Specialty Drug Pricing and Channeling


For years pharmaceutical manufacturers have defended the high cost of newly approved medications with explanations about the skyrocketing costs of research and development. In the current environment of specialty medications, however, payers are demanding a different approach.

The Challenge of Pharmaceutical Pricing

There is no question that research and development costs have escalated, as has the cost of defending a medication against lawsuits from adverse events. However, payers are asking for the prices of new pharmaceuticals to be both based on their relative “value” compared to medications already on the market, as well as consistent with patient outcomes. This article will discuss the issues surrounding this subject with examples of where our healthcare system is seeing substantial waste with scarce monetary resources while providing questionable profits to some companies.

On October 23, 2015, medical experts taking part in the “Drug Pricing: Public Health Implications” panel, presented by the Harvard T.H. Chan School of Public Health in collaboration with Reuters, determined, “… the prices of prescription medicines in the United States need to be brought in line with the value they bring to patients instead of continuing to let drug makers set any price they choose.”1

Pharmaceutical pricing has become a national issue and many groups are asking Congress to intervene. It is not just the significantly higher cost of new therapies that is disconcerting, it is also the incredible price increases with older generic products have caught the attention of payers and their members. One highly publicized example is Turing Pharmaceuticals raising the price of a medication that has been on the market for over 60 years, where the cost of research and development has long since been covered. The price of Daraprim, their recently acquired medication, was raised from $13.50 to $750.00 per pill.2 In this one case, there could be a solution as a specialty company in San Diego, California, later announced they can manufacture a generic-type Daraprim for about $1.00 per pill. Unfortunately, that kind of relief is rare.


The other issue which impacts costs to the payers is channeling: mandating a single or small network of pharmacies that can dispense the medication. Channeling prescriptions has allowed some pharmaceutical companies to mask their high costs by attempting to bypass typical medication cost management tools. The channel issues to be examined are limited distribution drugs (LDDs), PhRMA-owned specialty pharmacies, and the use of retail pharmacies for specialty distribution.

Limited Distribution Drugs

A fairly new phenomenon is the practice by pharmaceutical companies to limit the distribution of their specialty medications, so-called LDDs, to a small number of pharmacies. Rather than contract with over 60,000 pharmacies across the country, the manufacturers limit the distribution to a handful of specialty pharmacies with clinical outreach and reporting systems in which the manufacturers have confidence.

The purpose of this practice is to reduce the administrative burden placed upon them to rigorously monitor the patients taking their medications and ensure that adverse events are reduced or prevented. Some new prescription medications are approved under this practice, but the FDA requires implementation of a Risk Evaluation and Mitigation Strategy (REMS).

MedImpact understands the need for manufacturers to limit the distribution of certain drugs, especially those with REMS programs. But the practice of limiting distribution to one or two pharmacies drives up the cost of specialty medications. When a specialty pharmacy is given exclusive distribution status to a specialty drug, there is little incentive for them to give the payer a competitive rate. Similarly, for those situations where there are only three or four specialty pharmacies with access, the competition is so limited that discounts are not as aggressive as they could be. Given the current specialty trend, PBMs, including MedImpact, are interested in curtailing programs like these that raise specialty drug costs.

MedImpact has been tracking LDD usage and the results of some recent statistics are presented in Table 1.3

Table 1.


MedImpact had seen the expansion of limited distribution drugs over a year ago. The specialty team began developing a LDD network which is now available.  Any client that is interested in this network should work through their account management team to get the details.  The advantages of the LDD network – which is available at no charge – include more favorable pricing and a reduction in member disruption.

PhRMA-owned Specialty Pharmacies

In the past year the increased trend of specialty pharmacies owned by members of the Pharmaceutical Research and Manufacturers of America (PhRMA) has created a definite stir in the media and within health care organizations. Some PhRMA companies operate hubs that request that patients register with them prior to their first prescription fill. These hubs then provide a variety of services such as:

  1. Educational materials about the patient’s disease
  2. Clinical information regarding the specialty medication
  3. Adherence coaching
  4. Mitigation of adverse events


MedImpact is aware of these hubs and routinely meet with the manufacturers to understand what services they provide and ensure they are collaborating with our specialty pharmacies and health plans’ case managers. The point of contention between the PhRMA hubs and the PBM industry is around control of the patients. The role of the PBM is to ensure that each patient is provided the most valuable medication defined as the most clinically effective therapy at the best price. When a hub also acts as a first-fill pharmacy they can take it upon themselves to onboard patients on their own specialty medication for the first month at no cost to either the plan or the member. When the patient goes to refill the prescription at a MedImpact network specialty pharmacy, they could be told the drug they were initiated on is not covered.  Therefore, MedImpact supports those hubs and first-fill pharmacies when the specialty medication is a preferred agent, but not supportive when the patient is initiated on a drug that is not preferred.  These hubs can lead to confusion and member disruption in those cases.

There are a few PhRMA companies that have taken advantage of the healthcare system by operating a specialty pharmacy to control all of the distribution of their own pharmaceutical products. A recent article entitled “Drug Makers Sidestep Barriers on Pricing,” dated October 19, 2015, in Business Day magazine, reported that companies like Horizon Pharmaceuticals are utilizing their own contracted specialty pharmacies to bypass typical medication management tools the PBM industry utilizes to control drug spend.4 The following example illustrates this point.

Horizon manufactures a pain medication called Duexis®. Horizon took two inexpensive over-the-counter medications and combined them into one pill. Duexis contains 800mg of ibuprofen and 26.6mg of famotidine, which represents a pain medication with anti-inflammatory effects with a drug to protect the stomach from distress. A person could take four ibuprofen pills (like Advil®) plus one dose of famotidine (such as a Pepcid® tablet) and they would receive the exact same medication and achieve the same pain relief as Duexis. The price of these over-the-counter medications would be approximately $40 per month. By contrast, purchasing the single pill Duexis would cost a staggering $1,500 a month.5

MedImpact does not cover Duexis, but we suggest that members purchase ibuprofen and Pepcid at their local pharmacy without a prescription. Knowing that PBMs might not cover their drug, Horizon developed a work-around to circumvent the cost-savings efforts of PBMs.6 Horizon gets prescribers to send their prescriptions directly to their own specialty pharmacies which helps them avoid the hassles of prior authorizations or phone calls explaining the medication can be purchased without a prescription for a fraction of the price.

Although Duexis is not on the MedImpact formulary, many commercial health plans include it on theirs. This practice raises the cost of healthcare and provides little or no added value for the members. There are other examples of PhRMA companies using their own or contracted pharmacies to get prescribers to write prescriptions for their incredibly expensive medications and circumvent the very system that tries to ensure a company’s healthcare dollars are spent wisely.

Retail Pharmacies

MedImpact has excellent relationships with all of the major retail pharmacy chains as well as independent pharmacy group co-ops. We rely heavily on them for economical dispensing of medication with great customer service. When it comes to specialty medications, however, we believe the level of clinical support and monitoring requires so much time and effort that pharmacists in the retail setting are not set up to provide it. Therefore we reserve our retail pharmacies for those specialty medications that might only require some coaching of the member to keep their adherence high.7

Reporting is a very important part of specialty drug management. Specialty pharmacies have built reporting systems and capabilities into their practices. For the majority of specialty medications, MedImpact believes it is in the payer’s and the member’s best interest to utilize a specialty pharmacy.

In Conclusion

Pricing practices by pharmaceutical companies is one very important issue. We at MedImpact take our responsibilities seriously and monitor many new medications carefully to understand their value. The industry relations department continues to work in concert with other internal teams to obtain the best pricing on all new agents. The channeling of specialty medications is also a critical issue. Working with a select few specialty pharmacies allow us to monitor their services and ensure we can obtain the most aggressive discounts. Political pressure is mounting for the pharmaceutical industry to evaluate how they determine the pricing on their new medications. As specialty costs move closer to representing half of the total pharmacy spend, we will see more pressure applied to pharmaceutical companies to moderate new drug costs.


Steven G. Avey, R.Ph., M.S., FAMCP
Vice President, Specialty Pharmacy

1. Humer, Caroline and Berkrot, Bill. (2015, October 26). U.S. drug prices should reflect value to patients: expert panel. Reuters. Referenced at
2. Worstall, Tim. (2015, October 23). Markets Work: Martin Shkreli, Daraprim And Turing Pharma Edition. Forbes.
3. Statistics from Table 1 represent MedImpact numbers for their book of business.
4. Drug Makers Sidestep Barriers on Pricing. (2015, October 19). Business Day.
5. Costs were determined by actual drug prices at retail compared to the AWP price of Duexis.
6. Valeant: Could this be the Pharmaceutical Enron? (2015, October 15). Citron Research Report. 
7. Unless otherwise required by state law.

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