The specialty drug market continues to boom, but some believe the window for chain and independent pharmacies to enter the space—if they haven’t already—could be closing soon.
In 2016, pharmacies dispensed about $115 billion in specialty drugs, according to industry expert Adam Fein, PhD, President of Pembroke Consulting, Inc. and CEO of the Drug Channels Institute, a blog that provides analysis of pharmaceutical economics and distribution trends.
This equates to almost 30% of the pharmacy industry’s revenue for the year. By 2021, Fein estimates that the specialty drug industry will make up closer to 42% of the industry’s revenue—or about $240 billion of dispensed specialty drugs.
“Specialty is the future of the pharmacy industry in terms of revenue,” Fein says.
According to data from Diplomat, a large independent specialty pharmacy, specialty drugs accounted for about half of all new drugs and biologics approved by the FDA in 2015. But while more specialty drugs continue to enter the pipeline, the opportunity for chain and independent pharmacies to establish a foothold in the market is narrowing.
Many larger chain pharmacies are already in the space and a growing number of health systems are also hoping to secure a piece of the market. As the number of players grows, industry experts say payer networks and limited distribution networks are shrinking. Those pharmacies that aren’t already in the space—whether independent or smaller chain stores—may want to move fast before the opportunities vanish. According to Fein, the largest in the industry are CVS Health Caremark; Accredo and Freedom Fertility, both operated by Express Scripts; and Walgreens retail and central-fill specialty pharmacy.
“Anyone interested in getting involved in specialty needs to be making in-roads this year,” says Suzette DiMascio, CHE, CMCE, CPC, President and CEO of CSI Specialty Group, a specialty pharmacy consulting firm.
Each year, specialty drugs make up a greater share of the pharmacy industry’s revenue. However, Fein says, much of the dispensing is currently done by mail or central-fill pharmacies.
Many chains choose to operate central-fill pharmacies instead of dispensing directly out of their retail stores due difficulties with accessing and dispensing specialty drugs.
“Mail and central-fill pharmacies account for about 70% of all pharmacy dispensed specialty drugs in 2016. So that means 30% was dispensed by other formats, chain stores, independents, super markets,” Fein says.
“Retail still has an important place in the specialty market, but the nature of specialty drugs in many cases makes them poorly suited for wide distribution at retail pharmacies,” he says.
A growing number of chain and supermarket stores now operate specialty pharmacies including Albertsons, Giant-Eagle, Rite Aid, Walmart, and Discount Drug Mart.
DiMascio says more health systems and integrated care delivery networks are also getting involved with specialty pharmacy, further reducing the market for retail and community pharmacies.
“It’s changing the landscape in a way we’ve not seen before,” she says.
However, even in the current climate, DiMascio and Fein both believe the opportunity is still there for community pharmacies.
“One of the most dynamic aspects of the specialty pharmacy industry has been the growth of independent specialty pharmacies,” Fein says.
Almost half of all accredited specialty pharmacy locations, according to Fein, are independent specialty pharmacies. Even smaller independents can still compete in the space by finding an untapped niche in their community or highlighting their ability to improve patient outcomes.
DiMascio says the decision whether to enter the specialty pharmacy space often depends on the pharmacy’s location, business model, and referral sources. She recommends that pharmacy owners who are considering specialty pharmacy act within the next three years to secure a piece of the market.
“Your opportunities are going to become less and less because the market is becoming more sophisticated, there are more channels of individuals involved in specialty, and the payer networks and limited distribution networks are getting smaller,” she says.
Narrow networks present significant challenges to community pharmacies hoping to penetrate the space. The reality of the market is that manufacturers are increasingly launching specialty drugs with narrow networks, often of fewer than 25 pharmacies, Fein says.
“Payers, PBMs, and health plans are further limiting those networks in many cases down to just one or two options for a patient within the manufacturer defined network,” he says.
Brian Komoto, PharmD, President and CEO of Komoto Healthcare, says one of the biggest challenges he’s seen in the specialty space is competing with PBMs. Komoto, who operates two retail and two closed-door pharmacies in California, has been in the specialty space since 2000, but says in recent years it has become more difficult to stay competitive.
“The problem now is because the drugs in specialty are so expensive, we’re seeing PBMs just trying to take that market away from us,” he says.
Komoto has lost a portion of his business to bigger PBMs. He says he has been able to find niches and continues to work with the county, smaller groups, and smaller payers who appreciate the more patient-focused approach his pharmacy is able to provide as an independent.
Regional pharmacies may be able to remain competitive by focusing on government plans, Fein says, which have many willing provider provisions that allow smaller players to be at the table.
The challenge for many smaller pharmacies is getting access to the products. In addition, successful specialty pharmacies need to adopt new marketing strategies that go beyond the consumer to also include the manufacturer, payer and provider.
“That’s a very different business model than standing behind a counter and waiting for someone to walk in with a prescription, so that mind shift is one that some pharmacies have trouble making,” Fein says.
The road to specialty pharmacy isn’t without its challenges, but those in the industry say chain and independent pharmacies can find success by focusing on what makes community pharmacy unique—the patient relationship.
“Retailers and community pharmacies have established relationships with their patients,” DiMascio says. “There’s an innate trust that is built with their patients over the years.”
A primary goal of community or retail pharmacies, she says, should be to establish specialty programs and policies that focus on putting the patient first and to have built-in strategies to improve and track patient outcomes.
“When you have that foundation, it’s very easy to build upon your relationships. We’ve seen some pharmacies go from being a retail pharmacy to being a $50 to $60 million pharmacy in 18 months,” DiMascio says.
Komoto says much of his success has been due to the ability community pharmacies have to focus on the patient and establish programs to educate, manage, and follow those patients with complex diseases.
“Our relationship developed with payers because of what we were doing. I think that’s the key to any independent trying to get involved—showing value of the services so that the payers are interested in working with you,” he says.
While the margin on specialty drugs is often lower than traditional drugs, Matthew Panos, Program Manager of retail specialty solutions at McKesson says their high cost can lead to significant profits.
“We also find that patients who take specialty medications typically have three to 11 additional prescriptions, making them valuable patients,” he says.
Making the Move
Ali Mohammed, PharmD, MBA, recently made the transition into specialty pharmacy.
Mohammed’s family had been run- ning a successful community pharmacy in Harlem, NY, for nearly 30 years by the time Mohammed was ready to graduate from pharmacy school and join the family business.
But Mohammed, now owner of METRORX Specialty Pharmacy, was concerned about dwindling reimbursement in the community setting and wanted to find a new avenue to boost the pharmacy’s presence in the community. After much research, Mohammed settled on specialty pharmacy and has spent the last few years carefully planning his transition into the space.
To prepare, he attended a specialty pharmacy conference, went through the specialty pharmacy accreditation process, and hired a consultant with CSI Specialty Group to help establish himself before the opportunity to enter the market vanished.
“The doors are closing,” Mohammed says. “They are closing faster than most people thought, so you really have to have that sense of urgency.”
One of his first steps was going out in the market to create a buzz about the new specialty pharmacy.
“I put myself in everybody’s shoes. As a pharmacy owner, what would I need to differentiate myself? What would I need from a patient’s perspective? What are patients looking for?” He also tried to look at the needs of payers and providers.
Through that process, he determined there was a need for easier-to-use referral forms. Most providers are currently using an online form that needs to printed-out, filled out, and then sent into the pharmacy.
Mohammed created his own HIPPA-compliant custom templates for providers that can be filled out and submitted online. The template allows each provider to simply put in a patient’s demographic information, attach labs or clinical details, enter a diagnosis code, and then select drugs to prescribe.
The system is still in the beta-testing phase, but Mohammed is hopeful that the added convenience will help distinguish his pharmacy from the competition. He has also hired a sales representative to help him enter strategic markets. And he has plans to test various products aimed at increasing compliance.
Avenues to Specialty Pharmacy
But while Mohammed chose to transition his community pharmacy into a specialty pharmacy primarily on his own, with the help of consultants, that isn’t the only way pharmacies are entering the space.
Fein says some chain or supermarket pharmacies are penetrating the space by acquiring specialty pharmacies.
“Kroger has built one of the largest specialty pharmacies in the country by acquiring a few specialty pharmacies and also by expanding its internal capabilities,” he says.
Other community pharmacies are choosing to partner with specialty pharmacies. These arrangements typically work by allowing the community pharmacy to outsource some of the specialty pharmacy operations, such as back end distribution, to a more established specialty pharmacy.
“It’s almost like putting training wheels on a bike so you can at least start riding on that bike. Then when you are ready to do it all yourself, it’s something you can aspire to do,” DiMascio says.
This was the best option for Brett Cohen, owner of Globe Drug Store in Brooklyn, NY, who entered the specialty space about two years ago through McKesson’s Health Mart Specialty Solutions.
The program allows independent pharmacies to compete in the space by partnering with Diplomat.
Cohen says he decided to enter the space after he noticed the pharmacy was getting prescriptions that could only be filled by a specialty pharmacy. He didn’t want to lose those patients, but the volume of prescriptions his pharmacy received for specialty medications didn’t justify the resources or commitment that would be necessary to start his own specialty business either.
By having access to services from Diplomat, he receives assistance with prior authorizations, benefits from 24-hour support, and is able to fill prescriptions he wouldn’t otherwise be able to.
Panos says Health Mart Specialty Solutions also provides customizable marketing material to help pharmacies market their specialty services, as well as an analytical dashboard to help pharmacies track their fills by month, brand, and class.
“Supporting a retail partner requires the expertise, capabilities, and focus to deliver the types of specialty services that retail pharmacies need,” Panos says. “In a partnership, the benefits will be shared between the specialty pharmacy and the retail pharmacy, which doesn’t need to develop the core competencies of a specialty pharmacy.”
Other companies also offer retail partnership programs, including Diplomat, KloudScript, Asembia, and Thrifty White Pharmacy.
Cohen says in his situation, the partnership took essentially no capital upfront, except for the cost of the drugs before reimbursement, and integrated seamlessly with his current system. “It met my business needs perfectly,” he says.
Keys to Success
When it comes to specialty pharmacy, industry experts say there is not just one path for success. Much of it depends on the market and what unmet needs are in a community. But there are some common themes to establishing a presence in the growing market.
Chain and independent pharmacies that want to offer specialty medications need to go through the specialty pharmacy accreditation process, find a niche, and focus on how they can deliver better patient management and care.
“I think to be successful in specialty means really looking outside just the four walls of your business,” Fein says. He adds that pharmacy leaders can often gain insight from attending meetings or gatherings where specialty pharmaceutical manufacturers, distributors, and PBMs go to discuss trends.
DiMascio recommends pharmacies start small by finding unmet needs in the community and establish a niche before trying to take on too much. She also recommends pharmacies put effort into marketing new services.
What she says retail and community pharmacies shouldn’t do, however, is wait.
“If you’ve got the desire and the financial backing, and then bring in the industry know-how whether you hire that or you work with a consulting firm, you can be successful,” DiMascio says. “What’s happening though, is success is taking a little bit longer because there are so many more challenges involved in specialty today than there were even two years ago.”