Converting Your Physician Dispensing Program to a Licensed Pharmacy: Key considerations

As oral oncology medications continue to replace infused cancer therapies, independent oncology practices find themselves facing new challenges. Because patients self-administer oral medications, physicians have less control over whether the treatments are taken as prescribed; therefore, monitoring of compliance and persistency becomes more important to delivering optimal outcomes. The reimbursement landscape for oral medications also poses unique challenges. The fee structure is controlled by a number of pharmacy benefit managers (PBMs), and reimbursement rates change with much greater frequency than they do for injectable drugs, making cash flow less predictable.  The change from in-office infusion to outpatient administered oral therapies reduces the opportunities practices have to maintain cash flow for operations from infusion-related activities.  Oral dispensing is increasingly becoming an important part of a successful business plan.

When dispensing oral medications, oncology practices face significant competition from the growing specialty pharmacy industry, including both independent specialty pharmacies and those owned by PBMs. With significant dollars at stake, PBMs are seeking to increase control over the oral oncolytics market, leveraging tactics such as restricting or eliminating physician dispensaries from participation in provider contracts through additional credentialing and certifications, limiting contracts for participation, and lengthy applications and/or waiting periods for contract approval. 

As a result, independent practices are feeling squeezed. Several PBMs have restricted or eliminated physician dispensaries from participation in provider contracts.  The approval process can be difficult to complete, discouraging many practices from pursing oral dispensing. 

In response to growing pressures from PBMs and other stakeholders to limit dispensing, community physician office practices are taking steps to compete more effectively with outside specialty pharmacies and retain their ability to dispense medications for their patients. One such step is converting dispensing programs into a fully-licensed pharmacies. If your practice is evaluating this change, here are the essential areas to consider.

1. Federal and State regulations

State laws regarding physician ownership of licensed pharmacies vary by state.  In some states, interpretation of federal and state anti-kickback laws, conflict-of-interest and ethics rules, and patient-care standards have led to prohibition of pharmacy ownership by a physician or physician group. The first step in the initial planning process is to determine whether the physician practice may own and operate a pharmacy in their state, and review any special requirements for such ownership. Physician pharmacy ownership is currently allowed in 4 out of 5 states.  Always engage knowledgeable legal counsel in your state that is familiar with rules regarding physician ownership of licensed pharmacies.  Laws change periodically and online information can be conflicting.

Assuming that pharmacy ownership is permissible in their state, practices can contact their state’s Board of Pharmacy for precise regulations related to licensing and operating a licensed pharmacy. These regulations, which vary state to state, provide specific requirements for the pharmacy, including floor plan, square footage, equipment (sinks, refrigerators, counters, etc.), access and security.  Practices must consider if they have adequate space and or if they can meet these requirements through remodeling or construction.

Certain federal laws, including Stark Law (42 U.S.C. § 1395nn) and the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), are also implicated by physician ownership of a licensed pharmacy. In order to comply with these laws, a physician-owned licensed pharmacy must operate within certain narrowly tailored exceptions – such as the “In-Office Ancillary Services Exception” to the Stark Law or the “Investments in group practices” exception to the Anti-Kickback Statute. Before converting, practices should work with legal counsel to ensure the licensed pharmacy is set up to operate in a manner that does not violate the Stark Law, Anti-Kickback Statute or any other federal laws or regulations.

2. Investments in facilities and staff

Practice owners must evaluate the facility investments that will be needed to bring the pharmacy in line with state regulations. In addition to the cost of construction and facilities, staffing needs must be assessed. A licensed pharmacy must be staffed by a Pharmacist-In-Charge, or PIC. Although many larger dispensing programs already employ a pharmacist, some programs will need to hire one. This is one of the largest new ongoing expenses that will impact the business plan.

While the addition of a pharmacist is a significant investment, there are many advantages to the practice. Pharmacists can help provide ongoing staff education, handle refill requests, assist in credentialing activities, take over prior authorization and patient assistance activities, and help practices keep up on legal and regulatory changes.

Practices converting to a licensed pharmacy must also undergo reclassification with the National Council for Prescription Drug programs (NCPDP). Pharmacies have a different type of NCPDP number than dispensing programs. The change in NCPDP number will need to be coordinated with the Pharmacy Services Administrative Organization (PSAO) (to ensure smooth transition for managed care contracts), the GPO (to ensure GPO contracts remain active), and practice systems, such as the pharmacy dispensing software (to ensure claims are adjudicated under the correct NCPDP number). Practices should also consult their GPO and/or distributor to address any potential class of trade restrictions in existing supply arrangements. There is also a fee of $275 per location to reclassify the dispensing program to a licensed pharmacy. Lastly, some states require physicians to obtain dispensing licenses.

3. Evaluating the financial impact

Considering the potential costs from construction, resources, staffing and credentialing, a proforma should be created to support the business plan for conversion to a licensed pharmacy. The original proforma for the dispensing program may be used as a starting point, and can be updated with current patient volumes, capture rates and revenue metrics. The incremental costs for conversion must be weighed against the potential loss of the ability to provide specialty medications to most patients, as pressure increases on dispensing programs. 

Practices must also consider how Medicare Part D drugs are included in MACRA and the impact of sending prescriptions to outside entities beyond just the lost revenue. For example, in the Oncology Care Model, patients receiving aromatase inhibitors can only be counted as patient episodes eligible for Monthly Enhanced Oncology Services (MEOS) payments if detailed information is available on date of actual start of the therapy. Since practices are likely unable to provide the precise start date if they have not filled the prescription, reimbursement for OCM patients may be compromised.

4. Consultative expertise

Just as starting a dispensing program is a complex process, so is converting to a licensed pharmacy. Committed project management by an experienced and knowledgeable team is critical for successful conversion.  When evaluating potential consultative partners, practices should look for a partner that has vast experience in starting licensed pharmacies in multiple states and has a proven playbook for standing up a pharmacy quickly. Additionally, practices should seek assistance from partners that have experience with pharmacy audits and can help the practice prepare for such an event.  In addition to the benefits of partnering with someone that understands the tactical aspects of establishing a licensed pharmacy, working with a consultative partner that has an existing relationship with the practice can ease the transformation and identify ways to maximize current GPO contracts as well. 

Competition for dispensing oral specialty medications will continue as this market grows.  New challenges in the PBM reimbursement landscape, including DIR fees and restricted contract access, have increased the challenges to maintaining a financially viable dispensing practice.  The evolution of value-based care reimbursement models is strengthening the desire of community oncology and urology practices to provide complete and total care for their patients, including dispensing oral specialty medications and more closely monitoring patients for quality outcomes. Conversion to a licensed pharmacy is one way that community physician office practices can ensure that they remain at the center of patient care for patients on oral specialty medications.

Benefits and challenges of converting a physician dispensary to outpatient pharmacy.

Benefits:

• Additional clinical and operational resources
• Better clinical awareness of patient treatment situation (adherence, AE monitoring)
• Quicker patient assistance research and approval
• Access to more PBM contracts, increasing dispensing opportunities
• Reduced legal / contractual / credentialing / operational burden on the medical practice
• May provide avenue for more business opportunities

Challenges:

• Additional cost of personnel, facilities, recurring expenses
• Additional facilities requirements
• Additional regulations / regulatory requirements with pharmacy licensure
• Some grandfathered distribution agreements may not transfer over to new pharmacy, resulting in possible lost dispensing opportunities