‘You can have much more control’: The rise of in-house specialty pharmacies
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From 2011 to 2019, the proportion of rheumatologists who reported using in-house pharmacies exploded, from 4% to 22% — a more than fivefold increase.
These findings, published earlier this year in JAMA Network Open by Pragya Kakani, MD, and colleagues, originate from a cross-sectional study of data from more than 8 million patients, including 20% of all beneficiaries enrolled in fee-for-service Medicare Parts A, B, and D. Their results additionally pointed to similarly striking expansions for in-house pharmacy use beyond rheumatology practices, including a more than twofold increase in oncology, a fourfold increase in gastroenterology, and a staggering 20-fold increase in urology.
According to Robert W. Levin, MD, past president of the Florida Society of Rheumatology, president of the Alliance for Transparent and Affordable Prescriptions, and associate affiliate professor of medicine at the University of South Florida, there are reasons to be encouraged by these data.
“A lot of people do not fill that all-important first prescription to set them on course for treatment,” he said. “Having a pharmacy in the practice could lead to better compliance. Compliance leads to better outcomes, so I see this as a positive trend.”
Another possible benefit pertains to oversight, according to John R.P. Tesser, MD, FACP, of Arizona Arthritis & Rheumatology Associates, and associate professor at the Midwestern University School of Osteopathic Medicine.
“If your organization is running a high-quality in-house pharmacy operation, you can have much more control over medication safety, delivery and quality assurance,” he said.
However, Tesser cautioned that quantifying such a benefit would take significant resources and research.
And then there are the financial aspects of in-house pharmacies, which have proven particularly difficult to assess. The opacity of drug pricing in the United States makes it difficult to determine who is saving money, and how much, as a result of any change in the supply chain.
“It is possible that because of the streamlining of services, an in-house pharmacy could be more cost-effective,” Tesser said. “But this gets dicey because the question then becomes, ‘Cost-effective for whom?’”
According to Tesser, whose practice recently opened an in-house pharmacy, the downside of such operations for some practices is that it may “open the door for ongoing gaming of the system for financial advantage.”
“For nefarious operators, there is a lot of potential for irregularity and inconsistency,” he added.
Meanwhile, an additional area of potential concern is the uneven distribution of in-house pharmacies across underserved areas, which may exacerbate existing disparities in the health care system.
For Kakani, assistant professor in the department of population health sciences at Weill Cornell Medical College, the “million-dollar question” that naturally follows from her initial study is this: How will all these factors ultimately impact patients who use in-house pharmacies?
“It is something that our team and other teams are working on,” she told Healio Rheumatology. “In theory, the impacts on patients could be multifold.”
A closer look at the findings may hold some clues.
Who Profits?
Whenever there is a change in the intersection of commerce and medicine, it may be useful to understand who benefits to determine why that change occurred.
“The most direct beneficiary of this structure are practices, but other benefits may also accrue to wholesalers, payers and patients,” Kakani told Healio Rheumatology. “Spending on self-administered specialty medications has increased substantially in recent years, creating an opportunity for practices to earn margin on these drugs.”
Although information on margins for in-house pharmacies is not publicly available, Kakani noted that, across all pharmacies in genereal, profits on branded drugs hover between 3% and 5%.
“For practices that are eligible for 340B drug discounts, profits can be 20% to 50% higher,” she added, referring to the 340B Drug Pricing Program. “Profits may be somewhat compressed for in-house pharmacies as acquisition costs may be higher and, as we show in the study, reimbursements from plans may be slightly lower, but nonetheless practices stand to earn profits.”
The 340B Drug Pricing Program, established under the U.S. Public Health Service Act, requires drug manufacturers to sell outpatient drugs at discounted prices to, among other covered entities, certain types of hospitals, in order for those drugs to be covered by Medicaid. Eligibility criteria for hospitals include treating a certain proportion of low-income Medicare and Medicaid patients.
Wholesalers may also stand to gain from this structure because they supply medicines to practices at higher prices than they can sell to national firms, Kakani added.
“Payers such as Medicare may also benefit somewhat, as reimbursement prices are slightly lower at these pharmacies,” she said. “Finally, patients may stand to benefit if indeed medicines are more accessible and better managed in-house.”
In short, there are multiple potential beneficiaries of the in-house system. With that in mind, it may be useful to examine why this development evolved in the first place.
‘Continuity is Essential’
Further data from the Kakani paper showed that from 2011 to 2019, use of in-house pharmacies increased from 26% to 63% among oncologists, from 16% to 29% for infectious disease specialists, from 5% to 21% for gastroenterologists and from 1% to 20% for urologists.
“The study found an increasing share of oral cancer treatments, antivirals, immunosuppressants, and other high-cost drugs filled at specialty pharmacies,” Nancy Keating, MD, MPH, professor of health care policy and medicine at Harvard Medical School, and in the division of general internal medicine at Brigham and Women’s Hospital, told Healio Rheumatology. “These classes of drugs include a large number of high-priced specialty drugs. Such specialty drugs are not always available at local pharmacies, so making them available at an in-house pharmacy can help to facilitate patients’ filling the drugs.”
Although Kakani acknowledged that her group did not investigate the reasons for these increases, there are several theories, many of which overlap and intersect.
“The explanation for this increase in in-house pharmacies is probably multifactorial,” Gregg Silverman, MD, of the New York University School of Medicine, told Healio Rheumatology.
It starts with the supply chain, according to Silverman.
“As physicians, the implicit assumption is that once we write something magically on our pad, it will become available to the patient within minutes,” he said. “That process has become protracted. Availability of medications is variable. Wholesalers or manufacturers are not making shipments in a timely or orderly fashion.”
Many experts expected that consolidation among wholesalers for prescription drugs would lead to an efficiency of available medications, but that has not occurred, Silverman added.
“Early on, supply chain issues from the pandemic were to blame for these inconveniences,” he said. “But we still have not figured it out.”
This issue is of particular concern for rheumatologists.
“For example, if we think about one of these new GLP-1 inhibitors — a specialty medication that could potentially be used by tens of millions of people — we have no indication of when it will be available,” Silverman said. “Distribution remains impacted.”
There are clearly financial reasons for the trend, as well, according to Keating, who noted skyrocketing specialty drug prices.
“The high prices may also be associated with greater opportunities for profits for in-house pharmacies eligible for the 340B drug discount program,” she said.
According to Kakani, it is additionally worth noting that wholesalers like Cardinal Health and McKesson are also helping practices launch these pharmacies.
“This may be because the economics of selling to a practice is better for them than the economics of selling to national chains,” she said.
Apart from the numbers within the study, Kakani painted a portrait of practices eager to participate an expanding — and lucrative — market for specialty drugs.
“Anecdotally, from speaking to practices, my sense is that practices are launching these pharmacies partly because there is money to be made in dispensing self-administered, specialty medications, which are a growing market,” she said.
Levin agreed, adding there is “certainly an opportunity to gain some extra revenue.”
Meanwhile, according to Silverman, the rapid propagation of in-house specialty pharmacies across medicine may be the result of physicians and practices attempting to rectify supply chain and drug cost issues on their own.
“Continuity is essential, especially for rheumatology patients,” he said. “You have to find ways to assure the availability of medications.”
For Silverman, whether in-house pharmacies eventually become standard across the U.S. health care system, and whether that new standard will ultimately solve the problem of medication availability, remains to be seen. Regardless, he stated he views this development as a positive step.
“This is probably a step toward having greater resilience in the system,” Silverman said. “Recognition of the problem is the first step in finding a solution.”
The next step, then, is to understand the advantages of the new paradigm.
‘Easier’ Prior Authorizations
“In discussions with oncologists and pharmacists at oncology practices with in-house pharmacies, these clinicians often note that they feel that having an in-house pharmacy helps make the prior authorization process easier,” Keating said.
Tesser agreed that this could be a critical advantage for any busy rheumatology practice.
“If the in-house pharmacy is doing a good job of getting approval from the insurer in a timely fashion, and doing it in a way that ensures getting the best rebates and copay programs in place, it would be very cost effective for the patient,” Tesser said. “It could thereby improve access to the drug for the patient and obviate time delays by weeks to a month or more.”
Like Tesser, Levin’s practice has also adopted the in-house pharmacy paradigm.
“We noticed a not-insignificant decrease in price in office pharms compared to specialty pharms owned by the pharmacy benefit managers,” he said.
Beyond the finances, there is also a personal component to the benefits of an in-house pharmacy, according to Tesser.
“There are opportunities for better medication counseling,” he said. “If you can have daily communication with the pharmacists in your operation, you can have much more confidence that the education of the patient and messaging about their medications is consistent.”
Keating agreed, stating that such in-house pharmacies can facilitate communication across specialists, pharmacists and the patients they care for.
“Practices with specialty pharmacies feel that communication between patients, pharmacists and oncology clinicians is enhanced,” she said. “More research will be important to determine if specialty pharmacies improve medication adherence and other important patient outcomes.”
For Tesser, in-house pharmacies offer advantages for both prescribers and patients.
“Of course, there is the potential convenience and accessibility of medications,” he said. “However, it also allows us as rheumatologists to provide personalized care for our patients, if we know exactly when and how the medication will be delivered.”
In-house pharmacies may also be beneficial as the rheumatology therapeutic armamentarium evolves, Tesser added.
“There are instances when switches from a bio-originator to a biosimilar occur at the pharmacy level,” he said, noting that the rise in interchangeable products is likely to make this situation much more common. “A specialty pharmacy would change the drug and it would be more expensive for the patient. However, an in-house pharmacy would allow the practice to have more control.
“If you have the staff for it, it is more efficient to take care of these issues on site without additional overhead costs,” he added.
Although rheumatology patients do not frequently experience true emergencies, flares do occur. In those situations, quick turnaround can be critical.
“We not infrequently have situations where we have asked the patient to bump up, or do a burst and taper, of prednisone immediately, when there are delays in getting their specialty medications,” Tesser said. “An in-house pharmacy can minimize these situations.”
However, even with so many potential positive outcomes, there are concerns with the in-house paradigm.
‘It Takes Capital’
The challenges in implementing an in-house pharmacy start in the pre-production phase, particularly with regard to pharmacy laws, which vary from state to state.
According to Kakani, these varying laws could create personnel problems.
“State licensing requirements may mandate certain staffing levels, inventory requirements and other factors,” she said.
Kakani encouraged practices to familiarize themselves with the laws in their state before setting out to establish an in-house pharmacy.
Another, possibly more critical concern, beyond set-up and operation costs, pertains to a data point from the Kakani paper showing a trend that larger health systems and practices were more likely than smaller practices to establish an in-house pharmacy.
“Our hypothesis is that this may be because in-house pharmacies are more profitable for large practices and health systems, for a number of reasons,” Kakani said.
One reason, according to multiple experts, is the substantial fixed costs to starting a pharmacy.
“It takes capital, which larger entities might have and smaller entities might not,” Levin said. “The process takes organization that you would have to invest in to accomplish this, unless you had some other company organizing and funding it. You see this more as an advantage to larger entities.”
Another reason is that larger organizations may be able to negotiate better terms with both wholesalers and payers that improve the profitability of the pharmacy, according to Kakani.
“The 340B Drug Discount Program, is not available to independent practices but is available to health systems and makes having an in-house pharmacy more profitable,” she said.
According to Tesser, larger practices and systems tend to have a “much broader array of experiences” in dealing with financial and bureaucratic issues.
“They may have some hiccups in setting up, but they would likely be able to run it smoothly and efficiently once it is up and running,” he said. “There is probability of success.”
Meanwhile, the economics of launching an in-house pharmacy may be less favorable for a smaller practice, Kakani said.
“There are several fixed costs that practices have to bear to launch an in-house pharmacy,” she said. “Given that smaller practices are likely to have lower prescription volumes, many may not find it profitable to bear these fixed costs. Moreover, it is possible that margins on prescriptions may be squeezed for smaller practices that have less negotiating leverage with wholesalers and plans.”
With these hurdles in mind, the impact on patients treated at small practices is uncertain.
“I am not sure there would be a direct impact on patients at smaller practices that do not have in-house pharmacies,” Kakani said. “These patients are likely to continue to have access to medications, but will need to continue acquiring them from external pharmacies, which are often owned by the health plan or pharmacy benefit manager.”
However, the lack of in-house specialty pharmacies in certain areas of the country — particularly rural geographies, where patients feel the rheumatology workforce shortage the most — could exacerbate already existing disparities in access to care.
“There are so many counties in the United States that already have no rheumatologist,” Silverman said. “Many patients in rural areas have to drive hours and hours to see their rheumatologist, but also to find specialty medications that are not available in their community.”
As the potential for these disparities increases, it may be useful to look ahead at trends in the U.S. medication distribution system to find ways to increase access for all patients, and not just those in close proximity to large health centers.
According to Silverman, an alternative solution to in-house pharmacies may be increased use of shipping services like UPS or Amazon.
“Community rheumatologists and their patients may be forced to find more economical and efficient solutions to getting their medications, regardless of what is happening with the trend toward in-house pharmacies in urban and suburban areas,” he said. “There will be a mosaic of different solutions to medication access, depending on the site and the region.”
However, regardless any possible alternatives, in-house specialty pharmacies, and their rapid spread, in rheumatology and beyond, are here to stay, according to Levin.
“The Kakani article shows us this trend between 2010 and 2019,” he said. “I have to tell you, the trend is going to continue to increase.”
- Reference:
- Kakani P, et al. JAMA Netw Open. 2024;doi:10.1001/jamanetworkopen.2023.56592.
- For more information:
- Pragya Kakani, MD, can be reached at Massachusetts Hall, Cambridge, MA 02138; email: pka4006@med.cornell.edu.
- Nancy Keating, MD, MPH, can be reached at 180 Longwood Ave., Boston, MA 02115; email: keating@hcp.med.harvard.edu.
- Robert W. Levin, MD, can be reached at 1831 N Belcher Rd., Clearwater, FL 33765; email: rwlevin@msn.com.
- Gregg Silverman, MD, can be reached at 435 East 30th St., Room 517 New York, NY 10016; email: gregg.silverman@nyulangone.org.
- John R.P. Tesser, MD, FACP, can be reached at 9520 West Palm Lane, Ste. 220, Phoenix, Arizona 85037; email: john.tesser@azarthritis.com.
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