Shields’ Purchase of Excelera Highlights Integrated Specialty Pharmacy Industry

As more health systems are creating their own specialty pharmacies, two major players in the space are coming together. In mid-January, Shields Health Solutions unveiled a deal to purchase ExceleraRx Corp. for an undisclosed amount. The new company could provide these entities with more leverage when it comes to payer networks and manufacturer distribution.

Launched in 2012, Shields is a specialty pharmacy integrator that partners with health systems to help them create and grow a hospital-owned specialty pharmacy program. Excelera, which also started in 2012, is a network of specialty pharmacies among its members, which are integrated delivery networks (IDNs) and academic medical centers. Created by Minneapolis-based Fairview Health Services almost a decade ago, the group now consists of almost 30 members.

The combined company will be able to work with more than 60 health systems and academic medical centers that have more than 700 hospitals across 43 states, “providing manufacturers with unparalleled access to data insights, and presenting payors the opportunity to help optimize care and improve outcomes for nearly one million patients with complex and chronic conditions,” according to a joint press release from the firms.

Those health systems represent “nearly 30% of non-profit healthcare systems based on net patient service revenues,” giving the new entity $30 billion in specialty pharmacy revenue opportunity based on the $100 billion-plus specialty pharmacy market.

As part of the transaction, six Excelera investors and equity holders — Avera Health, Banner Health, CommonSpirit Health, Fairview Pharmacy Services, Intermountain Healthcare and Monument Health — have invested in Shields.

According to the press release, almost 90% of large hospitals in 2019 operated a specialty pharmacy, double the amount in 2015. In fact, the industry is growing so much that a group of seven health systems and Shields formed the Health System Owned Specialty Pharmacy Alliance (HOSP) this past fall. Tanya Menchi, executive director of HOSP, tells AIS Health that this integrated specialty pharmacy approach “helps keep critical parts of patient care — such as medication management and treatment — inside the health system that is caring for the patient, instead of a more fragmented approach to care. This important care integration strategy helps improve medication adherence, reduce hospital readmissions and lower overall health care costs.”

Menchi, who also serves as director of public policy for Shields, says that HOSP will advocate for the integrated specialty pharmacy industry and unite members around common interests and issues for the industry. Some of those issues include “educating stakeholders and policymakers on the benefits of the integrated model that result in better patient outcomes, sharing best practices for implementation and operation of the model, and advocating for common industry interests, like [the] 340B [drug pricing program], access to limited-distribution drugs and payer networks, and patient choice. In addition, HOSP will serve as a knowledge-sharing platform for members to collaborate and share data-based research focused on improved patient outcomes.”

Report Reveals Dynamics of Situation

However, integrated specialty pharmacies still struggle somewhat when it comes to working with payers. A report conducted by Reckner/Blueberry on behalf of Trellis Rx, LLC, a specialty pharmacy integrator, reflects on the dynamics between health systems and payers. The study, released last summer, was based on interviews with 10 hospital pharmacy leaders and 10 health plan leaders.

“Health systems continue to struggle building partnerships with health plans while health plans continue to rely on pharmacy operational metrics as surrogate markers of specialty patient outcomes,” according to the report. “Currently, there is little incentive for health plans’ business models to consider patients’ lifetime value and/or lifetime costs. Likewise, there is little benefit compelling health plans to accept health system pharmacies into their networks; it simply hurts preferred pricing arrangements.”

According to Dustin Lewis, the specialty pharmacy manager at Nationwide Children’s Hospital, “without a doubt, access to health plan networks is my biggest challenge,” per the report. “I know that I can only fill prescriptions for about a third of the patients who come through our doors. And it’s not for lack of willingness to negotiate, it’s that we cannot even get a meeting with a payor or talk to an actual person about obtaining a contract. It’s not like I’ve been playing hardball with the payors, it’s that I can’t even play. I don’t even have a baseball glove.”

Indeed, Jack Shields, founder and chairman of Shields, told the Boston Globe that “eight years ago we couldn’t get PBMs or drug manufacturers to talk to us,” according to a Jan. 12 article. He said that should change with the Excelera addition. The Globe also states that “the merged company is expected to reach a $2 billion revenue rate next year.” That, writes executive editor and longtime industry expert Bill Sullivan in a Jan. 19 AntonRx Report, is “more than enough volume to finally impress payors and manufacturers.”

He tells AIS Health that “both companies have been successful in contracting a significant number of hospital health systems.…But there are a lot more to go to fully penetrate the market.”

“The merged company negates competition from a top-tier competitor in the same market niche and simultaneously becomes the market-dominant force in that niche,” observes Elan Rubinstein, Pharm.D., principal at EB Rubinstein Associates. “By combining, ExceleraRx and Shields are able to offer health systems experienced specialty pharmacy support based on either of their business models.”

“There is some extra icing on the ExceleraRx cake,” Sullivan added in the article. “They bring a robust manufacturer marketing program, a home infusion solution to create health system-owned infusion operations, and even a PBM to the party.”

According to the Globe, Shields in July 2019 sold about a 50% combined ownership stake to Walgreens and investment group Welsh, Carson, Anderson & Stowe “in a deal valued at between $850 million and $900 million.” Of that agreement, states Sullivan, “it will be interesting to see how the synergies play out and if the relationship can be leveraged.”

“We remain convinced that healthcare system-owned specialty pharmacies pose one of the greatest threats to independent specialty pharmacies given their ability to self-direct specialty prescriptions within their walls,” he says, adding, “I am sure manufacturers are getting concerned as these big hospital customers control their own internal preferred formularies.”

Research shows that more and more IDNs are interested in negotiating directly with pharma. According to Zitter Insights’ IDN Formulary Insights, per its white paper Why in the World Would IDNs Want to Contract Directly with Pharma? The IDN Perspective, “81% of the highly integrated IDNs targeted by pharmaceutical manufacturers can push a formulary change to the entire system at the press of a button. Moreover, 79% and 64% of these IDNs report that their system-wide formularies cover specialty pharmacy products and retail medications, respectively.”

Zitter Insights and AIS Health are both owned by MMIT. Welsh, Carson owns a majority stake in MMIT.

The Zitter Insights white paper, released in March 2018, included responses from 35 contracting directors at IDNs across the country. Almost all reported that they could get better pricing from direct contracting with pharmaceutical manufacturers than through working with a group purchasing organization. That’s even more important when it comes to purchasing costly specialty drugs. Citing Zitter Insights’ IDN Formulary Insights, the report notes that “62% of the highly integrated IDNs targeted by pharmaceutical manufacturers now own specialty pharmacies; that number rises to 81% for onsite retail pharmacies.”

Group Calls for Industry to Share Data

In a recent open letter to the integrated specialty pharmacy industry, the HOSP board of directors maintained that “we need industry-wide benchmarks to both demonstrate our success and measure our performance to further improve patient outcomes. As an industry, we haven’t done a good job of publicizing the data that showcases our successes, which is what distinguishes us from other specialty pharmacies. Sharing data will allow us to establish metrics to demonstrate our value and measure performance. These metrics will help us develop our own industry best practices.”

The letter also called for the industry to support patient choice and open access, as well as prioritize health equity. “Health system owned specialty pharmacies provide exceptional patient care, and it is time we collaborate and share data to attest to our ability to provide improved patient care and outcomes,” the board wrote. “We are asking you to join your voice with ours. Working together we can ensure we have the opportunity to manage the destiny of our own industry.”

According to the Trellis report, “a pharmacy director at a Northeast health plan covering 5 million patients, put it this way: ‘A pharmacy is a pharmacy is a pharmacy. They all have the ability to order a product. They all have the ability to dispense a product. There is absolutely no difference’ between health system specialty pharmacies and others.…It is imperative, therefore, that health systems invest in developing strong specialty pharmacy programs wherever possible. They must understand the value of their pharmacy services and prove that value to health plans. Health plans, too, must shift their mindset about health system specialty pharmacies from ‘commodity service’ to ‘strategic partner.’”

Contact Rubinstein at elan.b.rubinstein@gmail.com and Sullivan at bsullivan0011@gmail.com.