Dr. Fein and others pointed out that manufacturer trade activities must evolve into an integrated channel strategy commercial function.
Below, we summarize other key takeaways from the meeting, including alternative distribution strategies, the outlook for buy-and-bill, and the emergence of boundary-spanning organized customers.
REFLECTIONS ON TRADE AND CHANNEL STRATEGIES 2013
Alternative distribution channels exist but are not well understood
Product can move through numerous alternative channels to specialty pharmacies (see chart below). However, few executives fully understand these channels or interactions. As Chris Holt, senior vice president and executive officer, VHA, pointed out in his CBI conference presentation on new channel models, “[W]e shouldn’t assume our traditional channels will sustain us in the future. Manufacturers should buy into a different method to lower costs and consider direct-to-hospital distribution.”
Consider the various alternative channels to specialty pharmacies, as shown in this exhibit from the 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.
[Click to enlarge]
Buy-and-Bill: “Close to being gone”?
As we point out in the 2012-2013 Economic Report on Retail, Mail, and Specialty Pharmacies, the top 3 dispensing companies (Express Scripts, CVS Caremark, and Walgreens) control 66% of pharmacy revenues from specialty pharmaceuticals. This trend will likely continue.
As Dr. Fein pointed out in Payers Want Specialty to Change, payers want the majority of product to go through a specialty pharmacy. A recent report, “Specialty Pharmacy: Implications of Alternative Distribution Models,” stated that payers support all distribution models.
But Paul Furgal, vice president, Managed Distribution and 3PL Services at McKesson Specialty Health, said that the market dynamics are rapidly changing and that buy-and-bill “isn’t close to being gone, but is under significant pressure." He added, "the data indicate that the infusion business is decreasing year over year for a variety of reasons including generics, reimbursement challenges, 340B erosion, payer guidelines and pipeline issues."
340B hospitals align with pharmacy
Care is moving to hospitals, which are are becoming more sophisticated about how they buy their drugs. Dr. Fein mentioned in his keynote address that 1 out of every 5 pharmacies in the U.S. is a 340B contract pharmacy—and that roughly 60% of Walgreens pharmacies are contract pharmacies. (See Walgreens Dominates 340B Contract Pharmacy Mega-Networks.)
At the conference, an audience member asked a panel of stakeholders in trade if hospitals have been audited for their use of 340B pricing. A panelist said yes and that penalties had been assessed—but only to the distributors and manufacturers that had extended 340B pricing for certain products, not to the hospitals that had received those prices.
As Dr. Fein noted, Obamacare will expand the 340B program. As it expands, he added, “it will be tough to get that genie back inside the bottle.”
Manufacturers must evolve their channel strategies
One of the most common questions from the meeting was “Should trade fall under managed care or commercial operations?” Panel members and the presenters did not agree on how teams should tackle this problem, but they did agree on one thing: trade and brand teams should be more integrated.
As the specialty customer evolves and the industry keeps expanding, trade executives will need to manage such large, "organized customers" as AmerisourceBergen and Express Scripts. These customers will bring challenges, Dr. Fein added. Demand for policy exceptions and concessions could increase. Purchasing and contracting could shift to a more centralized model. What’s more, intermediaries are broadening to include customers, service providers, channels, payers, and providers.
Manufacturer trade activities must evolve into an integrated channel strategy commercial function, Dr. Fein said. He said that trade and brand teams should work closely together before a drug launch—and should share strategic account management roles across the organization. Trade and channel strategy executives need to contribute to the strategic dialogue earlier in the process, and trade should be sitting as a peer with the brand team.
At the same time, channel intermediaries need to embrace new contracting attitudes, he concluded, so they can become better strategic partners with manufacturers.
This was a great meeting, and I learned a lot about the challenges manufacturers face when grappling with the launch of a new medication. One sentiment persisted throughout the sessions: to be successful, the trade and brand teams need to understand each other’s roles and collaborate as much as possible.