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Will higher costs to hospital pharmacies net higher revenue to Genentech?
In details broken first by Modern Healthcare and then by the Wall St. Journal Pharmalot blog, a confrontation is building between Genentech and certain hospital systems who are upset that Genentech has restricted distribution of three key oncology products—Avastin (bevacizumab), Herceptin (trastuzumab) and Rituxan (rituximab)—to six specialty distributors. The six are: ASD Healthcare and BiosolutionsDirect (both subsidiaries of AmerisourceBergen); Cardinal Health Specialty Solutions; McKesson Plasma and Biologics; Morris and Dickson Specialty Distribution, and Smith Medical Partners (subsidiary of H.D. Smith). All three are infused products; all three require refrigerated shipping and storage. A letter sent to hospital pharmacy directors in mid-September (the change went into effect on Oct. 1) from Genentech said, in part, “Genentech is committed to patient safety, to protecting the integrity of our medicines as they move through the supply chain, and to ensuring patients and healthcare providers are able to access the medicines when they need them,” and that the company wants to ensure that “we utilize the most appropriate distribution model for each of its medicines based on its unique characteristics.”
Subsequently, various health systems protested an increase in costs that, it was said, results from shifting the distribution from some 80 wholesalers who had handled the drugs to the six (it’s worth noting that the limited distributors are themselves the business units of the leading wholesalers in the country). Novation, a leading group purchasing organization (GPO) said that the shift will cost its 2,000 hospital customers $50 million more annually, according to the Pharmalot story. On Nov. 6, 10 hospital systems and academic medical centers sent a letter to the leadership of Congress stating that the change will force hospitals to keep more drug in their own inventory because “the medications can no longer be obtained through wholesalers with routine daily orders,” and that the “less expensive wholesaler channel,” arranged through the intercession of GPOs, is now unavailable to them.
Ascension Health, one of the 10 signatories to the letter, also took a shot at Genentech by restricting access of Genentech sales reps to physicians at acute-care hospitals in the Ascension network.
At first glance, and by basic economic principles, a restriction on access to a marketed product means higher prices—and higher net revenue may well be an ulterior motive to Genentech’s action. At the same time, though, the inability to provide just-in-time delivery to hospitals is a head-scratcher; specialty distributors pride themselves on better and more flexible delivery than conventional wholesale channels. All three products have been on the market for quite a while (Avastin, the newest, was approved in 2004); thus, another factor, common to many blockbuster drugs, is that the cost of keeping it stocked at multiple distributors is more of a burden on the manufacturer than stocking it at a limited number of locations. Moreover, hospitals are by no means the only access point for patients to receive these drugs; there’s an ongoing wrestling match between health systems and community oncologists over who manages the care of cancer patients. (Making things even more complicated, there’s a different set of specialty distributors listed on Genentech’s authorized-distributor web page for physician offices rather than hospitals.)
There are also hints that the industry practices for handling cold chain pharmaceutical are at play here. The letter to Congress mentions that the switch “will also create additional logistical challenges and costs in how and where our facilities receive, store and dispose of the additional packaging that will be required.” The implication here is that specialty-distributor delivery is in individualized cold chain packaging and conventional wholesale deliveries are not—but if true that raises risks for deliveries that are not rigorously kept in a refrigerated state. Genentech’s allusion to “protecting the integrity of our medicines as they move through the supply chain” is on point. (Which is not to imply that conventional wholesalers just throw the products in a truck and go—Cardinal Health, for one, has developed a system of including refrigerant packs in the tote bins it delivers to pharmacies.)
Limited distribution is the pattern for more specialty pharmaceuticals; part of the rationale is to more easily arrange ancillary services (such as testing or patient support) to boost a product’s sales; another part is to exert more control over pricing and access. And with the growth in specialty pharmaceutical business, more of these confrontations will crop up.