Strategies for Successful IDN-based Specialty Pharmacy: The Financial Perspective

An in-house specialty pharmacy can provide significant financial gain for health systems by preventing revenue from being diverted to outside pharmacies.

For an integrated health care system, bringing specialty pharmacy in-house is a way to align operations with a patient-centered care mission. An in-house specialty pharmacy can also provide significant financial gain for health systems by preventing revenue from being diverted to outside pharmacies.

However, without a thoughtful approach to internal and external infrastructure, an integrated delivery network (IDN)-based specialty pharmacy will not live up to financial expectations and can undermine both the bottom line and the mission. This article will describe financial factors to understand and the long-term challenges to keep in mind, based on the experience of Novant Health.

Launch Stage: Two Major Financial Factors

In the planning stage, keep in mind the 2 largest factors that will determine the financial performance of your specialty pharmacy:

  • projected medication acquisition cost
  • initial areas of clinical focus and pathways to expansion

How much is your health system paying for drugs? Direct manufacturer pricing or 340B pricing is better than pricing obtained through a group purchasing organization (GPO); however, GPO pricing can still be profitable if prescription volume is large enough. In an unpredictable regulatory and policy environment, keeping up with the most current developments will help you project revenues accurately.

In-house sourcing and/or legal staff are valuable resources for negotiating the best possible rates. At Novant Health, we have the benefit of an internal pharmacy sourcing manager with contracting expertise.

At first, this type of expertise does not have to be dedicated solely to specialty pharmacy, as long as the specialty pharmacy business unit has access to it. However, specialty pharmacy is a unique business within health systems, and creating this position develops internal expertise critical for the complexity of specialty pharmacy contracts, which often include reporting, access, and workflow information.

What is your entry point into specialty? At Novant Health, we started with oncology drugs, working with the largest oncology practice in our system to access a high volume of patients with high referral integrity. Many health systems begin with oncology and/or infectious diseases, because the medications prescribed are open-access drugs and government programs support payment.

Another relatively painless and profitable point of entry can be found among an organization’s own employees if the health system self-insures its team members as Novant Health does. With large, regional IDNs employing tens of thousands of individuals, this can add substantially to the number of patients with access to the specialty pharmacy. Keep in mind that the benefits team will be attentive to cost per member per month.

As the initial venture into specialty pharmacy demonstrates financial viability, have a plan in place for expanding into additional service lines. An expansion plan backed up with numbers will build and maintain support among senior leadership and other stakeholders. As the business case became more compelling at Novant Health, we expanded the scope of our specialty pharmacy to include infectious diseases, rheumatology, and osteoporosis, as well as additional oncology practices.

Scaling Up: The Importance of Access to Payers and Drugs

Before expanding into additional service lines at Novant Health, we took stock of our business model. We studied how to increase the specialty pharmacy’s access to payers and drugs, both of which are absolutely necessary to scale up. Three things were crucial to this deliberate growth strategy:

  • Data infrastructure
  • Accreditation
  • Legal/contracting expertise

Data are the key to everything. Clinical outcomes and patient support might be excellent, but payers and manufacturers will not simply take your word—they require data that prove excellence. At Novant Health, we worked with Excelera, a specialty pharmacy network owned by its member IDNs, to build out our infrastructure to capture and communicate data in the ways preferred by payers and drug manufacturers.

Specialty pharmacy data helps payers benchmark themselves against their peers. For drug manufacturers, data determine which pharmacies will have access to limited distribution drugs (LDDs). Data are the language that manufacturers understand. In addition to being used for our own purposes, Novant Health’s data are aggregated with other IDNs’ data via our national network partner, Excelera, who negotiates on behalf of its members for access to LDDs.

As important as data—and intertwined with it—is accreditation by an independent third party. Accreditation is necessary to be considered for access by most payers and drug manufacturers. Novant Health was the first health system in North Carolina to achieve URAC accreditation for its specialty pharmacy, an accomplishment that unlocked access to members of Blue Cross Blue Shield plans. Maintaining accreditation requires ongoing, day-to-day work, therefore Novant Health has a team member solely dedicated to URAC compliance.

As noted earlier, in-house contracting expertise is important, especially to sustain long-term success. These team members build strong relationships with payers and manufacturers over time, building ties that support growth and expansion. When a new drug becomes available, having this staff in-house allows a health system to move nimbly to gain access so that the specialty pharmacy can provide to patients the first fill of the new drug, as well as refills.

Barriers to Financial Success

Whether your organization is still exploring specialty pharmacy or has an established in-house operation, here are some things to monitor from a financial perspective:

  • lack of investment
  • not pushing access to payers
  • not having the ability to meet the financial needs of patients
  • insufficient attention to compliance

To manage a specialty pharmacy for growth, it is necessary to build all the layers of the business simultaneously:

  • access to clinics and patients
  • access to drugs and payers
  • staffing sufficient to meet current needs with room for growth
  • physical infrastructure
  • data infrastructure

A lack of investment in any of these areas can undermine the long-term financial success of the specialty pharmacy. To gain and maintain access to payers, an externally facing business development team has been helpful for Novant Health. This team builds strong relationships and promotes the data infrastructure, accreditation, and high performance that, ideally, have been built into the specialty pharmacy. Even retaining access to your own organization’s self-insured employees is more likely with these elements in place.

Helping patients find payment resources for specialty drugs is a baseline service, both for the sake of the patients and the sake of the pharmacy. Another thing to consider is the health system’s approach to serving the needs of the community’s uninsured patients. This is an area in which the mission may override financial concerns, but these decisions should be made with awareness of the financial implications.

Finally: compliance; however, although it reduces margins, investment in maintaining accreditation and complying with payer and manufacturer requirements is necessary for long-term success. Do not risk losing focus on continuously executing accreditation standards and metrics. Given the push within the national landscape for multiple accreditations, sites will be recertifying for accreditation each year, so leave a little leeway for consistent deficiencies.

Long-term Success is a Team Sport

Long-term financial health in specialty pharmacy requires more than a cold chain and a couple of pharmacy technicians. All levels and areas of the organization, including executive leadership, must be committed to the importance of pharmacy in patient care, in clinical decision making, and as a source of expertise in translating between providers and payers.

Outside consulting services and membership in a specialty pharmacy network can also provide valuable support and insights at launch, during growth and expansion, and on a long-term, ongoing basis.

Novant Health is a proud member of The Excelera Specialty Pharmacy Network. For more information, visit

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