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When entering the specialty pharmaceuticals arena, manufacturers need to evaluate the capabilities of their channel partners carefully
Fig. 1. Flow of product from manufacturer to patient.
Specialty pharmaceuticals are one of the most dynamic parts of the global pharmaceutical industry, and within the US, specialty pharmacy providers (SPPs) are emerging as an essential partner to manufacturers in commercializing products. Today’s specialty-distribution channel is still evolving: while many of the distributors are consolidating, more and more SPPs are emerging. The influence and acquisition of specialty pharmacies by payers, including managed care organizations and pharmacy benefit managers (PBMs) are a driving force as well.
While SPPs are a critical element in appropriate care and cost-effective dispensing of specialty pharmaceuticals, each have their own business drivers that are separate, and in some cases, in contrast to manufacturer concerns. This fact requires manufacturers to evaluate their distribution choices strategically, and to negotiate carefully with the organizations that operate SPPs. What follows are some general guidelines on these strategies and negotiation positions.
Although SPPs are all the rage now, their basic function has been around for decades: delivering complicated, specialized drugs to patients. Specialty pharmaceuticals are generally regarded as those that:
Very often, specialty medications are dispensed in a clinical setting, such as a hospital or oncology clinic. As such, they are typically reimbursed as a medical benefit but recently there is a shift toward coverage through the drug benefit—complicating the reimbursement and payer-negotiation process. In addition, the intensifying shift of new small- and large-molecule products for rare or chronic conditions is putting SPPs squarely in the spotlight. Various market studies estimate the value of specialty pharmaceuticals at $70 billion (out of an overall US market of around $300 billion), and growing at double-digit rates, while the overall pharmaceutical market is growing at single digits.
Concomitant with these high-cost, complex pharmaceuticals, a growing list of support services are being developed. The Healthcare Distribution Management Assn., in its 2012 Specialty Pharmaceuticals: Facts, Figures and Trends report, lists many of them (Table 1). Who provides these services—and how well they are carried out—is a crucial factor in executing a successful commercialization strategy.
Focus on the ‘point of purchase’
Many specialty pharmaceuticals are distributed by major, full-line wholesalers, just as conventional products are; but most of the major wholesalers have developed specialty distribution subsidiaries to focus their efforts. At the same time, new specialty distributors have arisen, offering a more customized service. Some SPPs are large enough (including the centralized pharmacies of integrated healthcare delivery networks, as well as major chain drugstores and PBMs) to act as their own distribution and dispensing channel. There are specialty distributors whose services go well beyond the basic logistics of fulfilling orders (although, given that many specialty pharmaceuticals require temperature-controlled shipping and other specialized services, that is not a trivial undertaking) to provide patient-centered services such as prior authorization assistance or patient education. Finally, so-called “hub” services are well equipped to handle a multitude of patient-assistance services and, in some cases, the logistics of distribution of free goods or product to specialty pharmacies. (Figs. 1, 2).
Avoid waste in the channel and protect your company’s interests
For the manufacturer, the channel partners, singly or collectively, provide two vitally important services: 1) ensuring that drugs are delivered and dispensed safely and appropriately, and without the waste that can occur from prescription abandonment or poor medication adherence; 2) providing patient and healthcare-provider data to meet the manufacturer’s obligations to FDA and payers for outcomes, ancillary diagnostic services and related issues. These latter requirements are increasingly an obligation that manufacturers have under FDA’s REMS (Risk Evaluation and Mitigation Strategies) requirements.
Fig. 2. Flow of funds, with the intercession of a hub service. Credit: Acorda
REMS specifically came about through the FDA Amendments Act of 2007 as a way to address drugs that can have serious risks or side effects if improperly dispensed; when such drugs are approved, the manufacturer agrees to monitor drug use and outcomes, and to report these to FDA. Like specialty pharmaceuticals themselves, REMS has a prior history: post-marketing commitments; now most of these commitments have been converted to formalized REMS programs. The most complicated REMS programs are “REMS with ETASU” (Elements to Assure Safe Use)—these elements can include certifying healthcare providers, pharmacists and even distributors; developing patient registries; and requiring diagnostic tests to accompany dispensing.
Executing a REMS program, especially REMS with ETASU, can be complex and expensive. Nearly all REMS call for development of a medication guide, a document that instructs prescribers and patients on proper use of the drug; this is developed by (or under the guidance of) the brand owner. Some REMS require follow-up analysis to ensure that the guidance is properly distributed, read and understood; this engages the prescriber as well as the pharmacist—so a dialogue needs to be established at that point.
More complex REMS require training and certification of prescribers and sometimes, pharmacists (and, on more rare occasions, the distributors themselves)—another line of communication to be established with channel partners.
Finally, the full-blown REMS with ETASU can require such elements as patient registries, follow-up studies and ongoing communications, and collection, analysis and reporting of outcomes. Brand owners are critically dependent on the quality of service by SPPs to accomplish this, since ultimately the data are to be reported back to FDA, and the license to continue to market the drug is dependent on successfully meeting FDA requirements.
Maintain a manageable network
This is where consideration of hub services enters the picture. Hubs can act as intermediaries between manufacturers, payers, providers and patients. To some degree, they are competing with the SPPs for the fees involved in data collection and patient follow-up.
Deciding whether to use a hub service, or to select one or more SPPs and specialty distributors to handle drug distribution and dispensing, becomes an intensive focus of the managed-markets and commercial operations team of the manufacturer. The best advice is, simply, to engage with a variety of SPPs, distributors and hubs, put all the requirements on the table, and ensure that contracts that are ultimately written include performance metrics upon which payment is dependent.
One other overarching factor in this process is whether to aim for an exclusive distribution/dispensing agreement with one SPP, or to open up the network to a few, or many, trading partners. MCOs and PBMs generally don’t like exclusive distribution agreements on the logic that it eliminates competition. (The fact that many PBMs have their own SPPs is certainly another factor here.) On the other side of the equation, however, is the critical need for the manufacturer to have a reliable distribution partner who provides proper controls and data reporting to the manufacturer. The nature of the potential patient population is a factor in this decision: Rare diseases being treated by orphan drugs might simply have too small, or too geographically diverse, populations to be served by multiple SPPs.
Negotiate, negotiate, negotiate!
While REMS reporting is essential for regulatory compliance, manufacturers would like to have data on how well a drug is being taken up by healthcare providers; competitive analysis; and to the extent possible, patient demographics and outcomes (even if it’s not a REMS requirement)—all the things that roll into effective market research and analysis. Because the distribution channels of specialty pharmaceuticals can be dramatically different from conventional drugs, conventional scrip or sales data are insufficient to truly understand market dynamics.
All these factors come to bear on the service contracts that are struck between the manufacturer and specialty distribution partners or SPPs. Our experience is that there is wide variation in the capabilities of distributors and SPPs to report reliable utilization data, ranging from detailed, timely reports of scrips, product inventory, therapy abandonment and adherence. Data quality and integrity is a significant issue; even within the same SPP, we have found contradictory or non-standard reporting of basic facts about drug usage. The data reporting function is a basic element of any service agreement with an SPP partner (for which a fee is charged), similar to the inventory-management agreements between conventional wholesalers and manufacturers. There is no standard in developing a fee structure for data or other services with SPPs. Establishing “fair market value” for a bona fide service is the first step and there should be no “off-agreement” understandings, but beyond that, everything is negotiable. As such, it is important to confirm the capabilities of a potential SPP partner or network participant prior to negotiating contract terms.
With that in mind, increasingly, manufacturers are becoming more critical of other contract elements, such as, the industry standard known as “prompt pay” discounts. While this practice has long been considered a necessary aspect of any channel contract, manufacturers are beginning to balk at this practice as an unnecessary and costly expense to their bottom line. The advent of electronic funds transfers have largely eliminated the issue of accounting for time delays in delivery of funds but the prompt pay issue has remained. SPPs and traditional wholesalers may find this issue will be negotiated vigorously by manufacturers in the future as every organization is pressured by increasing costs and narrowing margins.
Ultimately, the manufacturer is the customer paying for a service but the relationship between SPPs and manufacturers are complex. There are levers within both constituents that influence these relationships and it can be a delicate balance but the manufacturer remains the responsible party in the government’s eyes. For that reason, and many others, the manufacturer needs to establish the role of customer in the negotiation. After all, it is a competitive environment and as mentioned previously, there are more players entering the market every day.
ABOUT THE AUTHOR
Kent Rogers has been vice president of managed markets at Acorda Therapeutics since August 2010. Kent currently oversees a team of field-based national and regional account directors, as well as home office-based personnel in the areas of Market Access Strategy, Channel Strategy and Managed Markets Pricing & Contracting. Previous to Acorda, Kent held positions of increasing responsibility in sales and managed markets at Carter Wallace, Inc. and Schering Plough Corporation. Over the span of his career, he has had direct involvement in well over a dozen product launches in multiple therapy areas including; neurology, oncology, cardiology, allergy, immunology and central nervous system disorders. Kent has a BS in Business Management from Indiana University and an MBA from Emory University’s Goizueta School of Business.