Unraveling the Growing Influence of Consolidation, 340B, and Industry in Specialty Pharmacy

As the number of pharmacy locations with specialty pharmacy accreditation more than tripled in the United States from 2015 to 2020, the financial and structural impact of specialty drugs on the health care system continues to expand.

Kicking off the first session at the Asembia 2021 Specialty Pharmacy Summit, “The Post-Pandemic Outlook for Specialty Pharmacy,” panelist Adam Fein, PhD, chief executive officer, Drug Channels Institute, noted that specialty drugs currently represent 40% of the entire pharmaceutical industry’s revenue, and this share will likely grow to 50% within the next 4 years.

When examining the more than 1200 locations today with specialty pharmacy accreditation, Fein said that a significant change has occurred in the composition of who is actually operating the pharmacy.

“The biggest share of specialty pharmacies is still independent specialty pharmacies, but the second biggest category is now health care providers. In 2015, 1 out of 10 specialty pharmacies was run by a hospital or a physician practice. Today, it's 4 out of 10. So, when you say specialty pharmacy, it’s not just the local retail pharmacy–now it’s a lot of the providers.”

With health care provider influence growing in specialty pharmacy, consolidation within the US health care system overall has created vertically integrated entities that comprise of the insurer, pharmacy-benefit manager (PBM), specialty pharmacy, and provider services.

In addressing the implications of this industry shift, more than three-quarters of specialty drug dispensing revenues in 2020 were shown to be with the specialty pharmacies owned by the PBMs, which are part of these vertically integrated, consolidated operations.

As PBMs seek to stratify both drugs and patients, specifically patients who take the more expensive and profitiable specialty drugs in their health plans, large health care organizations have also begun to examine how to control their health care costs.

Notably, 9 in 10 large hospitals now have their own in-house specialty pharmacy. Fein highlighted that these entities are beginning to use these pharmacies as the driver for their benefit plans, with three-quarters of large specialty pharmacies indicated as exclusive specialty pharmacies in the health plan’s network.

“They've learned from what the PBMs are doing to channel patients into their business. And in fact, the majority of the prescriptions filled by these specialty pharmacies are written by the prescribers who work at the health systems.”

Although Aetna and CVS or Cigna and Express Scripts may represent the main examples of vertical integration, Fein said this occurrence is not limited solely to the insurance companies, with many entities in the health care industry seeking to figure out how to consolidate power in the specialty drug industry.

“One of the ways this battle is playing out is in starting to address the medical benefit drugs–the buy-and-bill drugs…. Buy-and-bill has been just terrible for the payers because of the commercial market. The hospitals are taking the drugs that they're buying from the manufacturer and marking them up 2 to 3 times over every other channel–often, in many cases, multiples of the list price.”

For an average buy-and-bill drug in a hospital, the manufacturer gets about 20% of the revenue that the insurer pays and the rest gets absorbed due to both the markups and 340B, added Fein.

Focusing on the 340B drug pricing program, roughly half of all US pharmacies are now 340B contract pharmacies. In addition to hospitals and clinics who receive a majority of 340B funding, retail and mail pharmacies now receive a large share of these dollars as well, despite pharmacies not being covered entities.

“If you just look at a share of purchases by list prices, excluding all discounts and everything, 340B is more than 13% of all dollars in retail and mail pharmacy.”

Generating above average profits for pharmacies that are 4 to 5 times as much gross profit dollars per script as a normal commercial script, revenue growth from 340B prescriptions, driven primarily by specialty drugs, have led pharmacies to become PBM contracted pharmacies.

With 340B purchases dominating the market, growth in value of 340B products at list prices for mail pharmacies was shown to increase 56% per year from 2017 to 2020. Conversely, non-340B purchases grew by 9% yearly in this time frame, with retail pharmacies also exhibiting 22% growth in 340B purchases and 1% in non-340B products.

“[The presence of] 340B distorts channel economics in such a complex and subtle way that no one frankly understands what's really going on….There's a lot that's changing, and a lot of what was specialty pharmacy is going to start to look very different.”

Delving further into the trends and issues within US specialty pharmacy, panelist Doug Long, MBA, vice president, Industry Relations, IQVIA, noted the differences in specialty areas between mail, retail, and non-retail pharmacy.

“Looking at the top 10 specialty areas of retail, mail, and non-retail, retail is HIV, immunology, and oncology; mail is immunology, oncology, and multiple sclerosis; non-retail is oncology, immunology, and multiple sclerosis,” said Long.

Long discussed several trends that will impact each industry in the next few years, including the emergence of 6 biosimilars for adalimumab (Humira) and the expiration of other immunology drugs, the expiration of HIV generic drug patents, and increased demand for mental health drugs and pain medications during the pandemic.

“The generic market has had price deflation coming up on 5 years now–it represents the same dollar sales in the marketplace as it did 5 years ago….the biggest reason why we contain health care costs in the United States is generics, we need to see a lot more specialty generics and we need to see a vibrant biosimilar marketplace, which we're starting to see.”