Specialty Pharmacies

Frier Levitt Advises Specialty Pharmacies on: 

Network Contracting and Access, Accreditation, Reimbursement and DIR Fee Issues, Litigation and Arbitration of Disputes with PBMs and Payors, Transactional Matters, and Regulatory/Compliance Issues

The specialty drug market today makes up more than one-third of the total drug spend in the United States and is the fastest growing component of the drug market. These specialty drugs are largely dispensed by specialty pharmacies. While the exact definition of a specialty medication remains largely undefined in the marketplace, the consensus is that it includes medications that require special handling, storage, and distribution requirements to treat complex, often chronic and rare conditions, and often require close contact and management by a clinician. The total size of the specialty pharmacy market and the growth in the share of specialty drugs compared to other drugs highlights the importance of specialty pharmacies.

The specialty pharmacy market is dominated by pharmacies owned by Pharmacy Benefit Managers (PBMs) and insurers, capturing more than two-thirds of the specialty medication spend. Pharmacies independent of these entities face significant business and legal challenges posed by these entities to succeed in this complex market. 

Frier Levitt is a national healthcare and life sciences law firm that prides itself on its knowledge base in the unique business of specialty pharmacies. Frier Levitt understands that specialty pharmacies operate under a variety of different business models including, among other things:

  • Distribution of drugs and products requiring high touch points, cold-chain or other specialized storage needs, and medical or technical staff specially trained in administering these drugs;
  • Contracting with 340(b) Covered Entities to dispense a variety of specialty medications;
  • Dispensing and administration of infusion or intravenous (“IV”) drugs;
  • Distribution of Oncology drugs and Community Oncology Practices that dispense such drugs;
  • Dispensing of Hemophilia drugs and treatments;
  • Compounding and dispensing of compounds;
  • Dispensing of Limited Distribution Drugs (“LDD”);
  • Dispensing of “Orphan” drugs or drugs for rare disease states; and
  • Distributing drugs requiring Prior Authorization (“PA”) from a plan or Pharmacy Benefit Manager (“PBM”).

The specialty pharmacy business model provides opportunities for pharmacies to thrive, but also involves increasingly diminishing profit margins due to a variety of factors. These factors include the higher overhead costs that necessarily accompany many of these high-touch drugs, like the costs for storage and professionals to handle and administer the drugs, as well as shipping and handling costs. Other costs are associated with various accreditations, like those associated with URAC, the Accreditation Commission for Health Care (“ACHC”), and the Center for Pharmacy Practice Accreditation (“CPPA”).

Specialty pharmacies are acutely susceptible to reimbursement challenges because high-cost specialty medications commonly yield a low profit margin as a percentage of reimbursement. As such, if reimbursement decreases by even a small percentage it may result in a significant percentage decrease to a specialty pharmacy’s net profit. For example, if a specialty pharmacy’s net profit is only 3% of revenue and the pharmacy was faced with an increase in fees equal to 1% of revenue, then the specialty pharmacy would see a 33% decrease in net profits.

Complicating the specialty pharmacy market is the fact that specialty pharmacy reimbursement is controlled, in a large part, by PBMs. These same PBMs own specialty pharmacies that already dispense more than two-thirds of all specialty medications due to the long-term trend of consolidation in the horizontal and vertical markets. Frier Levitt has experience representing independent specialty pharmacies facing challenges involving PBM contracting, such as network access issues, decreasing reimbursement, and increasing fees, Direct and Indirect Remuneration, or “DIR” fees, among other issues, and can offer legal advice and, where necessary, litigation services to seek to resolve these issues.

Assisting Specialty Pharmacies with DIR Fee Challenges

Every major PBM has begun assessing DIR fees on Medicare Part D claims. Performance-based DIR fees are often assessed on factors not relevant to s specialty pharmacy’s business model. Due to their unique business model, specialty pharmacies often do not dispense generic drugs or common “maintenance medications” measured by PBMs. Regardless, PBMs often measure specialty pharmacies’ performance in these areas and penalize them for failing to meet these metrics. For example, these specialized providers do not dispense many generic drugs and may not dispense generic drugs at all. A PBM may still measure its Generic Dispensing Ratio (“GDR”) and will still penalize specialty pharmacies that fail to meet unreasonable and irrelevant GDR targets, even though the specialty pharmacy does not dispense generic drugs.

Further, if the PBM does measure these providers based on categories that appear to be relevant, such as adherence to specialty medications the actual measurement may still not be accurate. For example, if a PBM measures adherence by a simple comparison of days elapsed to “days’ supply,” it may not accurately measure changes to a patient’s medication regime based on close coordination with a prescriber (such as prescribed breaks in treatment during intermittent therapy or a “treatment holiday”). In this example, there would be a perceived difference between days elapsed and “days’ supply” that would result in a lower adherence score, but one that was at the direction of the prescriber. For other pharmacies being rated on formulary compliance, if formularies are not updated to include newly FDA approved drugs, a pharmacy can actually be penalized for providing cutting edge treatment to patients, even where the prescription was dispensed pursuant to a prior authorization approval by the PBM.

As a result of slim margins in the marketplace and ever-increasing costs to service patients (especially those with complicated treatment protocols such as cancer patients), DIR Fees often result in reimbursement that is below the cost of drug acquisition by providers or otherwise leave the provider without a reasonable profit margin necessary to maintain operations and inn direct contradiction to legal requirements to pay reasonable reimbursement terms.

Frier Levitt has been successfully challenging these unreasonable and irrelevant DIR for years. Specialty pharmacies that are being assessed unreasonable DIR fees have rights under contract and federal law, and can challenge a PBM’s DIR fee program successfully.

Assisting Specialty Pharmacies with Applications and Access to Specialty Networks

Another challenge specialty pharmacies may face are unreasonable barriers to PBMs’ specialty networks. Even though many states have passed legislation requiring PBMs to allow “any willing pharmacy” to participate in their networks, and Federal law requires admission to “any willing pharmacy” some PBMs still block access to these specialty networks entirely or require unreasonable terms and conditions such as onerous accreditation or unreasonable drug access standards upon independent specialty pharmacies, effectively barring all but the PBMs’ own pharmacy from participating in the network. Applications to these networks are often incredibly complex, requiring extremely detailed answers and documentation. Many specialty pharmacies are unable to complete such applications within the very narrow timeframes permitted by PBMs.

Frier Levitt can assist specialty pharmacies with the application process to ensure the pharmacy submits a full and responsive application. If the application is still denied, Frier Levitt can institute litigation, leveraging existing laws to challenge these unreasonable barriers to access.

Challenging Below-Cost Reimbursements

Specialty pharmacies face extremely narrow margins in drug pricing. In some cases, PBMs are unreasonably reimbursing pharmacies below the acquisition cost for some specialty drug products. No business can sustain itself with reimbursement below cost on the products it sells. Federal law and an increasing number of state legislatures have begun to recognize abusive drug-pricing and reimbursement schemes implemented by PBMs and are passing laws to prevent this practice. Nevertheless, PBMs are constantly evolving and changing their pricing models despite these legislative efforts. Frier Levitt has developed its own proprietary strategies for challenging these abusive PBM/payor tactics and has successfully challenged below-cost reimbursements to force PBMs and payors into compliance with the law.

Litigating/Arbitrating Business Disputes, including PBM and Payor Audits, Network Access Disputes, and Reimbursement Issues

Throughout the course of any business, litigation (or arbitration) may arise in various contexts, including contract disputes with vendors, employment disputes, disputes with regulatory authorities, etc. In the specialty pharmacy space, audits of prescription drug claims, network access and termination issues, and reimbursement issues (to name only a few) commonly result in disputes requiring a resolution though litigation or arbitration. We realize that litigation/arbitration can be a stressful solution for our specialty pharmacy clients. At Frier Levitt we work with our specialty pharmacy clients to provide litigation/arbitration avoidance strategies, but also to provide affordable litigation/arbitration alternatives that minimize any disruption or interference with our specialty pharmacy clients’ daily operations. Frier Levitt has a team of litigators experienced in litigating/arbitrating specialty pharmacy audits, network access disputes, reimbursement issues, employment disputes, etc. so that your specialty pharmacy does not fall victim to abusive PBM/Payor tactics.

Advice and Counseling on Regulatory and Compliance Issues

Frier Levitt’s Compliance Practice assists in the development, implementation, and administration of tailored compliance programs for life science entities, and in the assessment and revision of existing compliance programs. Our attorneys counsel specialty pharmacies on a variety of regulatory and compliance issues and arrangements, such as:

  • Hub Service Arrangements
  • HIPAA Compliance policies and practices;
  • Shared Services and Central Fills Arrangements;
  • DEA Enforcement Action defense and prevention strategies;
  • Copay collection policies and practices;
  • Structuring arrangements with pharmaceutical manufacturers;
  • Board of Pharmacy actions and prevention strategies; and
  • Structuring 340(b) arrangements with covered entities.

Contact Frier Levitt Today to Learn More

Frier Levitt has unmatched experience representing specialty pharmacies. Our attorneys understand the business operations and unique challenges facing specialty pharmacies including, for example, the impact of DIR fees on overall reimbursement, complex PBM network access and contracting issues, the challenges and rewards of specialty pharmacy sales and acquisitions, and specialty pharmacy accreditation and compliance issues, to name just a few. If you have questions regarding specialty pharmacy operations or if your specialty pharmacy is facing challenges that may seem insurmountable, contact Frier Levitt today to learn how our attorneys can not only assist you in addressing those issues and overcoming those challenges, but also how Frier Levitt can help you to develop strategies to ensure that your specialty pharmacy will thrive in a highly competitive marketplace.

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