Thursday, December 05, 2019

Has Physician Specialty Dispensing Peaked—And Should They Blame PBMs?

Everyone wants to be a specialty pharmacy—but it’s getting harder to compete.

Consider the boom in pharmacies operated by physician practices. The growth in oral and patient self-injectable specialty drugs has encouraged physicians to dispense these products from their offices and clinics. For example, almost half of all oncology practices now dispense specialty drugs to their patients.

But as we show below, the share of oncology practices dispensing prescriptions has declined for the first time in at least six years. I suspect that we are at a turning point in the growth of physician practice dispensing.

As I explain below, this development reflects how PBMs and their plan sponsor clients are managing specialty channels.

PBMs offer financial carrots that entice plan sponsor to shift prescriptions into PBM-owned specialty pharmacies. This dynamic creates novel competitive conflicts between historically separate drug channel participants. Meanwhile, physicians are learning the perils of competing with vertically-integrated channel organizations.


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WHAT'S UP, DOC?

Most states let physicians dispense drugs from their office, though some states require a physician practice to obtain a separate pharmacy license. In-office dispensing gives the physician more control over treatment while creating an additional revenue source for the practice. It can also be more convenient for patients. The specialty distribution businesses of the Big Three wholesalers are actively supporting these practice-based pharmacies.

Oncology practices have been at the forefront of this trend. To track the growth of practice dispensing, we have relied on Genentech’s excellent Oncology Trend Reports (OTR). Over the years, these reports have provided valuable data about the U.S. oncology market. They contain comprehensive surveys of multiple stakeholders: managed care organizations, specialty
pharmacies, oncologists, oncology practice managers, and employers.

The chart below summarizes our analysis of the past six editions of the Genentech report. The latest edition reveals that 48% of oncology practices dispensed oral oncology medicines in 2018. This marks an 11-percentage point decline from the previous year’s figure, though it’s still an overall increase from the 24% of such practices in 2013.

[Click to Enlarge]

We estimate that in 2018, physician practices accounted for 8% of the dispensing of patient-administered oral oncology products and 13% of patient self-injectable drugs.

DOWN THE RABBIT HOLE

Patient-administered oncology products are usually reimbursed under a patient’s pharmacy benefit, not as a buy-and-bill medical benefit product. Practices must therefore be included in a third-party payer’s pharmacy network. This has created competitive conflicts with PBM-owned and insurer-owned specialty pharmacies, which dominate specialty drug dispensing activity.

PBMs and health plans often limit the number of specialty pharmacies available to a beneficiary. Patients are often required to use the specialty pharmacy that the plan or PBM owns and operates. (See Section 7.3. of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. That’s why five specialty pharmacies account for about three-quarters of specialty prescription dispensing revenues, as we identify in The Top 15 Specialty Pharmacies of 2018.

Consequently, all but the largest practices face the same challenges as independent specialty pharmacies. This explains the OTR’s reporting that only 48% of patients are allowed to fill their first prescription at a practice’s in-office pharmacy. This figure drops to 41% of patients for ongoing refills.

The competitive conflicts between PBM-owned specialty pharmacies and practice dispensing has turned physicians into new enemies for PBMs. Consider these recent statements from three leading physician organizations:
  • The American Society of Clinical Oncology (ASCO) has released a policy position statement recommending that CMS “prevent PBMs from excluding qualified in-office dispensing or provider led pharmacies from its networks.”
  • The American College of Physicians (ACP) has issued Policy Recommendations for Pharmacy Benefit Managers. The ACP focuses on subjects that are mostly unrelated to physicians’ practices or interests. It doesn’t offer specific recommendations on dispensing.
A decline in physician dispensing is also negative for specialty distributors, which actively support practice-based pharmacies as both drug suppliers and GPOs. See Section 3.3. of our 2019–20 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

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Pharmacy locations owned by healthcare providers—hospitals, health systems, physician practices, and providers’ group purchasing organizations—account for more than one-quarter of all accredited specialty pharmacy locations. See The Specialty Pharmacy Boom: Our Exclusive Update on the U.S. Market.

But owning a specialty pharmacy and being able to dispense specialty prescriptions are two different propositions. The new reality is that PBMs and healthcare providers are both vying for specialty dispensing revenues. That's right: Hunting wascally wabbits is hard.

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