Brave New World: What the Trend Away From Fee-for-Service Means for Health-System Specialty Pharmacy

Specialty Pharmacy TimesSeptember/October
Volume 8
Issue 6

Properly managing reimbursement is critical to managing costs and outcomes in an evolving payment environment.

HEALTH SYSTEMS ARE INCREASINGLY MOVING away from fee-for-service (FFS) reimbursement into a brave new world of payment models that may involve risk sharing, reward sharing, capitation, and other mechanisms across various periods of time for certain patient populations. These new payment models offer opportunities for the health system-based specialty pharmacy.

The American Hospital Association Committee on Research defines 2 fundamental alternatives to FFS: bundled-based payment and population-based payment.1 Optum defines 4 value-based reimbursement models—pay-for-performance, the patient-centered medical home, bundled payment, and shared savings/accountable care organizations (ACOs)—and 5 payment methods—pay-for-reporting, pay-for-adoption, prospective payment, warranty services, and gainsharing.2 Quality assessments are often part of the formula, as are risk adjustments based on teaching status, the types of patients served, and other factors. The variables and data requirements are complex.

FFS is still dominant, but its days are numbered. Even drug companies are publicly discussing the idea of “going at risk” with payers through value-based pricing that focuses on outcomes.3 To some degree, the impetus to reform payment models has come from the top down, as with the Centers for Medicare & Medicaid Services and its designation of ACOs. The market is also demanding payment model reform, both to control costs and to achieve the other elements of the triple aim: improve population health and the patient experience. Innovation has been emerging through the joint efforts of payers and providers in negotiating contracts. Health systems must manage these contracts proactively to make sure that they are allowed to effectively care for their patients while sustaining the viability of the organization.

Specialty pharmacy must actively engage with the new payment models. The sheer numbers involved demand it. According to Express Scripts, less than 1% of all prescriptions written in 2014 were for specialty drugs even though they accounted for about 32% of total drug expenditures.4 In 2015, that number jumped to 37.7% of the overall drug spend.5 Outsourcing pharmacy—or being cut out of pharmacy—for this tiny fraction of the overall patient population can result in significant challenges for the health system when trying to meet the requirements of these payment models. Health systems cannot assume the financial risk for these complex and very expensive patients without the ability to manage all aspects of their care.

How Specialty Pharmacy Is Already Shaping New Payment Models

At Fairview Health Services, which includes the University of Minnesota Medical Center, more than 300,000 lives are covered by innovative value-based payment models. Based on the nature of these payment models, Fairview Specialty Pharmacy has been able to fill prescriptions for many specialty patients at its hospitals and clinics, including some who might be required to use a remote, for-profit pharmacy if they become patients at a different health system. In negotiating these contracts, Fairview, like other health systems with integrated specialty pharmacy capabilities, can make a strong case for the patient care advantages and efficiency of care team integration and access to electronic medical records (EMRs). Because Fairview is responsible for the outcomes and total cost of care for these patients, it is imperative that the health system be allowed to provide its specialty prescriptions for the duration of their care.

It is not just Fairview that is providing these services. Ochsner Health System has also seen the importance of managing its own specialty pharmacy patients. “To provide coordinated care to our patients, we found we needed to provide the specialty medication and manage the care within our system,” said Deborah Simonson, vice president of pharmacy at Ochsner Health System. “This enables us to provide an integrated team approach that manages cost, outcomes, and the patient experience. Carving the system out of that process disrupts workflow, decreases communication, and adds unnecessary roadblocks for the provider and patient.”

Expansion of the Specialty Drug Sector Demands Continuous Attention From Health Systems

Properly managing reimbursement for this small percentage of patients is critical to managing costs and outcomes in the evolving payment environment, especially as the specialty drug sector continues to grow. A report from the Pew Charitable Trusts suggests that specialty’s spend will total $400 billion by 2020, which is more than 9% overall of national health spending.6 Drugs in the approval pipeline are heavily weighted toward specialty products.7

Furthermore, traditional therapeutic categories are edging into the specialty class. The treatment of high cholesterol, for example, became potentially more complex with the approval in 2015 of alirocumab and evolocumab. Although payers have placed boundaries on their coverage of these drugs, their use is growing rapidly.8 It is precisely this type of drug for a chronic condition that presents a large risk to health systems when they are financially accountable for the cost of care, but are excluded from the specialty pharmacy benefit.

Yale New Haven Health System also entered the specialty pharmacy market, in part to manage the cost of its complex patients. “Today’s changes in health care require all models to rethink the best way to care for our patients,” said Lorraine Lee, vice president and chief pharmacy officer at Yale New Haven Health. “As health systems, we historically focused on acute care episodes of treatment. Now, with the move to value-based care and population health, ensuring our patients are cared for after they leave the hospital setting is critical to patients’ long term health.”

Yale New Haven saw that some of its most complex patients were being sent home to care for medication needs on their own, leading to noncompliance, readmissions, and seeking higher levels of care. Having its own specialty pharmacy enables the system to provide better care for these patients. “Our specialty pharmacy services allow better communication to all members of the team, including the patient, in the discussions,” Lee said. “This has shown to improve outcomes through improved compliance and closer management of side effects and other issues encountered by patients. We also have access to the EMR and can document this care, so that when a patient interfaces with their physician in the future, there is better information to make decisions.”


To remain viable in an outcomes-based payment environment, health systems must address specialty pharmacy. If health systems are responsible for the health outcomes of specialty patients, they must be allowed to manage these patients, including dispensing their specialty prescriptions. In addition, as health systems continue to take on more financial risk, it is imperative that they be able to affect one of the fastest growing expenses in health care: the prevalence and utilization of specialty medications. 


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