Hy-Vee Makes Bold Move Into Specialty Pharmacy

Hy-Vee appears to have entered uncharted waters with the announcement this month of a new specialty pharmacy offering. Retail pharmacy has yet to make a significant footprint in this niche and fast-growing field that promises high profitability. The drug channel specifically CVS through its merger with pharmacy benefits manager Caremark Rx, and Walgreens has a head start on supermarkets

WEST DES MOINES, Iowa — Hy-Vee appears to have entered uncharted waters with the announcement this month of a new specialty pharmacy offering.

Retail pharmacy has yet to make a significant footprint in this niche and fast-growing field that promises high profitability. The drug channel — specifically CVS through its merger with pharmacy benefits manager Caremark Rx, and Walgreens — has a head start on supermarkets in launching specialty pharmacy.

Up until now, distribution of high-cost specialty drugs to treat serious chronic diseases like cancer, Crohn's disease and blood disorders such as hemophilia has been through various specialty pharmacy channels outside of retail. Channels range from small regional specialty pharmacies to large PBMs like Medco and Express Scripts. Manufacturers often make their drugs exclusive to one or several distribution outlets to control inventory of costly drugs and closely track utilization.

Retail is challenged to dispense these clinical drugs because their model is based upon high volume, efficiency and low margin. Specialty pharmacy is quite the opposite.

It requires dispensing drugs that are often injected or infused and otherwise difficult to manage and administer. Specialty pharmacy also requires ancillary services through registered nurses, certified pharmacy technicians or case management specialists who work with patients to achieve compliance.

Delivery of biotech drugs is very much a “high-touch” business, explained Dan Steiber, a partner with D2 Pharma Consulting, St. Charles, Mo., which among other projects helps devise specialty pharmacy strategies for retailers.

“Patients are actually case managed. It is more of a holistic process and specialty pharmacy gets paid for doing it,” he said.

Hy-Vee's entry into this field is made possible through a joint venture with Amber Pharmacy, Omaha, Neb. Amber, according to a Hy-Vee press statement, is said to be one of the largest privately owned specialty pharmacies in the country. Hy-Vee has spent over a year in negotiations with Amber to form a limited liability corporation — Hy-Vee Pharmacy Solutions, also headquartered in Omaha. The companies call the relationship a first-of-its-kind collaboration.

Bob Egeland, Hy-Vee's vice president of pharmacy, declined to discuss financial terms of the joint venture or specialty pharmacy's financial model, which consultants say can be profitable, especially when compared with mainstream drug dispensing. It also can be tricky to navigate a complex maze of payers and compete against the large PBMs. Observers say the joint venture is most likely a revenue-share arrangement.

Egeland told SN the benefit to Amber is Hy-Vee's buying power and scale to lower cost of drugs that are sometimes valued several thousand dollars per treatment. Egeland expects by the beginning of February to have specialty pharmacy services available at its 200-plus pharmacies in the eight states where Hy-Vee operates. The retailer is completing the process of obtaining non-resident licenses to operate specialty pharmacy in its markets.

Hy-Vee and Amber share a common platform that will allow the specialty pharmacy access to patient records for contraindications with other patient medications. “Today with most specialty pharmacy providers, if they aren't filling the breadth of a patient's entire prescription needs, then they don't know the other medications the patient is taking,” Egeland explained.

“My congratulations to Bob Egeland at Hy-Vee for having the vision and risk-taking chutzpah to venture forth,” said Robert Coopman, a principal of Robert Coopman Consultants, San Antonio, and a former H.E. Butt Grocery pharmacy executive. “I hope and would encourage Bob to pursue the economics of this collaboration to a well-studied economic model rather than to a more simple traffic-generation exercise. If proven economically, this could be a ground-breaking model with legs for further expansion throughout the community pharmacy industry.”

Besides the economics of the venture, Hy-Vee gets access to this burgeoning market without any apparent investment in infrastructure. Hy-Vee is using Amber's facilities, noted Egeland.

“I'll presume Hy-Vee went in this direction because it is there. It is turnkey and simple. The net result is Hy-Vee is able to get in the game a lot quicker,” said Steiber.

Specialty pharmacy is a growing sector of the pharmacy business. In 2003, prescriptions in this category made up about 5% of total prescriptions filled; by 2007, that figure had doubled to 10%, and it is expected to double again to 20% by 2011.

“Hy-Vee has seen itself mediated out from a number of specialty pharmacy opportunities. They've seen others move in this direction and Hy-Vee wants to be on the train before it leaves the station,” said Steiber.

With a specialty pharmacy option, Hy-Vee no longer has to turn patients away and part of the economics becomes retaining market share. “Our pharmacists will be able to essentially say ‘yes’ to any prescription that comes in to our pharmacies,” said Egeland. Specialty drugs can be shipped to a patient's home, place of employment or a local Hy-Vee store.

Bruce Kneeland, a pharmacy consultant in Royersford, Pa., called Hy-Vee's entry in specialty pharmacy “bold and innovative.”

“It appears to be a well-timed development. It will be exciting to see how these two companies work to build out a network of pharmacies that can provide the personal touch. Certainly Hy-Vee has tackled complicated issues in the past so I am confident they will pull this off, and patients will be better off for it,” he said.

The challenge for Hy-Vee, said Egeland, is to get physicians, employer groups and third-party administrators to recognize Hy-Vee as a participating provider and able to provide the type of care needed for specialty pharmacy. He said the company has signed with a public relations agency to get the word out about the new service to these groups.

Bill Kaplan Jr., chief operating officer of Amber Pharmacy, said in a press statement that Hy-Vee Pharmacy Solutions is unique because it provides “true continuity of care” for patients who are accustomed to dealing with different pharmacy providers in different locations.”

Hy-Vee Pharmacy Solutions will be able to handle all of a patient's pharmacy needs through one point of contact — the Hy-Vee pharmacist, Kaplan said. “Medication therapy management services can take place in a face-to-face setting, rather than on the phone or through the mail, and patients will have access to diet and nutrition services offered in Hy-Vee stores. It's a personalized, whole-health approach to specialty pharmacy that represents a major departure from the traditional care model.”