According to the National Association of Specialty Pharmacy, a specialty pharmacy is a state-licensed pharmacy that solely or largely provides medications and services for people with chronic or complex health conditions. Specialty medications are more complex and expensive than most prescription medications and may be taken orally but are often injected or infused.
Specialty drugs are prescribed for the treatment of various chronic diseases and conditions, such as cancer, hepatitis C, rheumatoid arthritis, HIV/AIDS, multiple sclerosis, cystic fibrosis, organ transplantation, hemophilia, allergies, heart failure, and stroke. Specialty drugs account for approximately 50% of the current drug development pipeline.
Pharmaceutical costs are now the fastest-growing portion of total healthcare spending, and specialty drugs are the primary source piloting this trend. Specialty drug spend is growing at a rate of 20% per year while traditional drug spend is flat. According to a report from the IQVIA Institute for Human Data Science, it is expected that specialty medications accounted for 50% of the nation’s drug spending in 2020.
Specialty medications are different than typical prescription medications and require much more administration and patient interaction. They are often costly and have special administration, storage, handling, and delivery requirements. The complexity of these medications may be due to the drug itself, the way it is administered, the management of its side effects, the disease or condition it is used to treat, special access conditions required by the manufacturer, payer authorization or benefit requirements, patient financial hardship, or any combination of these. For these reasons, specialty pharmacies have a large number of tasks and responsibilities related to filing scripts.
Specialty pharmacies help patients and providers complete insurance paperwork, obtain authorization, and secure reimbursement for various lifesaving therapies. They coordinate insurance benefits to eliminate potentially enormous out-of-pocket costs for patients. Some pharmacies also work with Insurance companies to alleviate the work and headache associated with obtaining prior authorizations and filling specialty prescriptions.
Specialty pharmacies provide tools, support, and resources to successfully and cost-effectively manage the patient’s health. They also conduct patient training/education, provide patient monitoring, and coordinate nursing services. Some specialty pharmacies offer medication therapy management (MTM) that helps with managing and avoiding drug side effects.
As such, specialty pharmacies typically employ a diverse staff of administrative and professional personnel which include:
- Pharmacist (R.Ph);
- Patient coordinator;
- Medical assistant (MA);
- Pharmacy tech (CPhT);
- Registered nurse (RN);
- Licensed Pharmacists;
- Billing & Collection specialists;
- Reimbursement specialists;
- Licensed Masters Social Worker (LMSW);
- Telephone support staff; and
- Financial support specialists.
Although the specialty pharmacy industry has grown substantially, reimbursement rates continue to decline. Even as labor and drug costs have increased, reimbursements from health insurers and pharmacy benefit managers (PBMs) have dropped. In order to participate in some managed care networks, specialty pharmacies must agree to contracts with reimbursement rates that are often below cost. If the specialty pharmacy declines to contract with the insurer or PBM, they lose a substantial amount of business because patients are not able to use that specialty pharmacy.
Pharmacies and their vast roles are changing their structures in an effort to be more efficient and improve profitability. Many specialty pharmacies are now outsourcing some or all of their functions and duties to management services organizations (“MSO”) that are dedicated to providing “pharmacy management services” (PMS).
The federal healthcare laws require pharmacies who participate in the Medicare/Medicaid program to pay a fair market value rate for such management services. Even more, such services are precluded from being paid for on a per-script basis and/or a percentage of reimbursement. Therefore, many industry professionals are scratching their head trying to come up with the fair market fee to charge/pay for these various pharmacy services. A Third-party independent appraiser should be hired to issue an opinion of the fair and appropriate fee for the various pharmacy management services.
At HVG, we believe one of the most appropriate methods to arrive at the fair market value for pharmacy management services is a method called “cost-plus”. Let’s assume an MSO is formed to provide pharmacy management services (one or a number of the tasks described above). And the MSO hires several staff people and deploys the necessary resources to provide such PMS. The appraiser will determine an appropriate “mark-up” on the costs incurred by the MSO to provide the pharmacy services which will then impute the FMV pharmacy management fee. For example, if the monthly expenses within an MSO are $35,000 and the appropriate mark-up is 20%, then the calculation would be as follows:
Therefore, the monthly FMV PMS fee is $42,000. The healthcare laws require that the fee be a fixed flat fee that doesn’t fluctuate with the number of patients, scripts or the value of the reimbursements.
It’s the appraiser’s job to determine the appropriate mark-up and provide sufficient support for his/her opinion. The monthly MSO expense are generally estimated by the appraiser with the help of the MSO client.
This process gets much more complicated when the MSO is providing pharmacy services for more than one specialty pharmacy. If this is the case, the MSO will need to allocate a portion of its monthly expense to each particular pharmacy. This will be a challenge and will require the proper cost accounting and time-keeping practices by its personnel.
 American Society of Health System Pharmacists, “Expansion Opportunities for Health Systems: Where Does Specialty Pharmacy Fit?”, 2012
 This figure serves only as an example and is in no way being represented as a FMV rate.