The state of the specialty pharmacy is changing, and the number of managers is growing, so make sure your company is thriving by building new lines of distribution.
Over the past five years, specialty pharmacy managers (SPMs) have grown dramatically (Figure 1). From 2003 to 2011, SPM companies went through a state of evolution. Half of the leading SPMs were either part of a merger or acquisition, consolidated with another company, or simply went out of business. Meanwhile during that same period revenues grew 7- to 10-fold. This alone strongly pre- dicts substantive change in network vendor relationships for payers and companies over the next three to five years. In addition, niche SPMs are emerging and capitalizing on their strength of geographic coverage, physician relationships, disease management expertise, or technological expertise. With an estimated 200 or more SPMs operating with significant revenue focus throughout the United States, there are several challenges and opportunities for pharmaceutical and biotech companies.
Drivers of SPM Growth
SPMs have substantive opportunities to build greater revenues from existing lines of business as well as new revenue streams from new technologies and service needs. The factors that will help drive SPM growth in 2012 and over the next few years include:
• Specialty products require multichannel delivery, with home infusion a core element.
• Growth in more complex agents increases demand for SPM services.
• The rising demand for outcomes leads to more effective treatment pathways.
• SPMs are now a core tool for managed care transformation and adaptation to healthcare reform.
• There is a national platform to build integrated data systems for more effective patient decision-making.
Uncertainty And Complexity Drive Distribution
Unlike other markets, the specialty pharmacy market is riddled with complexities that make it particularly difficult to navigate (Figure 2). The industry that grew up serving the unique needs of specialty product manufacturers now also serves payers, whose needs are diametrically opposed to pharmaceutical and biotech companies. More importantly, payers’ needs are now considered more important than companies’ needs. This “layered” nature makes it very difficult for pharmaceutical and biotech companies to track money and product flow.
Specifically, SPMs have two core customers—pharmaceutical companies and payers—and the services they provide to each often oppose the goals of the other. In a complex juggling act, an SPM may offer services addressing (1) company needs to build and shift market share, (2) payer needs to control utilization and cost, and (3) the needs of both customers for the same operational services, but likely with different end purposes.
In order to succeed in the market for specialty pharmaceuticals companies will need to consider new lines of distribution. For most outpatient oral and self-injectable products, there are at least six significant—and often interchangeable— distribution channels. As a result, companies risk paying multiple rebates and discounts to distribute and deliver the same drug. Among other things, this demands an immediate need for clarity in contract terms and conditions that address these contingencies.
In addition, SPMs’ profit margins have been shrinking, and many SPMs are looking to pharmaceutical and biotech companies to replace lost revenues through greater discounts at the point of product acquisition, rebates for performance-based outcomes (including simply sales volumes), and fees for services and programs rendered above and beyond standard service activity. Awareness of these changes and their motivations are critical for companies to understand what SPMs provide to payers as well as to companies themselves.
IMPLICATIONS FOR PHARMACEUTICAL AND BIOTECH COMPANIES
As payers challenge the SPM value proposition and move to accept only the lowest common denominator of service that all SPMs must deliver, the potential for SPMs to become a commoditized distribution channel grows. This is why companies must spend considerable time and resources building their products’ value propositions. SPMs can contribute toward this objective with services addressing differentiated “real world” efficacy/outcomes, improved compliance and persistency, outcomes metrics, disease management, and more effective total-cost-of-care management for improved financial predictability. Companies should support SPM customers in building critical methods, provide resources, and demonstrate value for their services as well as build pathways to alternate site distribution sources, including home infusion, in order to minimize challenges to product access.
As the fee-for-service model expands, however, companies face many complex issues, but certain precautions can be taken to avoid any confusion. Start by clarifying what is included in a standard or typical contract and what is not. Then, establish fair market values for those services to be paid beyond the standard contract. Finally, demand SPM performance metrics for individually contracted services to ensure manufacturer business objectives are being met.
SPMs also foresee promising new opportunities for expanding company collaborations in several directions that would benefit both parties. For instance, developing custom payer programs and services to share therapeutic expertise and demonstrate improved patient care, building integrated data systems for more effective prospective management and retrospective outcome metrics, and appeasing more stakeholders by developing total-cost-of-care or episode-of-care programs that lower costs overall.
A VOLATILE SEGMENT
Chaos, uncertainty, and wide-ranging stakeholder challenges persist in the specialty segment. Many difficult and complex issues are arising but few definitive solutions exist at this time. Some, of the many, still unanswered and unresolved issues include:
• Appropriate and ethical patient cost sharing that en- courages self-care decision making as well as improves patient outcomes.
• The move of copay and coinsurance collection from physician offices to SPMs and its effect on patient demand, accessibility, and overall use of specialty products.
• The potential for the business model for internal SPMs (created by national MCOs) to fail in their need to expand beyond their own health plans and achieve sustainability and growth.
• Fair and reasonable sharing of cost exposure and cost management across all stakeholders.
• Hospitals and health systems becoming a driving force in the industry.
These changes imply new distribution and management strategies and tactics between payers, PBMs, and SPMs. Therefore, companies should expect a strong measure of both pressure and innovation from SPMs attempting to offer wide distribution and access in a more highly controlled insured environment. Companies that fail to prepare for the challenges of doing business could lose ground to the competition, particularly since SPMs account for 7% of the specialty pharmacy products market.