Limited-Distribution Products-The Debate Continues

Several factors must be considered when selecting a supply-chain process.

A most significant point of contention in specialty pharmacy is the process of selecting a limited-distribution model for a product. This is generally a structured process that ultimately results in the solution that the manufacturer feels is best for their product.

Round 2 is the battle with the payer to include the specialty pharmacy selected for limited distribution in their network. A manufacturer often assesses the appropriate distribution model for a drug pending approval well before that specialty product enters the market.

Additionally, the distribution model may be imbedded in the New Drug Application process or Biologic License Application and, therefore, be established for much of the drug’s lifecycle. As the growth of specialty continues to increase each year, depending on a number of factors, the supply chain of a product can take many paths.

Several factors must be considered when choosing a supply-chain process, including:

• Where the product fits best
• Will the supply chain allow equal or better access to the product portfolio versus its competition?
• How to provide the highest level of supply chain integrity (product diversion, counterfeiting, etc)
• Flexibility to adapt to marketplace changes (eg, “one-offs,” change by competition)
• Cost-effectiveness for the specialty product (eg, by limiting distributor services fees, specialty pharmacy fees, the number of headcount a manufacturer may be willing to support, and other less-strategic terms)
• Methods to efficiently capture data
• How to optimize the number of contracts in the distribution marketplace

Although many products share properties with each other, there are external factors that go beyond the fiscal and physical needs of an optimal supply chain. The relationship and business dynamics of the marketplace will certainly come into play, considering the many intermediaries that “touch” a supply chain decision.

Although I have not seen any statistics on the percentage of specialty products that are available in an open supply chain, I suspect it is high. Most of the blockbuster specialty products are in this category.

This means virtually any pharmacy may purchase and dispense the product, typically obtaining it from their drug wholesaler or specialty distributors. Specialty manufacturers may have a contract directly with drug wholesalers or specialty distributors to provide services and distribute specialty products.

Specialty manufacturers may include agreements with drug wholesalers or their subsidiaries to provide channel access for hospitals or other institutional purchasers. These services can include either selling product to them or managing drop-shipments from the third-party logistics provider.

Specialty distributors service the physician clinic market. Most pharmacies do not realize their distributors charge manufacturers a service fee for purchasing their product and distributing to your pharmacy.

Yes, the seller pays the buyer to buy and sell to you, the pharmacy!

Although these fees can be double-digit percentages for startup specialty manufacturers, they are low single-digit percentages or less for more established manufacturers with billion-dollar portfolios. These fees often lead the emerging manufacturer to consider alternative distribution models, one of the key “hidden” drivers leading to limited-distribution models.

These fees charged by distributors drive the products away from our specialty pharmacy because they often cannot be rationalized through a fair market value process. Therefore, the manufacturer chooses alternative paths and your pharmacy loses.

If you are a pharmacy that doesn’t have access to a product, ask your distributor what their fees are or would have been; in some cases, you might get to the root of the issue. Some products clearly belong in a closed model often driven by high-cost, high-touch, limited patient populations and other product characteristics.

However, the big revenue generators without these challenges cry out for open access, if it can be done efficiently. Recently the US Department of Health and Human Services (HHS) developed some draft language, the 340B Drug Pricing Omnibus Guidance that might force some change in the process; stay tuned to these developments and more to come.

Here is an excerpt from the section titled, “Obligation to Offer 340B Prices to Covered Entities”: “

(c) Limited distribution plan. A manufacturer using a specialty pharmacy or a restricted distribution network, or needing to limit distribution due to potential or actual shortages, is expected to notify HHS in writing prior to implementation of such limited distribution plan. HHS may publish plans on the 340B Web site. HHS will work with manufacturers if there are concerns regarding the plan prior to making public. A manufacturer’s limited distribution plan is expected to include each of the following components:

(1) An explanation of the product’s limited supply or special distribution requirements and the rationale for restricted distribution among all purchasers;

(2) An assurance that the manufacturers will impose these restrictions equally on both 340B covered entities and non-340B purchasers;

(3) Specific details of the drug distribution plan, including a mechanism that allocates sales to both covered entities and non-340B purchasers with no previous purchase history of the restricted drug;

(4) The dates the alternative distribution begins and concludes; and

(5) A plan for notification of wholesalers and 340B covered entities of the restricted plan.”

What HHS may not realize is that 340B pharmacies purchase their products from distributors. Distributors purchase products at wholesale acquisition cost, and when an eligible 340B pharmacy buys a contracted item, the distributor charges the manufacturer.

For those manufacturers, primarily emerging manufacturers, who have determined that the distributor services fee cannot be rationalized, they may choose a limited-distribution model to avoid these often double-digit fees. Hopefully the bureaucrats will figure this one out sooner rather than later.

Regardless, this action by HHS may result in profound changes for the manufacturer’s process for selecting a supply chain model. Although most manufacturers use a documented process, that process is far from standard.

NATIONAL ASSOCIATION OF SPECIALTY PHARMACY CONVENES

Hope we see you in Washington, DC, at the National Association of Specialty Pharmacy (NASP) Annual Meeting!

The team there has come up with a great agenda in their new model. If you are a pharmacist focused on specialty, the team at NASP has come up with a portfolio of awesome educational programs to complement the industry updates. The networking opportunities will be abundant. Please take advantage of it all. SPT

Specialty Pharmacy Times

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Dan Steiber, RPh, is a Principal of D2 Pharma Consulting LLC (d2rx.com) and is responsible for commercial operations;trade-supply chain strategy development, including 3PL selection; regulatory oversight, and “operationalizing”organizations. Mr. Steiber has served in several senior positions in pharmacy, distribution, and industry over the course of his 35-year career. Mr. Steiber is a licensed pharmacist in Texas, Washington, California, and Pennsylvania. He is affiliated with several professional associations and publications and is a frequent speaker on behalf of many professional organizations. Mr. Steiber graduated from Washington State University College of Pharmacy. He has participated in a variety of postgraduate programs in law and business development/marketing at Harvard University and Northwestern University. Mr. Steiber currently resides in Highland Village, Texas.