Editor’s Note: This is the second of a three-part blog series by channel expert Bill Roth, Senior Vice President and General Manager of Consulting (also founder of Blue Fin Group), who explores how specialty pharmacy has evolved, the current landscape, and insights for pharmaceutical organizations. From the rising costs of specialty pharmacy distribution and dispensing obstacles to the growing presence of digital pharmacies, direct distribution, and alternative networks, pharmaceutical organizations are trying to pivot in this new environment. Want to learn more about the changes in specialty pharmacy distribution? Read part 1 of this series.

Specialty Pharmacy Fragmentation

We are seeing an unprecedented level of change, transformation, and uncertainty due to both mounting payer pressure and innovation from areas such as Cell and Gene, Orphan and Rare, and Specialty Lite products in most major therapeutic areas. If you were launching a primary care product 15 years ago, it was kind of a one-size-fits-all commercialization model. Now it continues to get more and more diversified each year. Within that diversification is the access and channel issues that we all saw out of the gate with traditional specialty pharmacies handling oncology, immunology, neurology, so on and so forth. Those access issues have trickled down not just to Specialty but now for Non-Specialty brands once readily accessible through retail distribution.

The abandonment rates we are seeing in Specialty Pharmacies have now been applied to Retail Pharmacies for typical branded products. We are seeing Prior Authorizations, and Step Edits increase, and Retail Pharmacy is not financially or logistically positioned to support these extra steps. These pharmacies live in a world where 92% of their prescriptions that are processed every day are generics that have no Step Edits or Prior Authorizations. A leading indicator for what is happening is Specialty Pharmacies. As reimbursement continues to shrink against a rising cost to serve, Specialty Pharmacies can no longer afford to buy through intermediaries, and they have to buy direct from the manufacturer. Even a 50 or 100 basis-point differential can turn a prescription into a negative margin situation. That’s why Specialty Pharmacies purchase half of their dollars directly. The margin’s been pushed so far down that the pharmacies lose money if they buy from an intermediary. Our industry has a problem on our hands. Pharmacies have asked manufacturers for financial support for so many years that they are somewhat numb to it. Compounding this, manufacturers have typically been told not to discuss economics with pharmacies at the risk of the perception of inducing prescriptions so, now we really do have an issue. Pharmacies began walking away from a growing number of drugs in 2022, and they continue to walk away in 2023. Manufacturers can no longer assume that a pharmacy will accept prescriptions for their products. 

It was really interesting that Mark Cuban was making the rounds at Asembia. There was sort of a ripple through the audience like, “What is Mark Cuban doing here? Is he trying to bring the cash thing into specialty? Is he trying to recruit more brands? Is he thinking about buying a specialty pharmacy?” With all these thoughts running rampant, it did bring to mind that there’s innovation, and potentially room for some kind of disruption in the space. Then of course we saw the announcement a few weeks ago about a cash option for one of the biosimilars for Humira. Hmmm.

Pharma Industry Digital Disruption

In order to conquer some of the economic issues in the channel that are affecting everybody, we’re going to have to think differently and get comfortable with disruption in the pharma industry. Digitalization is just the disruption needed. There are so many manual interventions and so much human engagement that add costs to the process. We’re not going to completely get rid of all of human labor in the prescription process, but as Payers and Plan Sponsors squeeze downward, digital disruption in the pharma industry becomes a practical solution. Necessity is the mother of invention and we’ve seen that with the digitization of the patient journey in Specialty Pharmacy and Patient Services platforms. As an industry, we’ve been asking for a long time if we should go digital, but neither of these two business models wanted to let go of the human transaction value. That train has left the station. 

The net revenue landscape for manufacturers is going to require us all to think differently about the type of pharmacies and support models moving forward. Funding new models and more services, more patient assistance, contracts, and incentives for pharmacies can create new problems if we constrain the patient journey and don’t properly align the economics. It feels like we have a Catch-22 on our hands. So look for increasing fragmentation, disruptions, and innovation in the market. 

If you’re interested in helping your organization navigate the changing commercial landscape, IntegriChain and Blue Fin Group will be exploring this and other pharma industry issues at our upcoming Access Insights Conference in early November of 2023.

Read About Pharma Industry Disruptions

About the Author

William Roth

William Roth

Senior Vice President and Managing Partner, Consulting & Advisory

Bill Roth, a recognized expert on business model development in healthcare, leads IntegriChain's Strategy and Operational Consulting organizations. Bill founded Blue Fin Group, which was acquired by IntegriChain in 2022, in 2001 and grew the organization into a leading access and commercialization management consulting firm. For more than 25 years, he has helped both start-ups and industry leaders improve patient care, financial health, and the strategic direction of their organizations. His unique experience, skillset, and knowledge has been built by working directly with almost every type of business model across the pharmaceutical industry. As a highly sought-after thought leader, Bill is often cited by market researchers and analysts for his accurate predictions of future trends. He speaks frequently at industry conferences and was featured on the cover of Pharmaceutical Commerce in January 2016 as a leader in the sector. Prior to founding Blue Fin, Bill spent nearly 10 years at Cardinal Health in management and executive roles. He earned a BS in business administration from Saint Michael’s College. Dave Weiss, VP of Industry Solutions and I recently did a webinar that takes a deeper dive into the various forms of pharmacy and what is going on with a backdrop to the new product archetypes, shifting reimbursement, and the onset of new pharmacy types. If you’re interested in a copy of the recording, please reach out to ic@integrichain.com.