Explosion in specialty drug market
Significant Revenue Opportunities ahead for Hospitals
Robert Scholz, MS, MBA, R.Ph, Vice President, McKesson Pharmacy Optimization®
The specialty pharmaceutical industry is on the cusp of one of the largest growth periods in history. In 2009, specialty drugs represented 20% of all drug costs. However, by 2018, specialty drugs are expected to make up 50% of overall drug costs for commercially insured individuals. Further, in 2008, 25% of all drugs approved by the FDA were considered specialty drugs. Now, more than 50% of all drugs being approved are specialty drugs, and 900 biologics are in various stages of development.
This growth trajectory for medications treating diseases such as cancer, rheumatoid arthritis, multiple sclerosis and HIV means one of most significant revenue opportunities that hospitals have seen in many years. This explosion of the specialty pharmaceutical market offers hospitals that are already in or are moving into the specialty pharmacy market the potential for very significant margin growth. Leading health systems that are adding specialty pharmacy capabilities are forecasting revenue potential in the tens of millions of dollars.
As specialty pharmaceuticals grow, clearly there will be competition among various channels to be the providers of these profitable drugs. This includes hospitals and health systems, mail order pharmacies, retail pharmacies, and even physician practices. Therefore, those health systems that fail to pursue this opportunity may be left behind.
Advantages for Health System Pharmacies
In this changing competitive landscape, health system pharmacies have important and valuable advantages in adding specialty pharmacy that include:
Clinical expertise. Health systems have the disease-state specialists on staff — both physicians and pharmacists — that are needed for specialty pharmacies. Also, health systems already have extensive experience and expertise caring for complex, chronically ill patients who use specialty pharmacies.
Monitoring. Some specialty drugs require clinician monitoring and may require tests, such as blood tests. Health system hospitals have this monitoring capability easily accessible, while some other channels do not.
Care coordination. A specialty drug is typically part of an overall treatment plan. If a drug is shipped via mail order or provided by an outside retail pharmacy, the provider may not be part of the overall care process and may not have the best exposure to the patient’s history, treatment plan or the patient’s medical staff. A health system pharmacy has ongoing relationships with the patient’s medical staff and has easy access to a patient’s medical records. This provides greater continuity of care and can help achieve improved medication adherence.
Patient education and support. Patients using specialty drugs are often on these drugs for life. Manufacturers may provide starter kits, but patient education must go further. Health system pharmacies are well situated to provide initial and ongoing education and counseling, and are available as needed for ongoing patient assistance and support.
Elimination of white bagging and brown bagging. White bagging is when a drug is shipped to a physician’s office or health system pharmacy for preparation and administration and brown bagging is when it is shipped directly to a patient, who is expected to bring it to a clinician or pharmacy for treatment. In both instances, there can be issues with quality, product safety and waste. A specialty pharmacy operated by a health system eliminates the issues associated with white bagging and brown bagging.
Contracting and billing. A specialty pharmacy should have expertise in both contracting and billing, which is an existing capability of health system pharmacies.
Compliance. Any specialty pharmacy must have a legal department that ensures compliance with all regulations, something that a health system’s ambulatory pharmacy already understands.
Formulary management. A specialty pharmacy must work with physicians and payers to promote cost-effective and appropriate treatment to optimize patient outcomes. This is another area where health system pharmacies already have extensive experience.
Next Step Options
For health systems that see the opportunity in specialty pharmacy, several important steps include:
Become educated. While the opportunity surrounding specialty pharmacy is significant, it is a complicated, expensive undertaking. A health system needs to understand all of the competencies that are needed. This includes considerable infrastructure and back-office capabilities. Examples include the ability to deal with pre-authorization, patient education and 24/7 patient assistance. This white paper from Avella provides a good primer.
Decide on a strategy. Among the options available to health systems are:
Do nothing. Health systems can take a “wait and see approach,” but this creates a risk of falling behind.
Do it yourself. A health system can develop in-house all of the capabilities needed for specialty pharmacy.
Partner. Several entities have been formed that work with health systems to help operate specialty pharmacies. These entities, with different business models, include Premier’s Specialty Pharmacy and Care Management Program, UHC and Excelera. These programs bring various tools and capabilities to help health systems create and operate a specialty pharmacy.
Get accredited. Some payers require accreditation and some manufacturers will only provide access to their drugs to specialty pharmacies that are accredited. For more information about the specialty pharmacy accreditation process, see URAC, one of healthcare’s largest, most experienced and prestigious accrediting bodies for specialty pharmacy.
Start small. Creating and operating a specialty pharmacy can be complex, and at times manufacturers limit access to drugs. One way to begin is to start small, with a limited number of specialty drugs, perhaps focused on just one disease state. This will provide experience, create credibility and build a platform for growth into other disease areas.
The trends are clear: the specialty pharmaceutical market is growing quickly. As the landscape evolves, health system pharmacies are well positioned to capitalize on this trend, already having the clinical expertise, care-coordination capabilities and back-office capabilities that are required. Embarking on this journey requires choosing a strategy and adding any lacking capabilities. Health systems that seize this opportunity have important strategic decisions to consider, but the long-term revenue potential could be enormous.
 Specialty drugs will account for 50% of all drug costs by 2018, Formulary, June 1, 2013
 Specialty Today + Tomorrow, Prime Therapeutics
 Guide to Selecting the Appropriate Specialty Pharmacy: 10 Elements a Payer Should Consider in the Decision Process, Avella Specialty Pharmacy