Specialty Pharmaceuticals: Manufacturers Must Consider a New Supply Chain

Future strategies to manage specialty drugs are geared toward improving overall health care management of patients rather than relying on supply chain cost reduction strategies. The management of specialty drugs requires strategies that focus on outcomes and value.

As the emerging health care environment increases in complexity, makers of specialty pharmaceuticals are contending with an equally complex supply chain. Specialty distributors, specialty pharmacies, and health care providers are all competing for a dominant position in drug delivery and reimbursement. Increasingly, influence from nonsupply chain participants is shaping future considerations for specialty pharmaceutical manufacturers.

By 2018, 7 of the top selling drugs in United States are expected to be specialty pharmaceuticals, compared with 3 of 10 today. With the rapid growth of specialty drugs into the marketplace for the treatment of complex diseases, payers, including commercial and government, are developing sophisticated benefit designs and management tools to evaluate these drugs. While there is no “official” definition of a specialty drug, payers must develop their own definition for the classification of specialty drugs for internal management purposes. In addition to the cost of a drug, payers take into consideration other elements, such as whether the product treats a rare disease, requires special handling, has a limited distribution network, or requires ongoing clinical assessment and monitoring of response and/or side effects.

Pharmacy Benefit Versus Medical Benefit

Specialty pharmaceutical spending today is split between a pharmacy benefit and a medical benefit, although the proportion varies dramatically based on the drug and therapeutic condition. For instance, selfadministered oral or injectable drugs for many chronic diseases are paid primarily under a patient’s pharmacy benefit. Other diseases are treated with products that are injected or infused by health care professionals and are covered primarily by a patient’s medical benefit.

Medical benefit coverage usually corresponds to a buy-and-bill payment approach by the third-party payer. The health care 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 perceived and actual challenges of buy-and-bill methodologies are causing some payers to migrate from medical to pharmacy benefit coverage. Key issues include:

• Health plans’ ability to capture specialty drug 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 versus those under a pharmacy benefit.
• A patient’s contribution to a drug’s cost is generally higher when paid under a medical benefit versus a pharmacy benefit, reducing adherence.
• There are potentially inappropriate financial incentives when a health care provider generates profit from both providing care and dispensing drugs.

The Specialty Pharmacy Network

The complexity of specialty drug distribution, handling, and patient support leads most manufacturers’ plans to adopt a custom specialty pharmacy (SP) network that may contain 1 or more SPs. Although manufacturers may choose to use a specific SP, payer organizations have their own goals and objectives for SPs. Depending on the organization, the goals may be based on specific issues related to customer service, vendor capabilities, financial management, clinical and utilization management, reporting, or benefit design.

SPs offer a broad range of services to meet the clinical, billing, distribution, and service requirements of specialty drugs. The services identified as most important to payers include:

• Distribution direct to patient and/or MD
• Coordinate reimbursement and eligibility
• Provide 24/7 access to nurses or pharmacists
• Ensuring appropriate dose of medication

Preventing drug waste, abuse, and misuse Payers generally use one SP over another if the SP can show the ability to reduce inappropriate utilization, reduce drug acquisition cost, and improve adherence and persistency. Although SPs offer a wide range of services, they tend not to provide a deep knowledge of the following:

• Predictive modeling
• Comparative prescribing data on plan MDs
• Measurement of outcomes and savings

Reimbursement for Specialty Pharmaceuticals

Specialty drugs are distributed through multiple specialty providers, and health plans utilize a variety of pricing references to reimburse providers for specialty products. Average Wholesale Price (AWP)- based reimbursement is typically used for retail and specialty pharmacy providers, while health plans are moving away from AWP-based reimbursement and implementing Average Sales Price (ASP)-based reimbursement for medical benefit providers (home health and physicians). The various reimbursement rates across distribution channels may even result in a health plan paying different rates for the same drug.

Role of the Reimbursement Hub

Reimbursement hubs, although the term does not fully describe what they do, are integrated service providers, which are hired and funded by specialty pharmaceutical manufacturers. They perform a range of activities for payers, patients, and providers related to reimbursement and patient access support services. They coordinate with a physician’s office to provide a single point of contact and referral, reducing the patient administrative management burden on a physician’s office. Reimbursement hubs also help with the collection and organization of de-identified patient data. At a macro level, these service providers absorb activities and functions that could be—and sometimes are—performed by a specialty pharmacy. In doing so, they can help broaden a manufacturer’s limited network by reducing barriers to entry.

Emerging Payer Trends

Health plans offer multiple benefit designs, with a variety of member cost share structures for specialty drugs, including flat cost share, under which all agents are covered at the same cost share amount, and tiered cost share, where specialty agents fall under different tiers based on their formulary status (preferred vs non-preferred). The cost share can be a fixed dollar copay amount or a coinsurance, where a member pays a percentage of the drug cost, with or without a maximum out-of-pocket amount per prescription. For a pharmacy benefit, the vast majority of commercial and MA-PD plans require cost share. For a medical benefit, roughly half of commercial and MA-PD plans now require a member cost share for specialty drugs.

Future strategies to manage specialty drugs are geared toward improving overall health care management of patients rather than relying on supply chain cost reduction strategies. These include therapy management programs, utilizing outcomes datato make formulary decisions, and creating pay-for-performance incentives for physicians.

A number of significant changes have occurred over the past year:

• Payers are becoming more aware of the cross-coverage of specialty products under the pharmacy and medical benefit and are developing strategies to link these products together.
• Payers are updating their clinical and utilization management strategies to stay abreast of newly approved drugs.
• Payers indicate that health outcomes data on specialty drugs, such as decreases in disease progression, health care costs, and serious adverse reactions, are important measures when evaluating coverage and formulary decisions; however, the majority of plans lack the ability to effectively track and measure these outcomes.
• Payers will continue to apply microlevel strategies to manage the individual cost and utilization of specialty drugs; however, health plans will likely adopt more macro-level strategies focused on targeted therapies, clinical outcomes, comparative effectiveness, and consensus guidelines to meet the medical needs of their members.

Spotlight on Outcomes

Health plans are implementing a variety of tactics to manage the cost of specialty drugs and ensure appropriate utilization. Increasingly, payers are also focusing on the outcome, or value of a particular course of therapy, to the patient, the physician, and the health care system.

Future Changes in Specialty Pharmacy Management

With the introduction of new specialty therapeutics and more overall utilization of specialty drugs across the pharmacy and medical benefit, health plans continue to formulate and refine strategies to enhance specialty pharmacy management. These may include:

• Implementing oncology management programs
• Implementing therapy management programs with SP
• Utilizing outcomes data to make formulary decisions
• Creating pay-for-performance incentives for physicians

The Impact of Outcomes

Health outcomes data on specialty drugs, such as decreases in disease progression, health care costs, and serious adverse reactions, are important measures when evaluating coverage and formulary decisions. However, the majority of plans lack the ability to effectively track and measure these outcomes.

ACO—The New Member of the Specialty Supply Chain

Accountable Care Organizations (ACOs) are still in the early phases of development from financial funding, IT development and expenditures, management structure, risk evaluation methodologies, and most important, long-term strategy. ACOs are not sure how specialty pharmaceutical companies fit into their new strategies. Many see the specialty pharmaceutical companies as having a place at the proverbial strategy table, but they do not understand how that will happen since the manufacturer is prohibited from being a member of the ACO. Product sourcing does not necessarily change under the ACO model. Providers/hospitals can still acquire product through the traditional specialty supply chain sources. Supply of products is not the new concern for the ACO. It is the cost and risk associated with utilizing certain high-cost therapies.

Under the ACO model, members will receive positive or negative incentives based on the quality measures that are mandated. These quality measures are quite subjective when it relates to high-cost medicines used in clinical environments. Coverage for individual patients of highcost medications has always been difficult.

In the new ACO world, the ACO must consider whether these high-cost products should be used in the clinical environment where the ACO must assume the direct risk for the patient’s care. The ACO wants to know if the maker of high-cost products will somehow share risk with the ACO for clinical outcomes, thus a potential consideration of cost/risk transfer from the ACO to a product manufacturer.

In some cases, the ACO wants to know if specialty pharmaceutical manufacturers will supply rebates to the ACO if the therapy does not produce the desired clinical outcome, thus offsetting penalties for decreased ACO performance. This seems logical to the ACO since they do not share in profits from medication sales but now own the risk if the patients utilizing these medications clinically do not have measurable clinical improvement.

Implications to Speciality Pharmaceutical Manufacturers

Some physician’s practices may be owned by the ACO/IDN. Regardless of ownership, all members’ buying habits may be dictated by the ACO and by default those products preferred within the ACO model.

While responsible for all costs of care, ACOs will look to off-load risk and expense of products by either a) looking for a low cost product option or b) shifting risk to a manufacturer.

Care models will be managed via more traditional HMO types of controls, particularly in the medical home models, which are driven by primary care physicians.

Current manufacturer relationships with individual physician practices may be affected by ACO policies. In fact, it is likely that the percentage of “no-see” physicians will go up under this model.

Conclusion

As providers evaluate optimal care for their patient populations in these new models, specialty pharmaceutical medications will be integrated into the process. It is crucial for specialty manufacturers to convince ACOs to view medications as a tool, not simply an expense. When specialty pharmaceutical medications are appropriately used, they can contribute significantly to improving patient outcomes and reducing overall costs.

Value-based specialty pharmaceutical care programs need to leverage every available strategy to address the greatest challenges facing our health care system. Medications are important assets in helping providers achieve these objectives. Note that the value-based framework may include the following elements:

• Success in a value-based environment will depend on understanding the unique contribution of specialty pharmaceuticals and utilizing them optimally across conditions and populations.
• Medications cannot be viewed as a siloed expense item in a value-based environment. They need to be integrated so that the cost offsets and quality benefits resulting from optimized specialty pharmaceutical use can be recognized and calculated.
• In each circumstance where there are condition-specific incentives to achieve cost savings, there should also be a quality metric to detect under-use of pharmaceuticals.

This means specialty pharmaceutical manufacturers must participate with provider organizations to create value-added programs for patients. These programs must help providers to:

• Engage patients more effectively.
• Help providers collect clinical and patient experience feedback to meet ACO quality reporting requirements.
• Help patients and providers understand the implications of specific medication use inside both a specific episode of care and a longer-term continuity of care.
• Help providers with specific analytical tools to measure medication effectiveness.
• Help providers to engage patients more effectively using technology tools to manage reimbursement in an ACO environment.
• Help providers measure patient satisfaction and interaction at the point of care.

To ensure successful specialty product distribution, manufacturers must understand these competing pathways and influences and the varying economic incentives within the drug channel. The distribution of many specialty pharmaceuticals is now engineered through manufactured channels with a well-designed strategic structure.

Each new specialty product strategy needs to address the needs of both provider and patient. These decisions will become even more complex as value-based outcomes are implemented by channel partners for the benefit of disease-specific patient populations.

About the Author

Mark K. Barnes is the founder and chief executive officer of the health care intellectual property and commercialization company VirMedica, Inc. He has a unique combination of 25+ years of experience derived through leadership at the C-level of traditional and e-business companies impacting all facets of the health care/pharmaceutical sector including pharmaceutical supply chain, marketing and sampling, media, reimbursement, and commercialization. He has successfully aligned business strategy, operational tactics, market savvy, and decisive leadership to guide enterprises through start-up, rapid growth and turnaround, and revitalization business cycles. Mr. Barnes has demonstrated success in launching innovative products/services that lower cost while improving quality of care and/or provide health care service providers with a competitive advantage serving the market.