Tuesday, June 14, 2016

Premier’s Latest Acquisitions Show Hospitals’ High Hopes for Specialty Pharmacy

Last week, the group purchasing organization (GPO) Premier announced its acquisition of two specialty pharmacies from Lincare Holdings. Read the press release.

This deal shows just how crucial specialty pharmacy opportunities are for hospitals and health systems. Premier is betting that its members want to outsource specialty pharmacy dispensing and services to their GPO’s external pharmacy. But as I describe below, many hospitals are building their own in-house specialty pharmacies or outsourcing specialty pharmacy services (but not dispensing) to such third parties as Diplomat Pharmacy.

Read on for my overview of these developments. Manufacturers will find themselves increasingly challenged by the high apple pie in the sky specialty pharmacy hopes of hospitals and health systems. Oops, there goes another specialty pharmacy!

THERE'S A LOT TO BE LEARNED, SO LOOK AROUND

Many hospital systems are actively pursuing specialty pharmacy revenues. Factors motivating this expansion include their desires to:
  • Provide more integrated, comprehensive care for patients with complex, chronic conditions that are typically treated with specialty medications
  • Integrate specialty pharmacy services with Accountable Care Organizations (ACOs), which coordinate care across different providers
  • Generate substantial profits by acquiring discounted specialty drugs under the 340B Drug Pricing Program.
INSTEAD OF LETTIN' GO, JUST REMEMBER THAT ANT

To play, many hospitals are choosing to develop their own full-service specialty pharmacy.

As of January 2016, more than 30 integrated delivery networks (IDNs) and health systems had specialty pharmacies accredited by either the Utilization Review Accreditation Commission (URAC) or the Accreditation Commission for Health Care (ACHC). See The Specialty Pharmacy Accreditation Boom Continues.

Examples of health systems with URAC accreditation for a specialty pharmacy include:
THERE GOES ANOTHER RUBBER TREE PLANT

Rather than building an in-house operation, some health systems are instead choosing to outsource specialty pharmacy services.

That’s where Premier fits in. Premier operates Commcare Pharmacy, a specialty pharmacy it acquired in 2010. Premier likely more than doubled the size of its specialty pharmacy business with last week's deal. Oddly, the Commcare website does not clearly identify its ownership by Premier.

The two acquired companies—Acro Pharmaceutical Services and Community Pharmacy Services—had combined revenues of $206 million in 2015. We estimate that when combined with the two new pharmacies, Premier’s specialty pharmacy revenues will be over $450 million. Click here to see Premier's slides on the transaction.

Premier's GPO member health systems—including some with their own specialty pharmacy—can participate in its Specialty Pharmacy and Care Management program. According to Premier, only about 40 member systems (with 250 hospitals) participate in this program. That's a relatively tiny 7% of its total 3,600 hospital membership.

Diplomat Pharmacy provides a third alternative to a GPO-operated central specialty pharmacy and a hospital’s in-house specialty pharmacy. It offers clinical and administrative support services to hospitals and health systems that dispense specialty medications through providers’ outpatient pharmacies. Diplomat also works with such health systems as Jefferson University hospitals and the University of Kansas hospitals.

Regardless of ownership, external pharmacies can act as 340B contract pharmacies for its health system members. According to the Health Resources and Services Administration (HRSA) 340B online database, Commcare currently acts as a 340B contract pharmacy for 105 340B-covered entity locations and Diplomat acts as a 340B contract pharmacy for 141 locations. I presume that Premier's latest acquisitions will ramp up its 340B activity. For more on 340B contract pharmacies, see Section 10.4. of our 2016 Economic Report on Retail, Mail, and Specialty Pharmacies .

THAT WALL COULD FALL

For recently launched specialty drugs, manufacturers usually limit and manage the specialty pharmacies eligible to dispense these expensive medications. PBMs and health plans often further limit the number of specialty pharmacies available to a beneficiary. Consequently, the dispensing of outpatient, patient-administered specialty drugs has become highly concentrated. In 2015, the top four companies accounted for almost two-thirds of revenues from pharmacy-dispensed specialty drugs. See The Top 10 Specialty Pharmacies of 2015.

As I note in The State of Specialty Pharmacy in 2016: Reflections from #Asembia2016, health systems’ specialty pharmacies have struggled to penetrate manufacturer- and payer-defined limited specialty pharmacy networks. Consequently, they often focus on open distribution specialty products reimbursed by Medicare and Medicaid.

Health systems, however, are waking up to their power to shape manufacturers’ channel strategies. They influence their physicians’ prescribing behavior. Some are starting to act like health plans and are exerting greater influence over patient behavior—and even engaging in risk-based contracting. Health systems are also concerned with the “leakage” of patients to external specialty pharmacies—and the lost profit opportunities from 340B.

Although health systems have good intentions, we still don’t know if they have the organizational focus and capabilities that they need to succeed as true specialty pharmacies. But manufacturers should expect hospitals and health system to escalate demands to participate in limited networks—and threats of negative consequences if they can’t participate.

Just remember that ram…

TAKE IT FROM THE CHAIRMAN

Here’s an inspirational video to get hospital executives in the mood for next week's 2016 Premier Annual Breakthroughs Conference and Exhibition. Click here if you can’t see the video.


Alas, that song will be stuck in your head all day. Sorry!

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