Specialty Pharmacy and Health Care Reform

Health care reform and the increasing pipeline of specialty have created a “perfect storm” of significant business and financial impacts to patients, insurers, health care providers, manufacturers, and pharmacies.

The impact of health care reform, advancements in specialty medications, and increases in the number of specialty drugs available have created a “perfect storm” for health care stakeholders. Simply put, significantly more efficacious high-cost drugs are becoming available to an increasing number of patients.

Specialty drugs require, in many cases, patient care and fulfillment transition from retail to specialty pharmacy. The transition is a function of multiple variables and is not a statement on the competency of the retail pharmacists but rather, it is driven by patient care requirements, high cost, reimbursement complexity, special product handling, and manufacturers’ distribution models for these particular drugs.

The dynamic relationship between these variables has been evolving with the steady increase in specialty drug availability across multiple therapeutic classes at increasing prices. Key influencing factors including health care reform, the specialty pipeline, and the interrelationships between patients, payers, providers, manufacturers, and specialty pharmacies are worth a deeper discussion to help shape an integrated perspective.

Specialty Profile and Pipeline

To better appreciate the term “specialty,” it is worth describing the common attributes of a specialty product. These products generally cost greater than $600 per month and may have more complex administration requirements (eg, injectables), complex patient management requirements (eg, dosing, side effect management, etc), challenging reimbursement processes, and special handling requirements.

The pipeline for specialty drugs has been significantly increasing. In 2014, the total medication spend was $373.9 billion, of which $124.1 billion was for specialty drugs, an increase of 26.5%.¹

The number of specialty drugs among the top-selling drugs was 3 out of 6 in 2010 and 6 out of 10 in 2013, and is projected to be 9 out of 10 in 2020.² Many of these entities are for the treatment of cancer, rheumatoid arthritis, hepatitis C, HIV, autoimmune disorders, and multiple sclerosis.

There has also been a significant increase in the number of orphan drugs. The FDA defines these drugs as “intended for the safe and effective treatment, diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the US, or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug.”³

It is projected that the orphan drugs could grow at a rate of 11% through 2020 and account for 19% of total drug sales (excluding generics) by 2020. This is significant because the average cost per patient per year in 2014 was $137,782 for an orphan drug versus $20,875 for a nonorphan drug.⁴

The significant increase in new specialty molecular entities translates to an increase in the volume of drugs entering the specialty channels, particularly the specialty pharmacy channel. This increases costs to the payer and patient, requiring a comprehensive look across the patient care continuum to fully assess the impact.

Health Care Reform

Whatever your position on health care reform, the Affordable Care Act (ACA) is making an impact. A definitive outcome is the increasing volume of patients accessing health care. The complexity of the increase is heavily influenced by a provision in the ACA termed “guaranteed issue,” which ensures that health insurance is guaranteed to be issued to applicants regardless of their health status, age, or income, and that the policy will be renewed so long as the policy holder continues to pay the policy premium.⁵

This provision enables patients to access care and medication regardless of their health status. It also allows children to stay on their parents’ plan to the age of 26 years. The ACA has mandated annual out-of-pocket limits set by the government each year, which help ensure continued access for patients but are subject to multiple conditions of eligibility.

Estimates for the increase in patient volume vary based on the source and other variables. For the time period between September 2013 and February 2015, a net total of 16.9 million Americans became newly insured.⁶

Accountable care organizations (ACOs) are expected to help manage the increase in costs in the Medicare/Medicaid population. The Centers for Medicare & Medicaid Services defines ACOs as “groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients.”⁷

The complex care required for patients who take specialty drugs combined with the continually evolving integrated ACO model mean that a well-executed effort to support the Medicare star ratings measurement aspects of the ACA is required. The specialty pharmacy’s normal operating model is conducive to the integrated care model.

Not all star metrics are associated with the pharmacy, but there are metrics pharmacists can influence, including those demonstrating medication adherence and the effectiveness of targeted deficits in care interventions.

In parallel with increased volume in the number of Americans accessing insurance benefits is the associated increase in costs for medication administration and management of patient care. These cost increases affect participants across the patient care continuum (eg, patients, payers, providers, manufacturers, etc).

The specialty pharmacist is ideally situated to maximize care coordination and drive the quality of care. Medication adherence for complex specialty drugs can be particularly challenging. The specialty pharmacy has direct relationships across the care spectrum and can have a significant impact on the patient’s care and health outcomes.

Pharmaceutical Manufacturers

Manufacturers have also been affected by the ACA and by the increase in specialty and orphan products; these changes have significantly influenced the design of channel and distribution networks and, in some cases, resulted in complete business transformations.

The high costs and complex reimbursement/regulatory requirements of specialty products have transformed the approach many manufacturers use when developing brand and channel strategies. For specialty products, many manufacturers have moved to limited and/or restricted distribution networks to manage the product, patient, physician, regulatory, and payer complexities.

Manufacturers are aware of the high cost to patients for these drugs and provide offsetting measures such as co-pay cards and coupons. These are utilized in combination with increasing efforts by the specialty pharmacies to locate alternative funding to mitigate high out-of-pocket expenses.

In addition to the narrower networks, manufacturers are implementing reimbursement “hubs” to deal with the higher reimbursement complexities. These hubs are designed to support a range of patient needs. There are multiple levels of design complexity for hubs.

Hubs introduce new intricacies into overall patient management. In many hub designs, the specialty pharmacies are a critical interface in the management of the patient and the exchanging of data and information among multiple health care stakeholders.

Specialty pharmacies offer a wealth of information and can provide a real-time assessment of business performance. They are well suited to support most manufacturers’ business objectives.

Payers

The cumulative effect of specialty drug profiles, significant increase in specialty drugs, and the impact of the ACA have necessitated increased efforts on strategies for managing and controlling costs. The price tags on some of the new hepatitis C drugs (eg, Harvoni, with a cost of about $63,000 for 8 weeks of treatment and $94,500 for 12 weeks⁸) and orphan drug products (eg, Kalydeco, with a cost of more than $300,000 per year⁹) have required payers to assess all available measures to manage cost and drug utilization.

One mechanism has been to shift more of the cost burden to the patient. Many insurers are shifting from co-pay to coinsurance arrangements and creating multiple specialty tiers in the pharmacy benefit to exert greater control. Other mechanisms to manage the increasing drug spend are drug utilization management techniques (eg, prior authorization, step-edits, partial fill, etc), preferred pharmacy networks, and formulary designs.

A core specialty pharmacy—payer intersection point lies in the assignment of benefits. The specialty pharmacy is the “executor” of many of the payer drug utilization and formulary policies. It has multiple “bosses” (eg, patient, payer, manufacturer, provider, etc) to please and to which it must demonstrate balanced performance, even if the performance objectives of these stakeholders may appear to be diametrically opposed.

Summary

Interaction between health care stakeholders is continually increasing—sometimes for better and sometimes for worse. The synergistic effects of the evolving specialty product portfolio and the increased patient volumes and ACA requirements have created an environment for the specialty pharmacy to thrive. These opportunities come with many challenges, but there is a “sweet spot.”

That sweet spot lies around an optimized overall patient care model. The challenges are in the provider, payer, and manufacturer maximizations. It may be that some areas need to sub-optimize at the expense of others for the overall good of the patient.

Stephen Lagano, MS, PE, is the founder of Altometrixs, a boutique biotech/pharma consulting company specializing in strategic and operational planning, specialty channel management, business optimization and data visualization, and rapid/advanced analytics. As a senior level health care business professional, Stephen has over 25 years of diverse experience in the pharmaceutical and biotech industries. His unique blend of strategic and operational experiences has enabled him to achieve significant results both in business and operations. Stephen holds a graduate certificate in pharmaceutical and medical device compliance law, a master of science in management from Stevens Institute of Technology, and a bachelor of science in mechanical engineering from Farleigh Dickinson University.

References

• James D. Specialty drugs drive US medicine spending spike. Pharmacy Times website. www.pharmacytimes.com/news/specialty-drugs-drive-us-medicine-spending-spike. Published April 16, 2015.
• 2014-2015 Economic Report on Retail, Mail and Specialty Pharmacies. Philadelphia, PA: Pembroke Consulting and Drug Channels Institute; January 2015.
• FDA. Developing products for rare diseases and conditions. FDA website. www.fda.gov/ForIndustry/DevelopingProductsforRareDiseasesConditions/default.htm. Updated September 21, 2015.
• Specialty Pharmacy Trends and Strategies. Washington, DC: Atlantic Information Services, Inc; 2015.
• Health insurance glossary. healthinsurance.org website. www.healthinsurance.org/glossary/guaranteed-issue/.
• Health coverage grows under affordable care act [press release]. Santa Monica, CA: The RAND Corporation; May 6, 2015. www.rand.org/news/press/2015/05/06.html.
• Accountable care organizations (ACO). Centers for Medicare & Medicaid Services website. www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/index.html. Updated January 6, 2015.
• Cost of Gilead’s new hep C treatment combo Harvoni. Life Beyond Hep C website. www.lifebeyondhepatitisc.com/2014/10/cost-gileads-new-hep-c-treatment-combo-harvoni/. Accessed October 14, 2015.
• Fauber J. Kalydeco: a price too high to pay? MedPage Todaywebsite. www.medpagetoday.com/Pulmonology/CysticFibrosis/42018. Published October 2, 2013. Accessed October 14, 2015.