and is an adjunct faculty member of the Olin School of Business at Washington University in St. Louis. In April, her policy paper, Why Accountable Care Organizations Won’t Deliver Better Health Care—and Market Innovation Will,” was published by the Heritage Foundation ( November | December 2011 7

Table of Contents for the Digital Edition of Pharmaceutical Commerce - November/December 2011

Pharmaceutical Commerce - November/December 2011
Top News
Brand Marketing & Communications
Supply Chain/Logistics
Information Technology
Manufacturing & Packaging
Legal & Regulatory
Meetings and Editorial Index

Pharmaceutical Commerce - November/December 2011