Creating generic powerhouses
A deal announced last month between CVS Caremark and Cardinal Health created a joint venture that the companies said would be the largest generic drug sourcing entity in the United States.
Each company will have a 50% stake in the joint venture, contributing its respective sourcing and supply chain expertise. The deal also included an extension of Cardinal Health’s existing pharmaceutical distribution agreement with CVS Caremark through June 2019.
McKesson’s purchase in October of a majority stake in German drug distributor Celesio resulted in the two having a combined generic purchasing power of between $9.5 billion and $11.5 billion, according to an analysis by FBR Capital Markets. McKesson announced last month a bid to buy up the rest of Celesio, though hedge fund Elliott Management, which has a stake in Celesio of more than 25%, is trying to block the deal.
A similar analysis of the respective purchasing power of CVS Caremark and Cardinal Health means their deal will create a combined purchasing power of between $9.5 billion and $11.5 billion. According to FBR, the Walgreens-Amerisource-Bergen-ABC Consortium has about $12 billion in combined generic purchasing power. Pembroke Consulting president Adam Fein described McKesson-Celesio, Walgreens-AmerisourceBergen-ABC and now CVS Caremark-Cardinal Health as “King Kong vs. Godzilla vs. Mothra.”
Alternate sites woo payers
Administering high-touch, expensive and complex medications to patients intravenously in their homes — or in a setting other than a hospital — is essentially a large-scale bid to “reduce costs by transferring non-self-administered drugs to the most cost-effective and clinically appropriate site of care,” said pharmacist Michael Einodshofer, senior director of specialty strategy and innovation at Walgreens Specialty Pharmacy.
The strategy saves big dollars. “Moving infusions from high-cost sites of care — typically outpatient hospital — to alternate treatment sites while maintaining the same drug, dose and dosing frequency can generate savings of 20% to 60% savings per infusion,” Einodshofer said.
Pharmacy benefit managers, health plan payers and patients themselves should take note. In one study of nearly 5.4 million patients in managed care, “the top 25 infused drugs cost 110% more when billed from an outpatient hospital instead of an alternate treatment site,” Einodshofer noted at a meeting of insurers. That equals approximately $38 million in additional costs per 1 million covered lives, he added — and significantly higher out-of-pocket costs for patients, as well.
Despite that, said the Walgreens executive, the current reimbursement system practiced by many health plan payers is hamstrung by “misaligned incentives” that lead to much higher overall costs for some plans that pay for specialty pharmaceutical treatment for their patients. The reason: Those plans force patients to pay up to four times as much in out-of-pocket co-pays if they have their specialty medicines administered for far lower cost at a Walgreens Specialty Care Center rather than at a much more expensive acute care setting like an outpatient hospital.
This perverse reimbursement system — a legacy of an earlier provider network system with fewer treatment location options — encourages patients to seek treatment at hospitals and acute care centers that charge the maximum for infusion services, despite the fact that Walgreens can provide those services at a fraction of the cost, Einodshofer said.
Nevertheless, payers are looking for more cost-effective ways to treat chronic care patients with specialized medication needs. And retail pharmacy providers are aligning their businesses and clinical capabilities to meet those needs.
Home infusion therapy attractive to pharmacies
A confluence of healthcare trends has expanded a lucrative, if challenging, opportunity for pharmacies able to invest in its potential.
The opportunity springs from the rapid growth of medication infusion therapy — and the continuing migration of infusion services beyond the hospital setting. Big developments in health care — including the explosive growth of specialty and bioengineered pharmaceuticals, the rapid expansion of clinical care and chronic disease management efforts by retail pharmacy, and efforts by public and private health plans to curb rising specialty drug costs — have accelerated the migration to lower-cost infusion centers and home-based infusion.
Infusion therapy is the practice of administering specialty drugs to patients intravenously, either via injection or catheters, in any of a variety of settings. But providing the service requires “much more than just the dispensing of drugs,” noted the National Home Infusion Association. “Managing infusion drug therapies requires specialized expertise, clinical and supportive services, and specialized facilities.”
Those therapies were “once provided strictly in hospitals,” the Government Accountability Office reported. “However, clinical developments and emphasis on cost containment have prompted a shift to other settings, including the home.”
While hundreds of specialty and traditional pharmacy operators have jumped into the practice, the fragmented home and alternate-site infusion market is increasingly shifting to major providers like industry leader Walgreens, which in recent years has welded together a powerful network of infusion providers through its purchase of Option Care, Omnicare’s home infusion division, and CuraScript, the infusion pharmacy provider formerly owned by Express Scripts.
Walgreens now provides infusion, home care and other patient outreach services through a staff of “more than 1,400 clinicians, including high-tech IV nurses, dietitians and infusion pharmacists,” said Paul Mastrapa, president of Walgreens Infusion Services, and an additional 1,500 credentialed subcontractors. Those clinicians provide “community-based, patient-focused, low-cost care critical to improving health outcomes across acute and chronic diseases,” Mastrapa told DSN.
“Our services extend the reach of our specialty pharmacies by providing high-touch alternate or home-based solutions. Through deepened relationships with health systems, payers and manufacturers for products that require expert-level administration, we are able to contribute significant savings to the healthcare system, including earlier discharges from hospitals and, often, avoidance of hospitalization altogether,” Mastrapa added.
Other big pharmacy operators have also weighed into the infusion market. Among them: CVS Caremark, which agreed in November to purchase Coram, the specialty infusion services and enteral nutrition business unit of Apria Healthcare Group, for $2.1 billion. Coram provides infusion therapies and nutrition services to more than 20,000 patients each month, primarily through home infusion, as well as via a national network of more than 85 locations, including more than 65 ambulatory infusion suites.
“Infusion will be a valuable component of our broad specialty pharmacy offering,” said Jon Roberts, president of CVS Caremark Pharmacy Services. “Bringing together CVS Caremark’s … specialty pharmacy services with Coram’s infusion capabilities will expand our competitive offerings in the specialty arena.”
St. Louis-based supermarket and pharmacy chain Schnuck Markets also entered the business in November, opening a 6,500-sq.-ft. ambulatory infusion center where pharmacists prepare medications for home infusion. Schnucks’ officials said the new center is “a natural next step” since the company launched a specialty pharmacy division in 2008. They also cited the “growing need for infusion providers … due to the complex nature and storage requirements” for specialty drugs.
The accelerating shift from hospital-based to home care infusion also prompted Cardinal Health to purchase AssuraMed, a leading provider of medical supplies and home infusion therapy. The buyout “allows us to serve the growing number of Americans treated in home settings … which will be increasingly important as the delivery of care continues to move to more cost-effective settings,” said Cardinal chairman and CEO George Barrett.
The NHIA pegs the size of the alternate-site infusion market at roughly $9 billion to $11 billion per year, serviced in large part by more than 1,500 infusion pharmacy centers. That market is growing at roughly 15% a year, most industry analysts agree.
“However, the overall contribution of home infusion therapy to the healthcare system is certainly much more significant,” NHIA added. “The cost of infusion therapy administered in the home or alternate-site care setting is far less than the cost of inpatient treatment.”
Pharmacist Hetty Lima, FASHP, VP specialty infusion and rare disease at Diplomat Specialty Pharmacy, agreed, and said finding “the least costly and clinically effective site of service” is a prime focus for her company. “The big trend in specialty infusion right now is ‘site of service’,” she told DSN. “Where the patient is infusing their specialty medication can significantly impact the cost of the infusion.”
Indeed, Lima said, “a health plan can save between 30% and 70% when infused therapies are ad ministered in an alternate treatment site compared to other outpatient settings. The average costs at outpatient hospitals can be 86% higher than care provided by specialty pharmacies.”
One sticking point has been the lack of an established reimbursement system for the equipment, supplies and services needed by homebound patients and home care providers to inject the medicines that require infusion. Although Medicare generally covers the specialty drugs themselves, Congress has yet to approve legislation that would fund equipment purchases for home infusion.
What’s more, for both public and private payers, home infusion services too often fall into a reimbursement limbo between coverage for home health care and coverage for prescription drugs. “Benefit coverage for home infusion specialty drugs is fragmented across the pharmacy and medical benefits,” noted pharmacy industry expert Adam Fein, president of Pembroke Consulting and CEO of the Drug Channels Institute.
For pharmacies that deal in specialty medicines, staking a claim to the non-hospital infusion services business also is an urgent matter of market positioning and industry access. Infused drugs now account for roughly $35 billion of the specialty Rx market, according to CVS Caremark’s Insights 2013 Specialty Drug Trend report. And, as Fein points out, “Infused drugs also account for one-third of specialty drugs in the pipeline.”