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The geriatric-dominated LTC market is growing, but has unique constraints
Alzheimer’s therapy remains out of reach
One of the bigger drivers of long term care - Alzheimer’s disease - is the target of
nearly 100 drug development programs, according to InSight Pharma Reports (Needham, MA). But a successful product is no closer, following the failure of bapineuzumab in clinical trials run jointly by Pfizer and J&J in August. That Phase III discontinuation follows an earlier failed project, for semagacestat, which Lilly shut down in 2010. An Alzheimer’s treatment would be a fantastic blockbuster; there are an estimated 36 million suffering the diseases globally, and five million in the US, and the number of patients is only growing as populations age.
The long-term care (LTC) market is being whipsawed by many of the more prominent trends in healthcare: the aging of the Baby Boom generation; the efforts to rein in healthcare costs (which drives more patients to LTC alternatives, like home-based care); and, as a result of Obamacare, the simultaneous expansion of national healthcare coverage and threatened contraction of state-level Medicaid programs. For the pharma industry, LTC presents a special set of opportunities and challenges: the elderly are the biggest proportion, demographically, of medicated patients, while the LTC distribution channel has constraints not common to other channels.
This year, approximately nine million Americans over the age of 65 will need long-term care (LTC), and by 2020 that number will grow to 12 million, according to CMS. In 2030, when the last of the baby boomers turn 65, and the first wave are well into their 80s, the number of older adults requiring LTC will increase even more. According to the HHS, people who reach the age of 65 have a 40% chance of entering a nursing home. About 10% of the people who enter nursing homes will stay there at least five years, with the average stay being about two-and-a-half years.
This market—in which healthcare services are delivered in a variety of settings, including skilled nursing homes, assisted living facilities and retirement communities, as well as in the patient’s home—represents a sizable growth opportunity for drug manufacturers and the pharmacies that dispense their products. In 2011, prescription drug spending in the LTC channel (excluding home health) totaled $15.2 billion, a 14% increase since 2007, according to IMS Health’s report, The Use of Medicines in the United States: Review of 2011. Dispensed prescriptions rose 11% in the same time period, from 295 million in 2007 to 329 million in 2011 (see Figure).
“The statistics clearly demonstrate a need for long-term care pharmacies,” says Brad Cochran, VP of LTC sales for Cardinal Health. “However, those statistics are also inviting growth in other patient care channels… so, despite the tremendous market opportunities, pharmacies that want to specialize in servicing LTC facilities really need to understand the market needs, and they need to structure their business to operate as efficiently as possible.”
What makes LTC unique
While LTC encompasses all ages, the vast majority of LTC residents of long-term care facilities (six out of seven, according to the Center on Elder Abuse) are 65 years or older. For skilled nursing homes, the average resident is in her 80s (her, because two out of three LTC facility residents are female).
Some LTC facilities are big enough to have pharmacies on-site (or sophisticated enough to have automated dispensing systems), but for the most part, these LTC-specific pharmacies are closed-door and located off-site.
An LTC pharmacy receives an order from the prescribing physician, and then repackages the medication into unit doses (usually blister packs) before delivering it to the LTC facility, where a nurse will administer the medication to the patient. Some of the drugs are delivered in two- or three-day supplies, while others arrive as 30-day supplies.
The LTC pharmacy market includes players of all sizes. Two institutional pharmacies dominate the space—Omnicare, Inc. (Covington, KY), has about half of the market share, while Pharmerica Corp. (Louisville, KY), represents about 10% of the market; the rest of the market is made up of regional and independent pharmacies. Bill Daniel, executive director of the Long-Term Care Pharmacy Alliance (Washington, D.C.), estimates there are between 900 and 1,200 independent LTC pharmacies in operation today. These pharmacies purchase most of their drugs in bulk from wholesalers, including AmerisourceBergen, Cardinal Health and McKesson. In addition to providing distribution services, the Big 3 also offer reimbursement, workflow and other business support to their LTC pharmacy customers.
A role that is unique to the LTC market is that of the consulting pharmacist, who conducts a drug regimen review on each patient at least once a month, and makes recommendations to the patient’s physician about drug regimen changes. Required by CMS, the monthly review is designed to monitor the use of medications and look for adverse drug events. The consulting pharmacist may or may not be employed by the dispensing pharmacy, but CMS is considering revising its rules to require these consulting pharmacists to be independent of the dispensing pharmacy—a move designed to keep the patient’s health at the forefront of medication decisions.
Another distinct characteristic of the LTC market, at least when it comes to elderly patients, is the payer: Reimbursement for prescription drugs in LTC is funded mostly by Medicare Part D prescription drug plans or, to a lesser extent, Medicare Advantage plans. In cases where patients cannot afford those, government-funded patient assistance programs and eventually Medicaid kick in to cover the cost of the drugs.
Daniels and others note the predominance of generics in LTC. “More than 150 patent expirations are expected between 2012 and 2014, representing more than $107 billion in brand sales and significant savings opportunities for alternate site pharmacies,” explains Pam Burch, vice president, McKesson Alternate Site Pharmacy.
McKesson, which dominates the market for LTC wholesale distribution, offers 30-day, price-protected automatic shipments of high-volume generics once the drugs launch.
Cardinal Health has a similar program for newly released generics, called First Script, which offers an automatic 15-day supply to LTC pharmacies based on their purchasing volume of the branded equivalent in the 60-day period prior to the generic launch.
Counteracting cost sensitivity
Dr. Gary Erwin, SVP of clinical services for Omnicare, says cost sensitivity makes it difficult for a pharmaceutical company to introduce a new drug in a therapeutic class where there already is a generic option. Payers, he says, will require that more expensive drug to be safer and more effective before they’ll add it to their formulary.
Providing medical evidence on the efficacy and safety of the drug in an elderly patient population can help a branded drug gain this competitive advantage over generics. Erwin points to Xarelto (rivaroxaban) from Bayer AG and Johnson & Johnson as one drug that has gained a strong foothold in the geriatric market, despite there being a widely used cheaper alternative (warfarin). In the drug’s clinical studies, it was found to be safer and more effective than the standard of treatment for the disease.
Another strategy some drug companies employ to maintain market share of a branded drug is to change the dosage—from twice a day to once a day, for example. Generally speaking, he says these approaches don’t give branded drug manufacturers the same level of market share once a generic becomes available, but that dosage frequency can be an important factor for elderly patients.
Declining reimbursements in LTC
Because CMS is under constant pressure to rein in spending, declining patient reimbursements is a constant threat for LTC pharmacies. Last year, CMS hit skilled nursing facilities with an 11.1% decrease in reimbursement rates. The cut affects LTC pharmacies indirectly, as skilled nursing facilities will look to their pharmacy spend as one place to reduce expenses.
“In an environment where reimbursement fees are always in danger of shrinking, it’s increasingly important that LTC pharmacy operators do everything in their power to claim every penny of reimbursement they’re owed,” says Cochran of Cardinal Health. “Tracking reimbursements can take a great deal of time, though—time that pharmacy owners and staff can more effectively spend on patients.”
Cardinal Health offers a range of reimbursement consulting services, including biweekly consultations with a reimbursement adviser. AmerisourceBergen’s reimbursement management solutions include up-to-date access to the most current drug prices and online tools to help prevent errors during the claims process.
“Of all the solutions we offer to long-term care pharmacies, our reimbursement management solutions represent one of the fastest changing segments,” says AJ Caffentzis, SVP, AmerisourceBergen Drug Corp. sales and marketing.
McKesson, through its subsidiary RelayHealth (Atlanta, GA), offers “reimbursement performance” solutions, including editing and automatic resubmission of claims, and current pricing research.
CMS drug pricing policies hit LTC facilities especially hard, given the dependence of patients on Medicare. The continuing problems associated with defining average manufacturer price (AMP) and Federal Upper Limit (FUL) prices based on AMP have “dire” consequences for LTC managers, according to LTCPA’s Daniel. The problem is, he says, “defining AMP is like defining beauty—everyone has a different idea of what it should be.”
LTCPA and Omnicare are working with CMS to help ensure that the new pricing system is realistic and fair. “We are concerned with the preliminary numbers, as hundreds of these draft-weighted AMPs, and many of the draft FULs, are below our acquisition cost, not to mention below the cost for many smaller pharmacies,” explains Ed Loyd, vice president, Omnicare corporate communications.
While work on AMP is ongoing (resolution is not expected before 2014), Omnicare already has started preparing for the pricing change by shifting reimbursements on certain contracts from FUL to average wholesale price minus.
Regulatory changes on deck
A more pressing issue facing the LTC market is the short-cycle dispensing of branded drugs. A provision in the Affordable Care Act requires LTC pharmacies to reduce per-fill quantities of branded drugs from the standard 30-day fill to no longer than 14 days. The change takes effect Jan. 1, 2013.
“The rationale behind this mandate is that shorter fills will result in fewer unconsumed medication units that normally occur due to medication switching, discharges from the facility, death or other causes,” according to the LTCPA policy position statement. And less waste should mean lower cost to the payer.
But industry leaders like Daniel are dubious that the provision will offer any savings. Instead, he says, the change will amount to extra work for the dispensing pharmacies—particularly smaller, independent ones—and the LTC facility staff.
But there might be a bright side: Since short-cycle dispensing requires more work, it helps make the case for moving toward a more automated pharmacy.
“Facilities already using automatic filling will be able to adjust easier to this change,” Caffentzis of AmerisourceBergen says.
Another LTC issue that has Washington’s attention—but lacks a solution—is the overuse of antipsychotics to treat elderly dementia patients with behavioral disturbances. The off-label use of these drugs can be effective in keeping these patients from hurting themselves or others, but the drugs themselves can be particularly dangerous to elderly patients.
Earlier this year, the American Health Care Assn. announced a goal to reduce the off-label use of antipsychotics in LTC facilities by 15% before the end of the year, but provided no clear direction for doing so. So, what is the solution? Omnicare’s Erwin says facilities should look at trying non-pharmacological approaches first, or to keep antipsychotic treatment as short as they possibly can.
“What’s challenging about this is that sometimes these drugs are the only thing that will work,” he says. “The prescriber and the family are walking this very fine line between keeping that patient safe and letting that patient potentially hurt themselves or someone else.”