June 14, 2021
Specialty drugs are the fastest-growing segment of the pharmacy market—total US expenditures for specialty medications doubled from $83 billion in 2013 to $157 billion in 2017, according to a report from the IQVIA Institute. Although these meds account for only 2 percent of the total volume, they represent over half of the entire market in spending, surpassing traditional medications for the first time in 2020.
And plenty of new specialty therapies are in the pipeline. “Specialty pharmacy will continue to grow,” said Sheila M. Arquette, RPh, president and CEO of the National Association of Specialty Pharmacy (NASP). “Medications continue to be introduced to treat diseases for which we historically didn’t have any treatment options. As the focus moves from the development of small molecule therapies to more personalized and precision medicine therapies, costs will continue to increase due to the associated research, development, and manufacturing costs of biologics.”
Based on AWP alone, pharmacies dispensing these meds are looking at a lot of money. A patient on a specialty medication can spend up to $90,000 a month on treatment. Between the market share and the revenue involved—and given the downward pressures in the traditional retail market—specialty pharmacy may look like a no-brainer for pharmacies to expand their business and add to the bottom line.
But as promising as those numbers sound, the money may be a mirage. “You’re not going make as much as you would expect,” said Chris Antypas, president and COO of Asti’s South Hills Pharmacy and Valeda Rx specialty pharmacy. “You could be hurt by going into it without really understanding the economics.”
Of the mere 2 percent volume that specialty takes up in the market, nearly three-quarters is cornered by PBMs and health insurers. As the market has grown, so has vertical integration, making it more difficult for independent community pharmacies to gain a footing. According to Drug Channels Institute, “Less than half of all accredited specialty pharmacy locations are independently owned businesses … The remaining locations are owned by healthcare providers, retail and long-term care chains, PBMs and health plans, and wholesalers.”
Distribution for the majority of specialty medications is highly limited. Manufacturers keep their channels small, and payers keep them even smaller. Seventy percent of the market is funneled to just four companies,” all of which are fully or partly owned by a PBM,” according to Drug Channels. Two out of three commercial plan sponsors will limit specialty dispensing to a single pharmacy, which is usually the pharmacy owned by the PBM managing the plan.
And to gain access to the limited channels that are accessible to independents, you must have relationships with payers and meet special requirements, which can include accreditation, certifications, national licensure, unique storage, special infrastructure, specific technology, data management, and 24/7 patient care programs.
“It’s a big commitment,” said Ghada Abukuwaik, owner of CureMed specialty pharmacy. “It requires energy, knowledge, money, network and time.”
In Antypas’s experience, the economics of specialty pharmacy suffer for several reasons. “Our profit is reliant upon two factors,” he said. “One is the rate of reimbursement from the third party and the other is the price that we can buy the drug at. Unfortunately for specialty, both of those factors work against independent pharmacies, the first being the third-party payers. They certainly don’t pay better for specialty drugs.”
Although pharmacies earn more topline revenue from highly expensive specialty medications, much of the profit gets squeezed by DIR fees, which outmatch even the worst in traditional retail pharmacy. Rather than charging a flat rate, most payers charge a percentage of the drug’s cost—so the higher the cost, the higher the fees. For specialty medications costing tens of thousands of dollars, those fees are devastating. “That makes the economics of the reimbursement very challenging,” Antypas said.
And in specialty, the criteria that determines those fees is murky. “We currently don’t have performance metrics that are used to calculate pharmacy DIR fees based on this pharmacy type and the drugs dispensed and disease states managed, so it’s even more egregious because specialty pharmacies don’t have the ability to influence those metrics and mitigate the fees,” Arquette said.
On the buy side, it doesn’t get any better, according to Antypas. “I can say with certainty that the buy-side economics for specialty drugs are different than standard brand-name drugs,” he said. “Wholesalers are not getting the same discount on specialty drugs as they are getting for traditional brands, and therefore they’re pricing those drugs differently. So here’s a scenario where you’re being paid the same or less from the insurance company, and you’re paying more for the drug. It takes an already small margin and makes it even smaller.”
You’re not only paying a lot for these upfront—you’re carrying those costs for weeks as you continue to run your business. There are substantial risks of carrying, say, a drug costing $30,000, because of the length of time between paying for the drug and receiving payment for it. “There are cash flow considerations,” Antypas said. “You have to pay for it in two weeks or three weeks. You get paid for it maybe in three to six weeks.”
Dispensing specialty drugs requires an extra level of patient care and increased administrative obligations. Patients on these drugs require monitoring, education, copay assistance, and more. You’ll need staff that is knowledgeable in the disease states treated by the medication, and clinical services must be available 24 hours a day, 7 days a week. Manufacturers and payers track adherence rates, which affect your eligibility to be in their network or to contract with them. Prior authorizations are required for nearly every medication. You will also need to invest in specialty-specific software to enhance collaboration and coordination among all the stakeholders and ensure patient outcomes.
“With such high risks and such thin margins, pharmacies should do their due diligence to make sure specialty pharmacy is right for them,” Arquette said. “Pharmacies have to take an individualized approach and determine if it’s going to be profitable. With all that is required, you cannot afford to dispense these prescriptions at a loss. After you factor in the overhead and level of service and support required for specialty medications and patients, you may determine that it doesn’t make sense for you.”
Antypas said, “I think specialty pharmacy is a relevant area for community pharmacy, but it is difficult to get traction. The list goes on and on of the potential risks of getting involved, and all for $30 reimbursement. We definitely should not give up hope, but it requires a little bit more strategy so these folks don’t go and throw away money.”
Abukuwaik said that though there are significant challenges, she’s found it worthwhile for the sake of her patients. Abukuwaik named her pharmacy CureMed to represent the curative quality of specialty medications. Most of the patients suffer from chronic and life-altering diseases and require the meds to function—and some even to continue living. Abukuwaik recognized that many of her patients needed these meds and special care, but they didn’t have many options. “It’s the model of care I believe in, but it’s very hard to find,” she said.
She spoke of seeing patients come in seriously ill with hepatitis C, and within two months of taking the medication they return to a great quality of life. “When you are able to help these patients, it’s a different feeling,” she said. “This is why we are here. Everyone is looking for better profit, which is important in business, but it’s not everything.”
Arquette echoed that sentiment. “For retail pharmacies, not only is it an opportunity for additional revenue, but it’s also an opportunity to provide consistent, comprehensive care and support for all of the patient’s prescription needs. The ability to service and manage the whole patient reduces fragmented care.”
But even on the business side, if you do your research, make smart decisions, and build good relationships, you can have a successful specialty offering. “Like with the rest of your business, a lot of it comes down to how much you know and how well you manage your business,” Abukuwaik said. “You are able to grow and to be successful if you have a commitment. But it’s not something anyone can do. It’s very hard work.”
There is no consensus on the definition of a specialty drug. For CMS, it’s any drug costing more than $670 per month. In the end, it comes down to payer formularies. If payers consider something a specialty medication, then they will have special requirements for a pharmacy to dispense those meds and they will reimburse and claw back based on the terms and conditions in their specialty contracts.
Most agree that specialty meds share a few core characteristics:
Here’s a list of characteristics of specialty drugs from the National Association of Specialty Pharmacy:
Arquette identified a couple of ways into the market. One is to start with the drugs. “I would encourage those performing their due diligence to first determine what type of medications they are interested in dispensing,” she said. “For your patient population, are there specialty medications that you see over and over again that are being sent to a different pharmacy?”
Another path is to start with the payers, who are the true gatekeepers of the market. Find out which payers cover the majority of your patients and ask them about their requirements for pharmacy network inclusion.
Before opening a specialty pharmacy, Abukuwaik started by carrying only a few specialty medications at her retail location based on her patients’ needs. She recommends going this route until you’re fully equipped with the knowledge, infrastructure, and financials to support a specialty pharmacy. You’ll need to be knowledgeable about insurance and payer requirements, disease states, and administrative responsibilities, and you’ll need to establish relationships and build a network. All of that takes time, Abukuwaik said. “You cannot get this right away. You need to have the steps to reach that level.”
She started with hepatitis and barely broke even the first year. But as she gained knowledge, improved her capabilities, and added new disease states, she gained traction. Now she treats several disease states, including cystic fibrosis, HIV, rheumatoid arthritis, psoriasis, and Crohn’s disease, among others.
Antypas, on the other hand, went straight to a closed-door pharmacy. “It became clear in our research that we could not effectively compete in the industry doing specialty on the same counter that we’re doing traditional retail pharmacy,” he said. “That’s why we made a significant investment to open a 50-state-licensed, dual-accredited specialty pharmacy that is using specialty pharmacy technology, a pharmacy management system, and a clinical management system that was built and designed specifically for specialty pharmacy.”
Although Abukuwaik began with a hybrid model, she said becoming a closed-door specialty was ultimately essential because of payer requirements. “So many insurers will not accept you if you are not a specialty pharmacy. That was a big thing at the beginning with us when we converted to closed-door specialty.”
To succeed in specialty, you have to be in with the right people. Abukuwaik attributes much of her success to demonstrating her value to the stakeholders, especially the ones who write the prescriptions. “It is essential to have a great relationship with your prescribers, which happens when they see that you have all the elements.” The “elements” include thorough patient care, like following up with patients monthly, either virtually or in person; communicating and collaborating efficiently with nurses and doctors; improving the prior authorization process; and using shared software to seamlessly share patient data.
Prescribers are one part of the trifecta. Payers almost exclusively control who ultimately gets to dispense the drugs. And the most important thing to them is one thing independent pharmacies are best suited to provide. “Success lies in bringing them value in some way, shape, or form, where your clinical management of their members is meaningful enough for them to ensure that you’re not getting reimbursed below cost,” Antypas explained.
Arquette said, “A comprehensive management approach—meaning managing the entire patient and providing a holistic approach that supports achieving optimal clinical and cost-effective outcomes—is important to payers.”
The last part of the trifecta, which is distinct in specialty pharmacy, is the manufacturer. “To be successful in specialty pharmacy, you almost certainly need a relationship with the pharmaceutical manufacturer,” Antypas said. “If you can have enough volume of a specialty drug, then the manufacturer may be willing to give you additional discounts to ensure they’re getting the value from you. And maybe they’re going to want to set up a contract with you as the pharmacy to provide them with additional data.”
The problem, however, is that a lone pharmacy likely won’t offer enough value to strike a deal with a manufacturer to get into payer networks with better reimbursement rates. “A value proposition of an individual community pharmacy is not that special to a health plan,” Antypas said. “But when you aggregate your voice with other like-minded pharmacies, that value proposition goes up. It goes up for the payers and also the manufacturers.”
The best way to do that, Antypas said, is to join a large pharmacy network to boost your leverage with the combined value you all provide together. This is where CPESN, a network of pharmacies providing enhanced services, really helps community pharmacies get their foot in the door. “CPESN is a way to be a single pharmacy that is a part of a bigger, more unified approach. I think a future for specialty pharmacy lies within CPESN and as a network of enhanced services,” he said. “It’s the pathway for independent retail community pharmacies to compete in a space that is otherwise pretty much completely walled off.”
Ghada Abukuwaik, owner of CureMed specialty pharmacy, shares some insights on how to succeed with your specialty offering.
Abukuwaik emphasized the importance of learning about the specialty business and the industry. You need to know about the disease states, insurance, prior authorizations, et cetera. She attends an annual pharmacy conference and monthly workshops to stay up to date on industry trends, business ideas, and new opportunities. She is also a part of the National Association of Specialty Pharmacy, which provides education in every facet of specialty, including disease states, insurance, reimbursement, medications, marketing, and
Building relationships with other colleagues in the specialty business has helped Abukuwaik make her specialty offering successful. In some cases, she has teamed up with others to secure contracts with payers to dispense certain drugs. Networking with payers at conferences can also help you establish relationships.
Because margins are extra thin in specialty, it’s all the more important to secure the lowest cost of goods possible. Buying groups pool the business of multiple pharmacies to increase buying power. The larger the volume, the more motivated wholesalers will be to reduce costs to win the business. Abukuwaik said her buying group has saved her thousands of dollars on inventory costs.
Some specialty brand-name medications have generic alternatives. It’s worth taking the time to contact the prescriber to switch to the generic version because the savings can be significant.
Payers, manufacturers, and prescribers want to easily access the data on your patients. They want to know about their outcomes, and they don’t want to jump through hurdles to get there. That’s why it’s important to invest in pharmacy software that integrates easily with that of your partners, so you can seamlessly share information. That includes prior authorizations as well as patient records.
Most payers require at least one accreditation, but it is becoming more common to require two. The accreditation process can be lengthy and difficult, Abukuwaik said. There are three major accrediting organizations in specialty pharmacy: Utilization Review Accreditation Commission (URAC); the Joint Commission on Accreditation of Healthcare Organizations (TJC); and Accreditation Commission for Health Care (ACHC).
This article was published in our quarterly print magazine, which covers relevant topics in greater depth featuring leading experts in the industry. Subscribe to receive the quarterly print issue in your mailbox. All registered independent pharmacies in the U.S. are eligible to receive a free subscription.
More articles from the June 2021 issue:
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The member-owned company serves independent pharmacies with group purchasing services, expert contract negotiations, proprietary purchasing tools, distribution services, and more.
An HDA member, PBA Health operates its own NABP-accredited (formerly VAWD) warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.
Want more pharmacy business tips and advice? Sign up for our e-newsletter.