Inside Look at a Joint-Owned Specialty Pharmacy

San Francisco—A specialty pharmacy jointly owned by a regional health plan and an outside entity can be a successful partnership with high satisfaction, but the risk and operational implications associated with the venture should also be considered, according to a Contemporary Issues session at the AMCP meeting.

The session, titled Health Plan Joint Venture Development of a Specialty Pharmacy, highlighted the partnership between Independent Health, a not-for-profit health plan based in Buffalo, New York, and Reliance Rx, a specialty pharmacy.

Martin Burruano, RPh, director of pharmacy for Independent Health, began the session with a company overview and market analysis. Independent Health serves approximately 400,000 members in western New York and across the nation.

The region of New York served by Independent Health has a number of unique economic factors. According to the US Census in 2010, Buffalo, New York, is one of the poorest cities in the nation with a poverty level of 28.8%. The unemployment rate as of December 2011 was 8.0%, just above the state’s rate of 7.9%.

Independent Health has a diverse product portfolio with 49% commercial business, 18% Medicare, 12% Medicaid, and 21% self-funded insurance. They diversified because they were feeling pressure on their margins due to the government’s efforts to lower healthcare costs, the movement toward self-insured coverage, a stagnant market in western New York, and state Medicaid reform implications. In light of this, according to Mr. Burruano, they wanted to develop nonrisk-related services in an effort to increase their overall corporate margin.

Before Independent Health launched the joint specialty pharmacy with Reliance Rx, they used 2 national specialty pharmacy vendors for their specialty needs and had experienced both the network distribution of mandatory shifts and the service variability of vendors.

According to Jody L. Miller, MBA, chief executive officer of Reliance Rx, the health plan had an average wholesale price (AWP) of 18 before the partnership and, although they were receiving adequate service levels on their pharmacy benefit drugs, they were having challenges with the medical benefit.

Key objectives of the joint venture specialty pharmacy were to improve service, reduce costs, and continue to improve patient coordination with the medical community.

The joint venture was not without its challenges and before they embarked on the specialty pharmacy, Ms. Miller says they had to consider wholesale pricing and whether they would be able to purchase drugs that allowed a margin but still had an AWP of 18. They also considered whether there was enough leadership within the health plan to successfully launch the venture, and whether there was an achievable transition plan.

There were also economic considerations including $370,000 in capital requirements, $280,000 to fund operations until the break-even point, $1.8 million to fund the inventory, and $1.9 million in days accounts receivable. Ms. Miller also said that a 15-day prepayment of $2.1 million with a 7.5% return on investment was necessary to reduce acquisition cost. In the first year, it was estimated that the spending would be ≥$50 million.

The specialty pharmacy began in September 2010. Based on monthly performance data, they broke even on operations in January 2011, but it was not until December of 2011 that they paid back start-up costs.

Ms. Miller also reported satisfaction results for interactions with Reliance Rx. Based on a survey of 236 patients, 95.8% rated their overall satisfaction with the pharmacy service as a 9 or 10 out of a 10-point scale. Specialty care physicians also positively rated Reliance Rx and 71% of employers in 2011 said they were extremely satisfied with their specialty pharmacy network management compared with 63% in 2010.

As the program moves forward, they continue to gain access to limited distribution drugs and they still use a back-up specialty pharmacy. However, all service metrics have improved with the joint venture. The return on investment for year 2 is 15% and growing, and the effective rate of AWP is 19.5 and improving.

While the partnership has been beneficial for Reliance Rx and Independent Health, Ms. Miller said that before health plans decide whether they want to replicate a similar specialty pharmacy, they must consider their return on investment versus other current investment options, future pricing with their current vendor, customer satisfaction with their current vendor, whether there is the executive leadership to start a joint pharmacy, and whether the health plan is interested in more completely managing the medical benefit.