The Intersection of Vertical Integration and Key Health Programs: An Analysis of Hospital-Owned Specialty Pharmacies and Congressional Challenges

The Intersection of Vertical Integration and Key Health Programs: An Analysis of Hospital-Owned Specialty Pharmacies and Congressional Challenges

Introduction:

Vertical integration has gained significant attention in the U.S. drug channels, primarily focusing on insurers, pharmacy benefit managers (PBMs), specialty pharmacies, and providers. However, a parallel vertical integration trend has emerged among hospitals, specialty pharmacies, and physicians. This article explores the economics and strategies behind hospital-owned specialty pharmacies and the challenges faced by Congress in extending key health programs.

The Power of Hospital-Owned Specialty Pharmacies:

Hospitals have been incentivized to operate specialty pharmacies through the 340B Drug Pricing Program. This program allows hospitals to acquire discounted specialty drugs and dispense them from internal pharmacies, generating substantial profits. Furthermore, changes in manufacturers' 340B contract pharmacy policies have accelerated hospitals' investments in in-house specialty pharmacy operations. Hospitals also rely on 340B contract pharmacies to profit from prescriptions dispensed by external pharmacies in limited networks.

The Narrowing of Specialty Drug Channels:

Payers, PBMs, and manufacturers have employed strategies to narrow specialty drug channels, leading to a shift in dispensing to the largest specialty pharmacies owned by vertically integrated organizations. This consolidation has created barriers to access for hospitals, with manufacturers' refusal to engage and being frozen out or blocked by payers identified as the biggest obstacles. As a result, many hospitals have resorted to contracting with external pharmacies to provide specialty medications to their patients, particularly when excluded from payers' or manufacturers' networks.

The Dominance of Contract Pharmacies:

External 340B contract pharmacies often coexist with a hospital's internal specialty pharmacy. The top five companies, including CVS Health, Walgreens, Walmart, Cigna, and UnitedHealth Group, account for the majority of contract pharmacy/covered entity relationships. The profitability of 340B prescriptions enables hospitals to offer generous pharmacy fees and share a percentage of prescription savings with the contract pharmacy vendor. Ultimately, patients, payers, and taxpayers fund these 340B profits.

Congressional Challenges in Extending Key Health Programs:

Congress faces a tight deadline to extend crucial health programs that impact billions of dollars and millions of people. Some of the key initiatives include the Medicaid Disproportionate Share Hospital program, funding for community health centers, the National Health Service Corps, teaching hospitals, the Pandemic and All-Hazards Preparedness Act of 2006, the SUPPORT for Patients and Communities Act of 2018, and the President's Emergency Plan for AIDS Relief (PEPFAR). However, unrelated issues and internal conflicts within the House of Representatives have complicated prospects for collaborative action.

Actionable Advice:

• 1. Foster Collaboration: It is essential for lawmakers to prioritize the well-being of the population by setting aside unrelated issues and internal conflicts. By fostering collaboration, Congress can ensure the extension of key health programs and address the healthcare needs of millions of people.

• 2. Streamline Funding Processes: Simplifying the funding processes for health programs can alleviate the burden on lawmakers and expedite the extension of these initiatives. Implementing streamlined procedures can ensure timely support for hospitals, community health centers, and other essential healthcare providers.

• 3. Enhance Bipartisan Support: While most key health programs enjoy strong bipartisan support, efforts should be made to strengthen this support further. Lawmakers must engage in constructive dialogue, find common ground, and emphasize the importance of these programs in improving public health outcomes.

Conclusion:

The vertical integration of hospital-owned specialty pharmacies presents both economic opportunities and challenges for manufacturers and payers. Understanding the dynamics of these integrated systems is crucial for adapting to the changing market landscape. Simultaneously, Congress must overcome internal conflicts and prioritize the extension of key health programs to ensure continued access to vital healthcare services. By implementing actionable advice and fostering collaboration, lawmakers can address these challenges and meet the healthcare needs of the population effectively.