Specialty Pharma Payer Deals Point to Outsourcing Trend

As prices for specialty pharmacy products continue to soar, payers are looking for new ways to gain more control over the distribution of expensive, often-provider-administered drugs. Last week, Kaiser Permanente and Highmark Blue Cross Blue Shield both struck deals aimed at managing specialty pharmacy spend — and one expert says that more deals like them are coming, especially from Kaiser’s new business partner, Cigna Corp. subsidiary Evernorth.

Kaiser Permanente (KP), the multistate integrated payer-provider based in California, doesn’t enter agreements with service providers outside its self-contained system very often. That said, Kaiser Permanente spokesperson Stephen Shivinsky tells AIS Health that “Kaiser Permanente and Accredo” — the specialty pharmacy division of Evernorth — “have had an existing relationship, which will expand further under part of this new agreement.”

“In the area of specialty pharmacy services, the agreement seeks to deliver overall value and savings to Kaiser Permanente and its commercial plan members,” according to a Cigna news release. Accredo will become Kaiser Permanente’s preferred external pharmacy for limited distribution drugs, and Evernorth’s CuraScript SD will be a preferred distributor for purchasing certain other specialty products. Financial terms of the deal were not disclosed. Shivinsky declined to “discuss our PBM operations or future plans” in the specialty area.

Shivinsky adds that, to some extent, market access conditions forced Kaiser to enter agreements with specialty pharmacy distributors.

“KP uses external pharmacies, such as Accredo, when pharmaceutical manufacturers have limited distribution of specific specialty drugs,” Shivinsky says. “Accredo has been selected by many manufacturers as a limited specialty drug distributor. They have access to medications that Kaiser Permanente does not. We need to use Accredo as an external pharmacy for specific Limited Distribution Drugs medications.”

The deal is not limited to specialty pharmacy. In addition to specialty pharmacy services, KP also arranged to offer “Kaiser Permanente commercial HMO and exclusive provider organization (EPO) members who need urgent care when they are traveling outside of areas served by Kaiser Permanente…access to Cigna’s national PPO network.” Cigna has made similar deals with other health insurance carriers, such as Michigan nonprofit Priority Health, which negotiated national network benefits with Cigna last October.

Meanwhile, Highmark’s venture capital arm invested an undisclosed amount in Free Market Health, a specialty pharmacy software and services company, during a $13.5 million Series A funding round. According to a Free Market Health press release on the funding round, the firm’s work “streamlines the complex and opaque specialty medication fulfillment process to benefit all its stakeholders: patients, specialty pharmacies, and payers.”

“Our collaboration with Free Market Health means that Highmark members will enjoy quicker access to prescription drugs for chronic, high-cost health conditions, from specialty pharmacies tailored to serve their particular condition,” said Sarah Marche, Highmark’s senior vice president of pharmacy services, in the press release. “By removing pain points in the specialty pharmacy process for patients and providers alike, we’re promoting better clinical care and outcomes for our members.”

Ashraf Shehata, KPMG’s national sector lead for health care and life sciences, tells AIS Health that, taken together, the two deals indicate that plans are trying to offset high specialty pharmacy costs by streamlining their operations.

Payers Need to Invest More in Specialty Ops

“The specialty business has always been an area that, in my opinion, has been underinvested in the overall PBM scheme,” Shehata says. “So it may be less of a matter of scale versus a matter of investment priority. What we’ve found is it does take quite a bit of resources to invest in modernizing [software] platforms and building better distribution networks. It’s not exclusively contracting based on scale. It’s also contracting based on the capabilities it takes to run an effective and efficient specialty pharmacy network — I think it’s that, rather than just unit cost contracting.”

To some degree, the trend Shehata identified describes a move toward more so-called “white bagging” and “brown bagging.” Providers traditionally have acquired therapies they administer through a practice known as buy and bill, by which they will purchase a drug from a wholesaler or distributor, keep it in their office and administer it to patients as needed, submitting a claim to the payer afterward. Through this approach, providers can make a profit by marking up the drug. But some payers mandate that providers purchase these drugs through a specialty pharmacy, a practice known as white bagging. This means the provider never takes ownership of the drug, and patients will pay their copayment or coinsurance to the specialty pharmacy after the physician orders the drug. The specialty pharmacy then delivers the medication directly to the provider. A third option, which is known as brown bagging, is when a patient receives the drug and brings it to the provider to be administered.

The largest payers — those that own a PBM and/or a specialty pharmacy — have led the way in implementing white bagging and brown bagging. Specialty pharmacy contracting by smaller payers with the firms that launched white bagging — CVS Health Corp., Cigna and UnitedHealth Group — could indicate that those regional carriers will initiate similar practices.

More Deals Are Likely Coming Soon

And Shehata does expect similar specialty pharmacy management deals across the payer landscape. That represents the kind of payoff that large, national carriers like Cigna hoped for when they began to build out non-insurance arms like Evernorth.

“Organizations like we’re seeing with Cigna and others, even Optum” — the UnitedHealth PBM, provider and services subsidiary that Evernorth emulates — “I think they’re moving more towards becoming a broader distributor of health care products and services. This [the Kaiser deal] is right on target with their aspirations. I think that’s important, because historically, when these bigger health plans create these new subsidiaries, they’ve always had a really good history of selling to third parties, especially Blues affiliates,” Shehata says.

“Many of the Blues, and many of the commercial payers overall, are trying to manage that full [specialty pharmacy] benefit end-to-end,” he adds. “I think you’re going to see more and more of those capabilities go in house, just because it gives them the ability to manage the prior authorization and coordination of the benefit throughout the value chain.”

Kaiser’s status as both one of the largest benefits administrators and one of the largest hospital systems in the country means that the move is a sign of the times in both segments, Shehata says.

“It is interesting to see the larger, integrated delivery systems [like Kaiser] moving towards these services. But it just goes to show there’s been a lot of investment in the space, and there’s likely a lot of technology underpinning a lot of the capabilities” that Kaiser is paying for, he explains.

Shehata adds that consolidating specialty pharmacy operations may lead to savings in the health care system overall.

“The whole specialty business is probably one that, if it were properly aligned across multiple carriers, could actually build a lot of efficiencies across” carriers of all sizes, Shehata says. “Maybe the differentiation needs to come in how to apply [specialty] to the health plan benefit, or what are the prior authorization criteria — those are all things that the health plans are really good at governing. But the actual distribution and management and coordination of the specialty services themselves is probably better aligned with a larger, more national player.”

States Consider White Bagging Regulation

The trend comes as states have stepped up scrutiny on white bagging. According to an April 25 report on white bagging legislation from Avalere Health, “state legislatures are increasingly focused on regulating PBMs and issuers in 2022. Specifically, state legislators are introducing white-bagging bills aimed at prohibiting payers and PBMs from mandating provider/patient uses specific pharmacies for provider-administered drugs as a condition of reimbursement or patient coverage....These laws could have a substantial effect on how provider-administered products are administered, site of care barriers, and patient access to care.”

Per the white paper, three states (Arkansas, Louisiana and Virginia) enacted white-bagging laws while 10 more are considering white-bagging bills. Two of those states (West Virginia and Oklahoma) have passed bills in one legislative chamber.

Contact Shehata via Creighton Abrams at cabrams@kpmg.com and Shivinsky at stephen.shivinsky@kp.org.

This story was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.