Specialty Formulary Management

Specialty drugs represent over 50% of total pharmacy spending despite accounting for fewer than 2% of prescriptions. Managing specialty formularies requires different approaches than traditional drug management because the stakes per patient are dramatically higher and the competitive landscape is often limited.

What Makes Specialty Different

Specialty drugs are typically high-cost, require special handling or administration, treat complex or rare conditions, and may need ongoing clinical monitoring. Unlike traditional drugs where multiple generic alternatives are common, specialty categories often have limited options, reducing the leverage PBMs have in rebate negotiations.

Site-of-Care Management

Many specialty drugs can be administered in physician offices, hospital outpatient settings, infusion centers, or at home. The site of care significantly affects cost: the same drug administered in a hospital outpatient setting can cost three to five times more than in an independent infusion center or home setting. Specialty formulary management increasingly includes site-of-care optimization programs that direct patients to lower-cost, clinically appropriate settings.

Limited Distribution Networks

Some specialty drugs are available only through limited distribution networks (LDN), meaning only certain pharmacies can dispense them. Manufacturers use LDN arrangements for safety monitoring, cold chain management, or commercial strategy. For plan sponsors, LDN drugs remove the ability to negotiate competitive dispensing rates.

Outcomes-Based Contracts

As specialty drug costs rise, outcomes-based contracts are emerging as a way to tie payment to clinical results. Under these arrangements, the manufacturer provides a rebate or refund if the drug fails to achieve predefined clinical outcomes. These contracts are most common for gene therapies and oncology treatments where response rates vary significantly.