Tuesday, April 28, 2020

The Top 15 Specialty Pharmacies of 2019: PBMs Stay On Top

In Drug Channels Institute's list of the top 15 pharmacies of 2019, we show that many of the largest U.S. pharmacies are now central-fill mail and specialty pharmacies operated by PBMs and insurers.

To complement that broader ranking, we present below our exclusive list of the top 15 pharmacies based on specialty drug dispensing revenues. Consistent with our previous analyses, PBMs and insurers have retained their dominance over specialty drug channels, while smaller pharmacies are facing increased competition and profit pressures.

I see upside for specialty pharmacies in the aftermath of the pandemic. This growth will come at the expense of provider-administered drug channels. I expect the top companies’ share will increase in 2020, due to mergers and business transitions among the largest PBMs. However, the increasing role of government payers may create opportunities for smaller pharmacies.

This Friday, I’ll discuss how COVID-19 will affect the specialty pharmacy market during the first of my two live video webinars.

Over the next two weeks, Drug Channels Institute will host two live video webinars: Industry Update and COVID-19 Impact: Retail & Specialty Pharmacies (May 1) and Industry Update and COVID-19 Impact: PBMs & Payers (May 8). CLICK HERE TO LEARN MORE AND SIGN UP. Contact Paula Fein (paula@drugchannelsinstitute.com) for our special promo codes for multiple viewing sites. DCI will donate 20% of all profits from these events to The Center for Disaster Philanthropy’s COVID-19 Response Fund.


THE TOP 15

We estimate that in 2019, retail, mail, long-term care, and specialty pharmacies dispensed about $161 billion in specialty pharmaceuticals. The exhibit below—one of 203 in our new 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers—ranks the largest pharmacies based on revenues from the dispensing of specialty pharmaceuticals.

[Click to Enlarge]

Observations:
  • The specialty market remains highly consolidated. The top four companies accounted for more than 70% of prescription revenues from pharmacy-dispensed specialty drugs. All four of the top specialty pharmacies are fully or partially owned by one of the largest PBMs and part of large vertically-integrated organizations.

    The concentration of specialty dispensing revenues shown above results largely from the strategies that payers and manufacturers use to narrow specialty drug channels. Manufacturers often limit and manage the specialty pharmacies eligible to dispense these expensive medications. PBMs and health plans typically further limit the number of specialty pharmacies selected by the manufacturer by requiring patients to use the specialty pharmacy that the plan or PBM owns and operates. See chapter 7 of our new pharmacy/PBM report.

    The top four companies’ share will increase in 2020, due to (1) the full transition of claims from Anthem and Coventry to CVS Health, and (2) OptumRx’s acquisition of Diplomat Pharmacy.
  • Smaller specialty pharmacies face significant challenges. Revenues in the “All other retail, mail, long-term care, and specialty pharmacies” category in the table come from the many pharmacies now competing to dispense these expensive therapies.

    Over the past few years, smaller specialty pharmacies have faced significant challenges. Fewer new specialty pharmacies have started up, and the largest independent companies have been acquired. Overall specialty pharmacy merger and acquisition activity is down sharply from its 2016 peak. See Specialty Pharmacy M&A in 2019: CVS, OptumRx, and Private Equity Highlight a Slowing Market.

    Smaller specialty pharmacies struggle to be included within payer and PBM networks. They also face profit pressures associated with direct and indirect (DIR) remuneration payments to Medicare Part D plans. DIR payments can have a disproportionate effect on specialty pharmacies.
  • Specialty pharmacies owned by healthcare providers continue to expand. Hospitals, health systems, and physician practices have been the fastest -growing group of competitors for pharmacies. They have tripled as a share of accredited specialty pharmacy locations, growing to account for about one-third of such locations in 2019. Drug Channels Institute estimates that in 2019, the 10 largest specialty pharmacies owned by health systems had specialty pharmacy revenues of $190 million to $470 million. (See Exhibit 51 in our new report.)

    Many hospital-owned pharmacies can generate significant profits from their participation in the 340B Drug Pricing Program. They have also formed partnerships with the largest PBM-owned specialty pharmacies, which operate many locations that act as contract pharmacies for 340B covered entities. See As Hospitals Pursue Specialty Pharmacy (and Walgreens Bets More on 340B), PBMs Become Their Best Frenemies.

    Physician practices have faced challenges in working with PBMs, as I explain in Has Physician Specialty Dispensing Peaked—And Should They Blame PBMs?
For more, see Chapter 3 of our new report, which provides a comprehensive analysis of the specialty pharmacy market and detailed profiles of the largest specialty pharmacies shown above.

NOTES FOR NERDS
  • Many companies do not report prescription revenues from specialty drugs. We have therefore used various methods and primary sources to estimate the data.
  • As noted in the exhibit’s footnotes, we have made various adjustments to account for the pro forma impact of mergers and acquisitions as well as certain client transitions among the largest PBMs. Pro forma revenues are computed based on the year in which an acquisition was completed. Therefore, Diplomat Pharmacy is presented as a separate company for 2019. Year-over-year growth rates were also computed based on the prior year’s pro forma revenues.
  • The market size figure excludes revenues from provider-administered specialty drugs billed under a patient’s medical benefit.
  • Note that specialty drugs’ share of prescription revenues is lower than plan sponsor pharmacy benefit costs for those drugs. That’s because traditional drugs have larger rebates than specialty drugs, though these rebates do not impact prescription dispensing revenues.

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