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The ‘Spare-No-Expense’ Alternative


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-09-01-2018
Volume 38
Issue 9

How low-cost drugs can succeed in the specialty pharmacy channel.

Can low-cost therapies succeed in the specialty pharmacy channel? Following these steps gives manufacturers a chance


The phrase “specialty pharmacy” brings to mind high-touch therapies supported by HUBs, financial assistance, free drug programs, home nursing, and dutifully developed clinical protocols. As such, it makes sense that manufacturers faced with launching a therapy in the specialty space would consider including many of the above program features in their planning. In fact, most manufacturers begin their launch planning with the directive to build a best-in-class service model that fully supports the providers, patients, and caregivers who use their product. “Spare no expense!” they often say.

But what about therapies where “sparing no expense” is not an option? The market is seeing more products on the low-end range of specialty drug prices. This trend is driving the demand for specialty pharmacy program options that accommodate lower-cost therapies.  

At the core of the issue is the payer reimbursement mechanism. Reimbursement to specialty pharmacies is tied to the price of the therapy, which can result in a reimbursement that doesn’t cover the costs to fill a prescription. Meeting the challenge of fitting lower-cost therapies into the specialty channel requires a highly organized and cost-conscious approach to program design. Distributors, third-party logistic (3PL) providers, specialty pharmacies, clinical services, and free drug offerings each have their own costs. To find success in these circumstances, manufacturers must:

  • Understand the value of offering a specific service for a specific therapy.

  • Eliminate overlap and unnecessary features.

  • Practice smart contracting with specialty pharmacies and other involved vendors. 

Why low-cost medications end up in specialty

There are two main scenarios when a therapy is dispensed primarily through the specialty pharmacy channel:  

  • A manufacturer restricts the distribution channel to limit product access to those pharmacies that offer certain capabilities. In practice, this means specialty pharmacies-which do have the needed capabilities-dispense the therapy.

  • Even if a drug is available to any pharmacy willing to dispense, payers mandate the therapy must be filled at specialty pharmacy by only covering prescriptions filled in that manner.

It should be recognized that very few manufacturers set out to develop and market a therapy that would go through the specialty channel at a price below what would reasonably support the economics of the channel. Often, the drug was designed to compete with lower-cost medications in the retail channel but forced into the specialty channel due to product characteristics or unforeseen clinical mandates.  

No matter the reason, once a manufacturer is faced with the challenge of launching a low-cost therapy into the specialty channel, a carefully planned approach that considers all financial drivers must be developed and executed.

Smart program design for a low-cost specialty therapy

When planning the distribution channel and support services structure for a low-cost therapy, a manufacturer must be a cost-conscious shopper. There can be no redundant services and each contract needs to be negotiated aggressively.  

Of course, negotiating too aggressively can be counter-productive. The incentive for your vendors to work hard on your behalf diminishes when they’re not being properly compensated. Deep, direct experience with this type of contracting is critical when walking such a fine line.

Unlike planning for higher-cost specialty therapeutics where discounts and amounts are generously rounded and redundant services between HUB and pharmacy are common, planning for a low-cost therapy requires that services be mapped in great detail. Each contract should be negotiated with a detailed understanding of specialty pharmacy, specialty distribution, and HUB dynamics.

Distribution channel

There are a number of combinations of 3PL providers, wholesalers, and distributors that a manufacturer could employ to get finished goods into specialty pharmacies. As a general rule, the fewer, the better. The first question to be addressed is whether the drug will be limited to specialty pharmacies or if it will also be available to retail and pharmacy benefit manager (PBM) mail order pharmacies. If the therapy will be limited to just specialty pharmacies, then a combination of a 3PL and one or more specialty distributors will suffice. If it is the latter, a manufacturer will need to consider one or more large wholesalers.  

It’s an important question because if a manufacturer does not need distribution to retail pharmacies nationwide, there is no reason to pay for that level of service. By using a 3PL, a manufacturer can achieve significant cost savings by selling directly to specialty pharmacies and further utilizing one or more specialty distributors to sell to hospitals and other institutions as needed.

Specialty pharmacy network

When determining the size of a specialty pharmacy network, the primary consideration is the size of the patent population for the therapy. Analysis of specialty pharmacy contracts reveals that the fewer specialty pharmacies in the network, the better the pricing a manufacturer can obtain. Limiting distribution allows specialty pharmacies to have greater volume and also greater negotiating power with payers related to reimbursement. Specialty pharmacies pass these financial benefits along to manufacturers in exchange for inclusion in limited networks.  

Based on this financial dynamic, a specialty pharmacy network should include as few specialty pharmacies as reasonable based on the patient population.  The argument against limiting the number of specialty pharmacies in a manufacturer network is based on payer coverage. A health insurer will have its own specialty pharmacy network-sometimes with just one specialty pharmacy. If a referral for a specialty therapy goes to a pharmacy that is not in the health insurer’s network, there will be some delay for that patient to receive their drug.

Generally, the more patients a specialty pharmacy can serve without any out-of-network hurdles, the more efficiently and cost-effectively they can serve the providers and patients using a manufacturer’s therapy. 

When negotiating a contract for a low-cost specialty therapy, it is critical to have a detailed understanding of the core services offered by each specialty pharmacy being considered. Knowing what the specialty pharmacy will provide as a core service informs the contracting process and eliminates the mistake of paying for a service that might be offered for free and guides the smart design of any additional services required. Additional services need to be carefully considered; if they are not necessary, then a manufacturer should avoid them for low-cost therapies.

HUB services 

Many traditional specialty therapies employ what are commonly referred to as HUB services. These are financial, clinical, and other support services provided to patients and caregivers by a third party that is separate from the specialty pharmacy-though some HUB service providers share common ownership with specialty pharmacies. No matter the ownership structure, these services should always be operationally and contractually separated from the services a specialty pharmacy or distributor will provide.

HUBs typically charge manufacturers on either a full-time equivalent (FTE) or a transactional basis. Either way, each service the HUB provides will end up costing the manufacturer. Because many of the core services at specialty pharmacies are performed at no additional expense to the manufacturer, with lower-cost specialty products it is especially important to ensure that the HUB does not duplicate these services. In general, a HUB is a luxury for low-cost specialty therapies and the services provided by the HUB should be minimal or potentially even eliminated in the interest of managing costs.

Low-cost therapies can be successfully dispensed in the specialty pharmacy channel. However, there are hidden financial forces that can subvert the commercial success of these products. It is vitally important to understand the fundamental complexities that need to be overcome in order to not only facilitate the availability of a therapy in the specialty channel but also ensure financial success.


Charlie Bell is a Senior Director at Archbow Consulting

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