Up Close with Will Pih, PharmD, principal and consultant with Two Labs Marketing
by E.M. (MICK) KOLASSA, PhD

Will Pih recently met with Mick Kolassa, the Chairman of Medical Marketing Economics and a member of PM360’s board of editorial advisers and a frequent contributor, to talk about specialty pharmacy providers and their increasing influence and importance in pharmaceutical markets. Their discussion focused on what product managers need to know about SPPs and how best to
incorporate them into marketing plans.

MICK KOLASSA for PM360: Many biopharmaceuticals are distributed through Specialty Pharmacies, so, let’s get right to it, Will: what is a Specialty Pharmacy?
WILL PIH: Specialty Pharmacy Providers, which we refer to as SPPs, offer diverse services that help to streamline and enhance the delivery and reimbursement processes for specialty drugs. Instead of the typical retail or mail-order pharmacy models, SPPs are very active not only in distribution but also medication and disease management as well as other services—sort of like a supercharged pharmacy.

Where did they come from, did they just emerge as a new pharmacy business model or do they have a precursor?
Crudely, you can think of them as a cross between mail-order pharmacies and home-infusion pharmacies, which have each existed for many years and from which SPPs have evolved. Combining those two functions while focusing on specialty drugs, SPPs have developed much higher levels of care and service. Thus, though many of them have grown from earlier mail and infusion pharmacy operations, it would be a mistake to think of them as either of those two entities.

What types of products do they carry?
Generally, SPPs carry high-cost drugs for chronic conditions and/or those requiring complex administration or management. A class example of these products are biologics. These drugs can be covered in both the medical and pharmacy benefit. Although most SPP drugs are injectable, they also handle oral and noninjectable meds as long as the specialty requirements of the product prevail. The major therapeutic areas served by SPPs include oncology, HIV/AIDS, hemophilia, hepatitis C, multiple sclerosis, autoimmune diseases, as well as many of the orphan and ultra-orphan drugs.

How do they differ from a Specialty Distributor?
Specialty distributors, which have been around for a long time, handle specialty drugs that will be adjudicated typically by a medical benefit. Their channel of service tends to be clinics, medical offices, and the alternate site market. In addition, they can act as small specialized wholesalers, which focus their business on specific product areas like oncology. Although specialty distributors may carry some of the same products as SPPs, they don’t offer the special services such as disease management, reimbursement support, scheduling of care, and others. Most important, they are not generally licensed to adjudicate a pharmacy claim for a patient, which is a very important distinction.

What are the specific services offered by SPPs, and who are their customers?
SPPs’ services include customized delivery and scheduling of drug delivery to patients and providers, as well as comprehensive disease management services. These services include some very effective patient and clinical education, as well as patient compliance and risk-monitoring programs. They also work with providers and patients to facilitate reimbursement and handle limited distribution requirements. Patient Assistance Programs (PAPs) are another core competency that is in line with their reimbursement expertise. Although they mainly provide these services to physicians and patients, two of their true customers tend to be health insurers and PBMs. In addition, providing customized services for
manufacturers has become a core aspect of their revenue stream.

Given all of these services, and the fact that their customers are insurers and PBMs, do they have much influence on drug selection and management?
In cases when the payer aligns with the SPPs, patients or providers will be required to move from one brand to another—we’ve seen this happen in the hepatitis C market for pegylated interferons. However, for the most part, SPPs tend to focus on appropriate use, assuring compliance not only with the regimen but also with the package insert and approved indications with an eye toward outcomes. That is their main focus if “product switch” is warranted, so other than generic substitution, active product switching tends not to be among their major concerns.

What are some of the key activities and services performed by SPPs for pharmaceutical companies?
The key services provided for pharma firms are in patient support and reimbursement hub programs with PAP as a core component. In a comprehensive program on behalf of the manufacturer, SPPs can monitor and deliver on outcome measures utilizing their generally excellent data-reporting systems. They also can provide important data on compliance, dosing, and other aspects of product use that aren’t available through the traditional market audits.

Can you discuss the services they offer to their traditional customers?
When the customer is the patient or physician, SPPs can simplify the claims processing, drug delivery, and administration that would otherwise be a significant reimbursement and training burden for the healthcare providers. Patients benefit directly from the care pathways that do not exist in other pharmacy channels, including such things as comprehensive risk management and monitoring and compliance programs that can be linked to outcomes.

How does—or should—a pharmaceutical company interact with an SPP?
It is important to understand that SPPs, as key players in drug delivery and patient care, not only help a company’s products to work better (through compliance and disease management programs) but are also a unique source of clinical and marketplace information. This means that the interaction between SPPs and biopharmaceutical companies should be fairly consistent and mutually supportive. Generally, the first SPP points of contact are account managers and the trade relations team. They are an ideal resource for understanding the likely level of support that the various layers of their organization can deliver and what other constituents need to be included in the program development.

Can you provide an example?
Sure, one group of SPPs has focused on transplant meds, the immunosuppressants and other drugs. They have conducted their own outcomes studies, comparing their patients with those who do not have relationships with SPPs. The results show that their compliance programs, as well as their work with physicians to assure the right mix of meds, significantly lower costs through fewer rejection episodes and medical emergencies. Others have done similar work in hepatitis C and HIV. Companies that work with these SPPs can learn more about their own products, their patients, and the markets in which they operate. That’s a pretty rich source of information.

What are the key questions that a product manager, or anyone in a biopharmaceutical company, should ask an SPP?
First the manufacturers need to know what types of services they will need, then they need to be clear on the level of service they will expect. Since different channel partners and other entities, such as retail pharmacies and even nonpharmacy vendors, claim to provide similar services to the ones SPPs provide, manufacturers need to ask questions around differentiation and be sure that they can get what they need. Also, in line with differentiation, if the manufacturer uses multiple service providers and the SPP acts as a hub, for example, on reimbursement, then questions around that experience and expertise should be understood. Asking questions about data capabilities, and being given blinded examples as proof, will give the manufacturer insight into their particular service capabilities since the data is the proof source for the activities.

Are there some current misconceptions or impressions of SPPs by pharma?
The first wrong assumption, as I mentioned earlier, is that they are like mail-order or infusion pharmacies, which they are not. Another wrong assumption is homogeneity—not all SPPs can provide the same services—let alone at the same level of quality. Going back to the questions around data, for example, not all SPPs can provide the level of data reporting that many manufacturers will come to expect when contract negotiations begin. And there are differences in the geographic and payer coverage among the SPPs.

How can an SPP help or hinder a pharmaceutical company and its product?
SPPs can greatly assist the launch of a specialty product as a partner in channel access by providing an unbiased view into what the customers are saying about the product. Enlisting their help early on can make the launch go smoothly. Ignoring them or working against them can make it much more difficult to get a new product established in the market. They can also make you aware of changes in the use of your product or competitive products through the entire lifecycle, and provide you with unbiased opinions about the various products and services in specialty markets. SPPs are also a great source of information on reimbursement issues and problems your patients or providers might be encountering.

What are the biggest issues or unanswered questions about SPPs?
SPPs set their prices or their services in a relative vacuum, in that there aren’t any real standards. Manufacturers then are asked to accept or reject the offers with a similarly tiny amount of information. The Fair Market Value (FMV) for the many different services SPPs provide is an issue that we constantly readdress. It is an issue for both the manufacturer and the SPP. From the manufacturer’s perspective: How do you determine if what you are paying the SPPs for services is at FMV? From the SPP perspective: How do you design and market FMV services to the manufacturers?

Why is Fair Market Value important?
The government price reporting regulations list FMV as a major criteria to determine if a service fee paid should be included as an additional discount or excluded as a bona fide service fee. When a manufacturer pays a specialty pharmacy for services (for instance, for compliance or education programs or supplying data), the money they pay for those services must, according to federal regulations, be no more than the fair market value in order to be considered a bona fide service fee and exempt from price reporting. For example, overpaying for these services can make the service fee an additional discount, which could result in lower ASPs [Average Sales Prices] and reduce provider reimbursements.
In the worst case, if the government thought the fees were excessive, it could be interpreted as illegal payments. By knowing the FMV of services, the company is protected from unintended discounts or worse. Understanding FMV also gives both parties—the manufacturer and the SPP—better information for setting and evaluating prices, as well as in negotiations.

As a distribution expert consultant, do you know if this applies to other distribution entities?
The FMV concept applies to all distribution channels. It should not be product or manufacturer specific but rather service and service-level specific. It should also take into account the degree of differentiation of these services compared to others within the benchmark. The wholesaler inventory management fees that replaced the standard markups a few years ago are a good example; those are pretty standard now. We don’t have that standard yet for SPPs.

What are the problems with FMV, the costs or risks of getting it wrong?
One of the biggest problems in securing FMV is getting comparable benchmarks on pricing. They need to account for other influencing factors such as multi-product programs or business development deals that can mask the true FMV. It is also important to realize that there are several different levels of service for each type of program. A compliance or disease management program, for instance, can take several different forms in terms of the services offered, so understanding the FMV of each type or level of service is crucial to making sure you are getting value for your money and that you don’t run afoul of any government requirements.

Also, the existence of introductory pricing for small, emerging companies should not be factored into FMV or, if it is factored in, it should be a distinct benchmark based on the lower level of service and data support required. As I said, getting this wrong could be very costly.

What is the solution?
To make FMV realistic, especially for smaller emerging manufacturers, a “one-size fits all” approach cannot work. In many cases the volume and service levels required will be low or minimal at launch, so the FMV attributed to lower volumes and services levels can be used. Some SPPs have addressed this with tiered service levels or data reporting, but it can vary widely. Right now assessing FMV is mostly a one-off effort, getting multiple bids and comparing them each time an RFP process for a service is considered. That’s not only costly and time consuming but it’s also risky, as I mentioned. We are working on the solution by collecting SPP pricing data and working with experts in developing the tools for assessing and determining FMV. Having a consistent and readily available source of this information is really the only way to deal with the FMV issues.

Mick Kolassa is Chairman and Managing Partner at Medical Marketing Economics (www.m2econ.com). He can be reached at mkolassa@m2econ.com. His company’s latest whitepaper on the Implications for Pharma Brand Teams of the recent IOM Comparative Effectiveness Research is available for downloading free at www.PM360online.com.