The startup of mail order pharmacies is on the rise and the opening up of a mail-order pharmacy is becoming an extremely lucrative business model and investment. This specific market segment of the specialty pharmacy “arena” is undergoing rapid growth, rapid expansion, and equally rapid change. Independent mail-order pharmacies are now thriving by specializing in a specific niche or focusing on a particular disease. This means that the the large mail-order pharmacy operations can no longer dominate the marketplace.
The major mail-order pharmacies are associated with various large insurance providers and large retail chains such as Walgreens, Humana, Aetna and Caremark. The three largest are Express Scripts (Cigna), OptumRx (UnitedHealthcare) and CVS Health (CVS Caremark). Historically the majority of specialty pharmacies have contracts with Pharmacy Benefit Managers (PBM), but the number of independent mail order pharmacies specializing in specific niches or diseases is increasing at a rapid pace and thus these independent pharmacies are exponentially increasing in both volume and market share.
What’s Causing the Rise of the Mail-order Pharmacy?
To answer this question, let’s step back a moment first and cite some statistics from our most recent blog post earlier last week regarding the economic forecasts for specialty pharmacies. As was discussed, with a projected annual growth rate of about 20% per year according to the AMCP (American Society of Managed Care), many industry experts state that the specialty Rx industry is still in its infancy. Spending on specialty pharmacy and services was almost $87 billion in 2012. However, Drug Channels estimated that in 2014 alone, “retail, mail, and specialty pharmacies dispensed about $78 billion in specialty pharmaceuticals.”
To then better focus in on the cause for this spike in the startups of independent mail-order pharmacies across the USA, one will first need to take a quick look at the topics of both Pharmacy Benefit Managers and the repackaging of medications.
Pharmacy Benefit Managers(PBM)
Pharmacy Benefit Managers (PBM) are third party administrators (TPA) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. According to the American Pharmacists Association (APhA), “PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims”. Their role is to work with government programs and self-insured companies to help reduce drug costs and pharmacy expenses covered by the insurance plan. The problem that has arisen regarding Pharmacy Benefit Managers is that many feel that the PBMs prevent competition. As noted by the National Community Pharmacists Association (NCPA), the pharmacy benefit managers actually have multiple incentives and monetary reasons to prevent their mail-order pharmacy operations from having to compete with the local community pharmacies. As stated in a recent NCPA publication, “pharmacy benefit managers are the only companies that are allowed to process transactions for their rivals, set prices for their rivals, and determine how their rivals will compete”. It is clear that because the pharmacy benefit managers are able to establish both the billing rates and the copayment rates that the retail pharmacies charge their patients, the PBM is able to manipulate the contracts to direct the prescriptions to their own mail-order pharmacy operations for fulfillment. This puts the community pharmacy at a distinct disadvantage.
REPACKAGING OF MEDICATIONS
The repackaging of medications therefore has become a key factor in the emergence of independent mail-order pharmacies. To better understand this, one must note that by repackaging drugs the mail-order pharmacy operation can basically set up their own pricing. This is based on the following facts:
– Private insurance plans most often use AWP (Average Wholesale Price) for establishing the payment rates.
– The AWP is determined and associated with an NDC (National Dispensing Code) and there typically are multiple AWPs for every drug and medication.
– By repackaging drugs and medications the mail-order pharmacy can create new NDC numbers and then select any AWP they want to use when it comes to billing.
One other factor to consider is that the PBMs control the formulary and the Maximum Allowable Cost (MAC) lists for the health plan provider. The MAC list is basically the pricing ceiling for a drug, or the maximum that a pharmacy can get reimbursed for. The PBMs commonly establish MAC lists for the community pharmacies for generic prescription drugs, but rarely use a MAC list at their own mail -order pharmacies. Once again the community pharmacy must operate at a clear competitive disadvantage and competition is stifled.
So How Does an Independent Mail Order Pharmacy Win?
Many independent mail-order pharmacies have now turned these factors to their advantage and are thriving. Many have become extremely profitable business enterprises by specializing in a specific niche or disease. Examples include cystic fibrosis, hospice, nuclear, COPD and respiratory medications, plus oncology and cancer medications. This specialization has led to increased efficiency, decreased waste, improvements in production and shipping, and ultimately increases in profitability and market share. Additionally, many independent mail-order pharmacies have embraced customer service, thus leading to significant customer satisfaction and patient loyalty. Medication Therapy Management (MTM) programs have also been embraced by many independent mail-order pharmacies to help patients improve in regards to their drug compliance, which obviously results in better medication outcomes.
Who Can Help Me Start Up a Specialty Pharmacy?
All agree that the mail-order pharmacy business model has become a lucrative business venture for many entrepreneurs. Yet there are numerous extremely complex challenges and issues that must be addressed. As with any new pharmacy start-up, the planning and execution are the absolute key to a smooth pharmacy operation being opened and becoming a successful business. Just a few of the considerations and tasks that are required for any successful pharmacy start-up operation include:
– The creation and review of a business plan
– Guidance regarding type of corporation to form – Limited Liability or LLC, C-Corporation, S-Corporation, Sole Proprietorship or a General partnership
– Startup cost estimates
– Obtaining financing
– Work flow design
– Assistance and guidance with the DEA & State Board of Pharmacy application process
– Creating Policy and Procedure manuals and Continuance Quality Improvement (CQI) manual
– Purchasing the equipment and supplies
– Obtaining legal support
– Staffing (not only the pharmacist, but technicians and ancillary support staff personnel)
As always, please contact us here at HCC if you have questions regarding establishing or running a mail-order pharmacy. With over 30+ years in the Pharmacy Consulting business, HCC can assist with expert advice in any area of your pharmacy business or practice. We urge you to contact us today to see how our Pharmacy Consulting services can help YOU. With a full-time staff of in-house Pharmacy Consultant specialists, HCC can answer any questions that you may have in all areas of your business. Contact us online now or call us today at 800-642-1652.