By Jesse C. Dresser, Esq. and Timothy Girgis
As more and more manufacturers invest in and develop complex therapies, including expensive specialty drug products requiring specialized storage, handling or administration, many pharmaceutical manufacturers are also choosing to launch certain drug products as limited distribution drugs (“LDDs”). An LDD is created when a pharmaceutical manufacturer decides to limit the number of specialty pharmacies that have access to that particular product. As a result, these medications – which are often used to treat complex or rare medical conditions – are only available through select pharmacies. Certain products may only be available at a very small handful of pharmacies (sometimes less than five) and are referred to as exclusive distribution drugs.
Because LDDs are only carried and dispensed by a limited number of pharmacies, being a pharmacy with access to an LDD can be very beneficial to an independent pharmacy. Not only does limited access create direct demand (since the products are not available through many other competitors), access can also give the pharmacy leverage in negotiating with payors and PBMs, both for network access and for reimbursement rates. For that reason, many specialty pharmacies proactively seek to access LDDs from manufacturers.
However, for a manufacturer, there may be many reasons why they have decided to create a limited distribution network. For example, LDDs often have special storage, handling, administration, or monitoring requirements, and a manufacturer may not want to incur the costs associated with credentialing a wide network of pharmacies to be able to achieve these requirements. Likewise, certain LDDs may be subject to enhanced safety monitoring requirements, such as Risk Evaluation and Mitigation Strategies (REMS) products, and restricting distribution allows manufacturers to ensure healthcare providers are trained and can closely monitor patients. Finally, other LDDs may be the subject of value-based payment arrangements between the pharmaceutical manufacturer and the PBM, with the manufacturer poised to lose money unless the product performs as intended – limiting the pharmacies to a small subset of providers helps increase the manufacturer’s control over the outcome of the patient’s treatment.
In the face of these hurdles, pharmacies nevertheless seek strategies to gain LDD access, broadening the portfolio of the products and therapies they provide, and giving them access to more payor networks (ideally) with more favorable reimbursement. This article explores the concept of limited distribution drug networks, what they are, and what legal requirements apply to them. In addition, this article will discuss strategies that pharmacies can pursue – both legal and business ones – in seeking access to these networks.
What Are Limited Distribution Drug Networks (“LDDNs”)
An LDDN is formed when a pharmaceutical manufacturer enters into a direct agreement with a limited number of specialty pharmacies to dispense a particular LDD. LDDs are typically high-cost therapies intended for small patient populations and used to treat rare, chronic, or complex diseases. Unlike a traditional model, where drugs are available to a wide network or pharmacies, LDDNs allow a manufacturer to maintain tighter control over how their products are distributed or handled. A manufacturer might choose to launch a drug though a limited network for a variety of reasons including handling or storage requirements and REMS monitoring obligations. By limiting access to these drugs, manufacturers can ensure consistency in how their product is stored, dispensed, and monitored, as well as ensure compliance with regulatory requirements such as REMS program requirements.
The industry definition of an LDD is commonly recognized as a specialty drug for which the manufacturer limits direct distribution to 24 or fewer specialty pharmacies. Data shows that around 80% of LDDs are distributed by fewer than 10 specialty pharmacies, highlighting just how narrow the scope of these networks can be. In some cases, an LDDN may take the form of exclusive distribution model, where only one or two pharmacies have access to that specific product.
From a legal and regulatory standpoint, LDDNs are ruled by federal mandates such as the FDA’s REMS requirements, which are authorized under the Food Drug and Cosmetic Act (FD&C Act). This Act requires a manufacturer to restrict distribution only to pharmacies who exhibit strict training, safety and monitoring standards. Additionally, each pharmacy who wishes to participate in an LDDN must comply with any applicable state pharmacy laws as well as maintain certain accreditations from entities such as the Utilization Review Accreditation Commission (URAC) and/or the Accreditation Commission for Health Care (ACHC).
How Pharmacies Are Selected for Limited Distribution Drug Networks
Manufacturers engaging in LDDNs exert direct control over which pharmacies can dispense a particular drug, allowing them to manage supply, ensure compliance with obligations and requirements, and maintain consistent patient standards. To be selected for inclusion in an LDDN, a pharmacy must demonstrate a meeting of several key criteria:
- Clinical expertise and experience – This includes years of experience with complex therapies, number of patients served, and prior manufacturer relationships. These show a pharmacy’s capability in managing specialty drugs.
- Accreditation – Pharmacies must meet national standards for proper storage, handling, and distribution of specialty medications. This is often recognized through accreditation from recognized organizations such as URAC or ACHC, as mentioned above.
- Adherence and monitoring tools – Manufacturers expect pharmacies to have the ability to track medication adherence, manage side effects, and coordinate patient care to support effective therapy, while also meeting manufacturer requirements.
- Patient support programs – This includes robust services such as patient education, financial assistance, and ongoing engagement services which are tasked with helping patients start and stay on therapy.
- Advanced data capabilities – Pharmacies should have secure, real-time data systems to report on dispensing, outcomes, inventory, and adverse events, allowing manufacturers to monitor performance and ensure compliance.
- Access to payors – Manufacturers will look for pharmacies that maintain strong relationships with major payors and PBMs to streamline coverage, authorizations, and reimbursement, ensuring patients start and stay on therapy without unnecessary delays.
Pharmacies that secure inclusion into LDDNs often benefit from dispensing some of the most complex and specialized drugs on the market, many of which carry higher margins and limited competition. However, access is increasingly concentrated among a small number of players. For pharmacies pursuing inclusion, inclusion requires more than clinical readiness – it requires documented operational proof-points and proactive engagement with manufacturers.
Strategies Pharmacies Can Use to Expand Access
Pharmacies seeking entry into LDDNs must take a proactive, strategic approach that goes beyond simply meeting baseline requirements. Manufacturers want to see pharmacies that not only can dispense high-touch medications but that have already built the infrastructure, workflows, and data capabilities needed to support the drug from day one. Independent specialty pharmacies independent specialty pharmacies should pursue the following steps to strengthen manufacturer evaluation readiness:
- Obtain and Maintain Recognized Specialty Accreditation
Manufacturers routinely use accreditation as a proxy for operational readiness. As a starting point, pharmacies should pursue URAC Specialty Pharmacy, ACHC Specialty Pharmacy, and can consider adding disease-specific accreditations or distinctions, such as ACHC Oncology Distinction or Rare Disease Distinction, if the target LDD aligns with those clinical areas.
- Develop Deep Clinical Expertise in Targeted Therapeutic Areas
Pharmacies should build clinical centers of excellence in therapeutic areas aligned with likely LDD opportunities, create clinical care protocols tailored to the specific class of drugs being targeted. Pharmacies can even consider employing or contracting with disease-specific clinical pharmacists who can demonstrate prior experience with similar mechanisms of action or patient populations.
- Strengthen REMS, Cold-Chain, and High-Touch Operational Capabilities
Operational infrastructure is one of the most scrutinized aspects of any LDD evaluation. Pharmacies can differentiate themselves through a variety of readiness measures, including establishing and validating 24/7 cold-chain continuity, implementing robust REMS compliance systems, and demonstrating the ability to meet tight turnaround times (e.g., <24–48 hours from receipt to dispense). Above all else, it is critical that pharmacies not just be able to meet these standards, but must be able to prove it through documentation and performance data that can easily be presented to and shared with manufacturers.
- Expand Patient-Support and Care-Coordination Programs
Manufacturers want pharmacies that reduce friction for prescribers and patients. Examples of key strategies that have worked include white-glove patient onboarding programs, nurse-led education programs, and other prior authorization and financial assistance support.
- Cultivate Direct Relationships with Manufacturers and Their Agents
Perhaps most importantly, pharmacies should not wait for an RFP – instead, pharmacies must continuous and proactively seek to engage manufacturers extolling their services and capabilities. Pharmacies should create their own LDD access teams, and seek to engage with brand teams, market access teams, and distribution strategy leads early—even before FDA approval of the drug.
How Frier Levitt Can Help
Frier Levitt provides experienced legal and regulatory guidance to pharmaceutical manufacturers, specialty pharmacies, and other stakeholders navigating Limited Distribution Drug Networks, FDA submissions, REMS compliance, and PBM challenges. Contact Frier Levitt today to speak with an experienced counsel supporting LDD network access and distribution strategy.
