Specialty Pharmacy

Resolution of Pharmacy 'Class-of-Trade' Issues Is Key for Specialty Infusion

Reprinted from the July 2005 issue of SPECIALTY PHARMACY NEWS, a monthly newsletter designed to help health plans, PBMs, providers and employers manage costs more aggressively and deliver biotechs and injectables more effectively.

A rational "class-of-trade" policy has yet to be developed by the pharmaceutical industry to address the morphing of home infusion and specialty pharmacy into a new specialty infusion sector. Most pharmaceutical companies now classify home infusion vendors and specialty pharmacy vendors differently, and offer different pricing structures to each group. Pharmaceutical manufacturers have different pricing systems for different types of purchasers, with the result that purchasers obtain the same products at widely varying rates. Many use IMS class-of-trade classifications.

If specialty pharmacies are classified as "mail order," they cannot receive contracts for certain products. At the same time, home infusion companies have historically not been invited to compete for limited distribution contracts for infusible medications.

Richard Bulich, president of Pharmaceutical Buyers, Inc. (PBI), explains that "class of trade" is a concept governed by regulations, laws and traditions — with traditions being the most influential aspect of these customs.

• Laws: The primary law that comes into play in class-of-trade purchasing practices is the Robinson-Patman Act of 1936, a supplement to the Clayton Antitrust Act. The law was originally intended to protect small retailers from competition from large chains.
• Regulations: Class-of-trade distinctions complicate many pricing methodologies, including Medicaid "best-price" calculations. New regulations coming out of the 2003 Medicare reform law, such as average sales price (ASP) and the Part B competitive acquisition program (CAP), are having the impact of breaking down barriers and blending classes of trade. ASP is calculated across the board on sales to all purchasers, regardless of class of trade, and will serve to even out those pricing differences. CAP provides incentives for different purchasers to align in order to provide the necessary combination of capabilities for efficiently purchasing, distributing and administering all types of specialty injectable and infusible drug products.
• Traditions: The more significant obstacles to blending and aligning of purchasers from different classes of trade are rooted in tradition. Pharmaceutical manufacturers' infrastructures are set up according to the class of trade of their markets as defined by each manufacturer. A company with oral and self-injectable products may lump specialty pharmacies into the same class of trade as mail-order pharmacies or pharmacy benefit managers (PBMs), and view home infusion companies as a different class of trade. A different manufacturer may lump specialty pharmacy, specialty infusion and home infusion companies into the same class of trade, effectively blocking these companies from limited distribution contracts that are typically awarded to national companies.

Specialty Pharma, Inc. is the parent company of Professional Home Care Services, which Chairman Joe Fleming describes as both a specialty infusion and a specialty pharmacy company. The company was founded three years ago on a vision of a blended home infusion/specialty pharmacy market, and grapples with class-of-trade distinctions in its dealings with manufacturers.

"As a home infusion company, we are essentially assigned a class of trade by manufacturers," explains Fleming. Home infusion is viewed as a low-volume provider, and as a result does not enjoy a favorable class of trade from most manufacturers. But the rationale for how purchasers are assigned a class of trade is not transparent, and differs with each manufacturer, he says.

Although home infusion companies may not be able to purchase the products at the most favorable rates, they are still competing with other infusion providers in terms of billing. Fleming describes this larger infusion market as "alternative site specialty infusion providers," and notes that it includes physician offices, ambulatory infusion suites, hospital outpatient clinics and even inpatient settings. As a class of trade, Fleming says, hospitals and physician offices enjoy much better pricing on infusible products than do home infusion companies.

As home infusion vendors seek new alliances with specialty pharmacies, they are gambling that drug makers will classify the new specialty infusion ventures in a way that allows them greater access to new products and distribution contracts. According to Bill Sullivan, founder of Specialty Pharmacy Solutions, just a 1% or 2% change in acquisition pricing will generate huge gains or losses to vendors. "There will be some clear winners or losers based on how this comes out," he says.

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