Expert Q&A: Expanding the Specialty Pharmacy to Boost Your Health System’s Revenue

Expert insights on the benefits of expanding the health system specialty pharmacy.

Read time: 4 minutes

By: Brad Myers

We recently sat down with one of our own experts – Brad Myers, PharmD, MBA, Vice President, Health Systems Pharmacy Operations, Retail & Specialty Advisory Services, Professional & Advisory Services, McKesson Health Systems – to learn more about how and why health system pharmacies can be positioned as revenue drivers vs. cost centers, how much of the health system’s pharmacy-driven revenue may live “beyond the four walls of the hospital,” and the role that specifically pharmacy specifically may play in that. Review our discussion here, and discover how a trusted partner like McKesson can help you achieve more for the business of pharmacy.

MHS: Can you give us some perspective on how the conversation around pharmacy has a cost center vs. a revenue driver has shifted in recent years?

Myers: In the last 5-10 years, there's been a transition in the pharmacy landscape in terms of how pharmacy and C-suite leaders perceive pharmacy. Traditionally, when leaders think of health system pharmacies, they think of a cost center focused on medications that are purchased and utilized, in the acute care setting, or “within the four walls of the hospital.” In the last decade, the transition of care from the four walls of the hospitals into the ambulatory space has been drastic. Within pharmacy, the growth areas are in key spaces like retail pharmacy, specialty pharmacy, infusion centers, and even the population health space.

MHS: In your opinion, what are some of the things that have been driving this explosion in ambulatory revenue growth over the last decade or so?

Myers: The growth is primarily driven through a transition on the payer side and also better managing costs. When you think about hospitals, the most expensive cost of care is always going to be the acute care patients. Understanding how to safely transition the treatments from an acute care setting to an ambulatory setting has been a push for the last decade. As pharmacy leaders, we've identified that there are many therapies – in particular, new therapies that have come into market – that can be administered safely and effectively in an ambulatory setting. That's been one of the big drivers. Fortunately, as pharmacy executives across the country have started to understand the ambulatory space, they’ve been able to develop business plans that utilize resources within the health system to drive those patients to your pharmacy.

MHS: What developments in specialty pharmacy have driven the increase in revenue growth for the health system?

Myers: Market dynamics are driving the specialty pharmacy push within health systems. If you look at new drugs approved by the FDA, traditional – what I would call chronic disease state medications or common disease states such as blood pressure control or diabetes –  that's a saturated market. Manufacturers have transitioned to providing medications that treat niche disease states, such as multiple sclerosis or cystic fibrosis. If you look at the FDA approvals for the next five years, about 70% of the medications that are on the docket for review are considered specialty medications.

MHS: From a revenue perspective, can you give us an idea of the scope or the scale that a specialty pharmacy could contribute to a health system's bottom line, knowing obviously there are a lot of different factors at play that will vary from health system to health system. Generally speaking, though, how much revenue could a health system potentially generate through a specialty pharmacy?

Myers: There's a lot of great data out there looking at specialty pharmacies, particularly in medium and large health systems. Typically in your larger health systems, you tend to have more specialty care physicians, so the volume of specialty medications there is inherently going to be larger. If you look at the available data of the 100 largest health systems, about 80% of those health systems have specialty pharmacies that they manage within that health system. The numbers do vary, but in general you can say about 10% of the overall net patient revenue of the health system is generated from specialty pharmacies, once again, in larger health systems.

MHS: 10% of overall revenue seems like it would be enough for hospital leadership to take notice of the possibilities with specialty pharmacy, would you say?

Myers: Absolutely. Traditionally, the CFOs’ revenue generation and growth mindset has focused on clinic visits, hospital discharges, and surgeries. When you talk to a CFO or C-suite leader about specialty pharmacy, this is a new potential stream of revenue for health systems. And that's why we're experiencing a lot of traction in the health system space for executive leaders to provide the resources necessary to start a specialty pharmacy and to grow quickly, because it is a new stream of revenue that hasn't been there in the past years.

MHS: Would you say the conversation has started to shift to that next level, meaning we're no longer just talking about starting a specialty pharmacy and having leadership give you the resources to start the pharmacy, but more to expand the specialty pharmacy?

Myers: Absolutely. Once you start a specialty pharmacy, it can take a couple of years to really get in and understand the operational side of the business as well as define operational and clinical outcomes. I would say that for the systems that have a specialty pharmacy, their number one goal is going to be to expand, and there are many ways to do that. One is to dive into internal data within your health system. One of the benefits of a health system owned specialty pharmacy is that there is a vast volume of accessible data that can be utilized to help drive patients to your health system owned specialty pharmacy.

The other aspect of this is continuing to show outcomes. One of the big next steps for mature specialty pharmacies is understanding how to show executive teams, or even the payers, that when patients come to a health system owned specialty pharmacy that we can impact quality measures such as reduction in hospitalizations, reduced clinic visits, and improved quality of life.

MHS: What does expanding the pharmacy actually look like? Does it mean offering more specialty drugs? Is it growing the footprint of the pharmacy? What are we really looking at in terms of what it means to expand a health system specialty pharmacy?

Myers: It can be all of the above. One is access to what's called limited distribution drugs or LDDs. That does come with a significant amount of data that has to be fed back to the manufacturer, which can be a limitation at times. The health system specialty pharmacy typically requires enough volume of patients for the manufacturers to consider a health system for access to limited distribution drugs. Additionally, outcomes are powerful with your providers. When you're working with clinics and physicians, you need to show improved outcomes in terms of reducing clinic visits, reducing hospitalizations, and showing that utilizing your health system owned specialty pharmacy can reduce the time it takes for a patient to receive medications and reduce the out-of-pocket for patients as well. There are several variables that lead to that growth or expansion of the specialty pharmacy, but it definitely begins with utilizing data to understand where your opportunities are, showing those outcomes to your providers as well as your executive team, and having access to the medications.

MHS: In your opinion, what are the top three ways a health system could benefit by expanding their specialty pharmacy?

Myers: One is that looking at outcomes is key. As a health system specialty pharmacy, you're able to pull that data from the electronic medical record and prove positive outcomes. Next would be the increased revenue streams. As we mentioned earlier, a new source of revenue for your health systems to be able to continue to grow increases presence within the executive team of your health systems. And third, to consider that continuum of care for your patients. If you think about patients, healthcare in general is a very fragmented process. If you're able to bring your patient to your health system to see the specialty provider and also provide them their specialty medications, it keeps your patients within that ecosystem, and I feel provides better overall care.

MHS: What are some of the challenges a health system may face in expanding their specialty pharmacy, and what are some strategies health systems can use to try and overcome those?

Myers: Access to new specialty medications is becoming more challenging. Manufacturers are starting to lock down who they will allow to dispense specialty medications through health system pharmacies. Second is data. There's a huge amount of data out there. We talked about outcomes earlier. So it’s about finding a way to take the data, aggregate it, and come to a conclusion that we are improving outcomes or achieving certain goals that you want to accomplish.

MHS: What are some solutions and strategies that are available to health systems to try and overcome those challenges?

Myers: One is finding a valued partner. That’s important. You need a trusted partner that's been there, done that, that has been able to start and grow a specialty pharmacy. At McKesson, we have a team of experts that works with health systems to assess the feasibility of starting a specialty pharmacy in addition to improving and expanding operations, access, and more in health systems that already have a functioning specialty pharmacy.

MHS: Is there any final thought you’d like to leave readers with?

Myers: A specialty pharmacy within the health system space provides a potential opportunity to continue to grow revenue as well as, and more importantly, help your patients and keep those patients within the health system ecosystem.

For more information about how partnering with McKesson’s Professional & Advisory Services team to expand or improve your health system specialty pharmacy operations, contact us today.

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