For certain classes of patients, the administration of injectable drugs at home or other outpatient settings—“home infusion”—represents a desirable alternative to the local hospital or long-term care facility. For healthcare provider entrepreneurs, home infusion represents a large—and growing—business opportunity, albeit one with some significant reimbursement and staffing issues. For biopharma companies—especially those with complex parenterals that require specialized administration services—home infusion represents a significant distribution channel. The fact that such parenterals happen to part of the fastest-growing part of the biopharma industry only makes the whole channel more attractive.
Since the majority of the players in the home infusion arena are privately held companies, definitive revenue figures are hard to come by, but the National Home Infusion Assn. (NHIA; Alexandria, VA) estimates that there are between 700 and 1,000 home infusion companies in operation today, bringing in revenue of $9–11 billion/yr. This is up from just $4 billion a decade ago, says Russ Bodoff, NHIA president.
However, despite the comfort and convenience valued by patients, and the greater clinical safety and lower costs valued by prescribers and payors, ongoing expansion of the home infusion market is likely to be hampered in the years to come by several prevailing obstacles—curtailed private and government reimbursement rates for many infusion-based therapies, a “Medicare gap” on home infusion coverage, unfavorable class-of-trade terms and a shortage of skilled infusion nurses.
In the traditional home infusion scenario, widely used “core therapies” such as antibiotics and antifungals, chemotherapy drugs, hydration products, parenteral nutrition and therapies for pain management, are administered via intravenous (IV) infusion. More recently a growing number of IV-based specialty drugs to treat chronic and rare diseases (including blood factors, corticosteroids, growth hormones, immunoglobulin, monoclonal therapies and others) are being infused in home settings, as well. This has led to a blurring of the lines of demarcation that once clearly separated the specialty-pharmacy and home-infusion sales channels.
Today, home infusion companies “run the gamut from the big national players that offer a range of services across numerous geographic sectors, to the smaller, regional, entrepreneurial players that specialize in a narrower range of diseases or therapies, or that focus on a given geographical region,” says Paul Chilcutt, MS, RPh, executive director of pharmacy for MedAssets Supply Chain Systems (Bridgeton, MO).
Many factors have helped to put wind in the sails of the home infusion market in recent years.
Patient profile and demographics. When it’s clinically appropriate, home is often the most convenient, comfortable and desirable setting for many patients to receive their IV therapies. This is particularly true for older or disabled patients who may have mobility issues, and for those in rural areas who might otherwise have to travel great distances to receive repeated infusions at a centralized outpatient setting, or be confined to a hospital, long-term acute care hospital (LTACH), or nursing home for the duration of the treatment regimen. “The base of patients who will need—and would directly benefit from—home infusion continues to grow as the Baby Boomers age,” adds Nancy Kramer, RN, BSN, CRNi, VP of clinical affairs for NHIA.
Cost containment. “While the ‘big box’ model of care being provided in large buildings like hospitals and clinics hasn’t changed much for over a hundred years, the decentralization of care can dramatically increase the efficiency and effectiveness of the care provided while reducing costs,” says David Franklin, MSA, CEO and COO of Vital Care, Inc. (Meridian, MS), one of the nation’s largest providers of alternate-site infusion and specialty-medication therapies, with more than 100 franchises in 19 states. For instance, he says that while the average cost of hospitalization is $1,500-$2,500 per day, home infusion typically costs between $150 and $200 per day.
According to various industry estimates, the home delivery of infusion therapies can save between 30 and 70% over traditional infusion in a hospital or nursing home setting. Advocates argue that patients’ emotional well-being should be factored in as well. “The home setting allows patients to remain fully engaged in their lives, remain active with their families and with their career or school activities while receiving their life-saving therapies,” says Michelle Vogel, MPA, executive director of the Alliance for Plasma Therapies (Washington, DC), a trade group of plasma manufacturers and suppliers. “This helps them to remain consistent with their long-term treatment regimens, and may improve long-term adherence, which could lead to better clinical outcomes.”
“The safety and cost efficiency of the home setting continues to be validated among prescribing physicians and payors,” adds Fred Bargar, president of IgG America (Linthicum Heights, MD), the nation’s largest infusion provider dedicated exclusively to immunoglobulin therapy, and a business unit of AmerisourceBergen.
Clinical necessity. The American Medical Assn. (Chicago) estimates that about 100,000 Americans die each year from aggressive, hospital-acquired (nosocomial) infections from drug-resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA), Pseudomonas aeruginosa, ventilator-associated pneumonia, urinary tract and skin infections and the like. “This significant epidemiological threat leads to unnecessary deaths and adds billions to the cost of healthcare every year,” says Franklin of Vital Care. “The single most effective way to prevent such hospital-acquired infections is to prevent contact with a hospital.”
“The germs you have at home—even litter box germs on your cat’s feet—are not nearly as savvy or resistant to today’s antibiotics as are the bacteria that have been allowed to flourish and grow more resistant to antibiotics over time in hospitals, long-term care facilities and nursing homes,” adds Chuck Bell, CEO and owner of Advanced Infusion Solutions (Clinton, MS), a regional home-infusion company operating in the Jackson, MS, area, and the former CEO of Vital Care. “Any time you can get the patient out of harm’s way by reducing their risk of exposure to nosocomial infections in an institutional setting, that’s a good thing.”
The mainstreaming of home infusion. Today there’s a very rich pipeline of infusible drugs and many of the newer or anticipated biologics tend to be infused or injected rather than swallowed. In fact, an estimated 70% of the drugs now under development in the biotech pipeline will need some degree of specialized, hands-on administration via injection or infusion, says Paul Mastrapa, president of Walgreens-OptionCare, the home infusion business of Walgreens (Deerfield, IL), who notes that the company is now the largest provider of home infusion in the US.
“The strong pipeline for all types of IV-administered medications continues to fuel optimism in the home infusion market,” adds Bargar of IgG America.
Physicians’ willingness to recommend the home infusion may also be driven, in part, by the undercapacity of institutional care available today. “Today, there are fewer than 5,000 hospitals in the US—the lowest number since the 1920s—and almost all ‘critical access hospitals’ report having to re-route incoming ambulances due to a lack of bed space,” notes Franklin of Vital Care. “We need other places to take care of people who don’t need to be in the hospital.”
Advances in infusion technology. Of course, physician attitudes toward home infusion only go so far. Ongoing advances in technology, in terms of both the availability and capabilities of today’s smaller, more portable electronic pumps have opened the door for convenient, reliable infusion of complex medications at home, at work or at school. And many of today’s devices allow for easier data gathering, remote access for pharmacist support, dosage adjustment and troubleshooting.
“These streamlined and portable devices, and advanced electronic data capture and communication capabilities have been key enablers, which have made it easier than ever to administer many drugs at home, and have even made it easy for the patient to self-administer the drugs,” says Bell of Advanced Infusion Solutions. The broader adoption of home infusion has also been made possible in recent years by ongoing advances in vascular (venous) access devices (VAD), such as such as PICC catheters and surgically implanted ports that are inserted in the hospital prior to discharge to the home.
Insurer support. “These days, all private and government payors are looking critically at the cost of care. Many payors are highly incentivized to promote care in settings that have the lowest cost associated with them,” says Patrick Schmidt, CEO of specialty wholesaler and distributor FFF Enterprises, Inc. (Temecula, CA), which also operates a home infusion division, NuFactor FFF Specialty Pharmacy. “As a result—with the exception of Medicare—most private and government payors continue to support and even push for the drugs, equipment and nursing needed to enable home infusion, recognizing the safety benefits and cost reductions associated with it.”
However, this broad-based support for home infusion is somewhat buffered by the cost-cutting among some payors who have been quietly reducing the benefits associated with many infusion-based therapies, shifting higher co-pays back to the patient, and this is creating consternation among patients and home infusion providers.
Shrinking reimbursement rates
Despite broad support for home infusion among most private insurers, managed care organizations, Medicaid and the Veterans’ Administration, many payors have reduced their reimbursement rates for individual infusion therapies, which threatens their use in all administration settings (hospital, outpatient infusion clinics, and the home setting).
“To exploit the full advantages of home infusion — in terms of benefits to individual patients, and maximum cost savings compared to infusion in institutional settings —there needs to be more adequate reimbursement on the drug and administration side of the infusion,” says Schmidt. “Despite its inherent safety advantages and long-term cost savings, many people can barely afford this option. Chronically ill patients need cost containment and continuity to manage their conditions, and home infusion providers need more fair and appropriate reimbursement.”
By way of example, Schmidt notes that in recent years, Medicare and many private companies have drastically cut their reimbursement rates for intravenous immunoglobulin (IVIG), a therapy derived from blood plasma that replaces missing antibodies in patients. For patients with primary immune deficiencies, neuromuscular disorders, and certain rheumatologic conditions, IVIG represents the dividing line between ability and disability. However, in recent years, many private insurance plans and Medicare Part D have consigned IVIG and other infusible drugs to Tier IV status—forcing patients to pay between 10–30% of co-insurance for the therapy. “When it comes to IVIG, which can cost from $5,000 to $10,000 per infusion (no matter what infusion setting is used), some patients are forced to pay several thousand dollars for each infusion—or forego treatment,” says Vogel of the Alliance for Plasma Therapies.
In other cases, insurance plans are dropping coverage of IVIG and other therapies altogether for patients using the therapy off-label, calling such uses “experimental or medically not necessary,” despite “the fact that many patients have already been using IVIG or the other therapies successfully for years, with marked improvement in their overall health, reduced infections, reduced paralysis, increased mobility, reduced hospitalization and reduced death,” she adds.
All this impacts the medical health of patients and the financial health of home infusion providers. “For any home infusion provider to stay in business, adequate reimbursement is critical,” adds Chilcutt of MedAssets.
A bill that is making its way through Congress now, called the “Medicare Patient IVIG Access Act of 2009” (H.R. 2002 and S. 701), sponsored by Reps. Steve Israel (D-NY) and Kevin Brady (R-TX), and Sens. John Kerry (D-MA) and Lamar Alexander (R-TN), which aims to ensure greater access to IVIG for all patients in all settings.
The Medicare gap in home infusion
Home infusion providers can only bill Medicare for the cost of the drug or biologic therapy itself (as a Part D drug benefit). Medicare does not reimburse home infusion providers for the cost of delivering infusions in the home setting, nor for equipment and supplies. This leaves the patient to either cover the outstanding home infusion costs as an out-of-pocket expense, to forego the treatment, or to enter a hospital, LTACH or nursing home at considerably higher expense to Medicare.
Overall home healthcare can be thought of as a three-legged stool, with healthcare provision (such as skilled nursing), home medical equipment (such as wheelchairs, oxygen tanks, portable mechanical ventilators and so on), and home infusion (the administration of IV drugs at home). Today, according to industry estimates, roughly 90% of the provision costs in home healthcare, and roughly 80% of the costs for home medical equipment, are covered by Medicare (due to the predominantly elderly patient mix that tends to consume home healthcare goods and services).
“In home infusion, it’s the exact opposite —in our industry, we only see about 10% of the coverage coming from Medicare,” says Bell of Advanced Infusion Solutions. “If we were all counting on Medicare, there’d literally be no home infusion market.”
The Medicare gap creates a huge obstacle for 50 million Americans who are Medicare beneficiaries, and applies a tourniquet of sorts on the future growth potential for the home infusion industry. All stakeholders agree that the ability close the Medicare gap would be a game changer in the home infusion marketplace; Vital Care’s Franklin says that the industry revenue could jump by 30% should the gap might be closed.
“It’s one thing for us to get drugs to your house. But you’ve got to have the equipment and nurses needed to infuse it — that’s the next most critical step,” says Schmidt of FFF Enterprises. “That Medicare won’t pay for these things seems so outdated these days, especially considering all that we know about the proven benefits of home infusion.”
“This amounts to a ‘broken benefit’ for seniors, who would otherwise benefit from getting their treatments infused at home, in a higher-quality environment, at a lower overall cost,” says Mastrapa of Walgreens-OptionCare.
“All private insurance plans, the Veterans’ Administration, Medicare Advantage plans, Medicaid and others all cover home infusion, but Medicare doesn’t,” says Bodoff of NHIA. Medicare’s fee-for-service program (in Parts A, B and D) — which covers most Medicare beneficiaries — is the only major health plan in the country that has not recognized the clear benefits of adequately covering the provision of infusion therapies in the patient’s home.
Similarly, given the size of the aging population, the number of IV drugs in the development pipeline, and the other factors that support the safe and effective use of home infusion, Bell of Advanced Infusion Solutions estimates that the size of the market could eventually grow by two to three times its current size if the Medicare gap is ever eliminated — “and I’m probably being conservative,” he says.
Advances on Capitol Hill
Efforts to close the gap have been under way on Capitol Hill for years. “I have been working on this in one form or another for more than ten years, so optimism doesn’t come easy,” says Franklin of Vital Care. “Since the pressure is on to promote legislation that is budget-neutral, this is still an uphill battle, but that battle rages on.”
However, given the Obama Administration’s commitment to healthcare reform, many stakeholders in the home infusion industry voice a renewed sense of optimism. Bills aimed at closing the Medicare gap that are moving through both the House and Senate with bi-partisan support “offer a prime example of what real healthcare reform can do — spend money in strategic areas to save greater amounts of money elsewhere, says Chilcutt of MedAssets.
Specifically, Representative Eliot Engel (D-NY) has introduced the “Medicare Home Infusion Therapy Coverage Act of 2009,” with bi-partisan support from Representative Tim Murphy (R-PA) and 92 additional members of the House, earlier this year. The same bi-partisan legislation (S.254) has also been introduced in the Senate by Senators Blanche Lincoln (D-AR) and Olympia Snowe (R-ME).
“Recognizing the inherent flaw in Medicare around home infusion, and the cost savings that will come from fixing it, more than 100 members of Congress are now signed on as sponsors of the reform bills that are aimed at closing the Medicare gap,” says Bodoff of NHIA.
As of the August recess this summer, neither full house of Congress had voted on the legislation, and it’s hard to say whether the enormous push for overall healthcare reform from the Obama Administration will accelerate or delay this legislation.
“I’ve never seen this amount of momentum, activity and sponsorship from lawmakers, so I’m very bullish on the prospects of home infusion in the long run,” says Walgreen’s Mastrapa. “But because there’s so much noise out there right now around healthcare reform, and we’re a relatively small voice, for the short term, I remain cautiously optimistic.”
Specialty pharmacy versus
While the domains of the home infusion market and specialty pharmacy sales channel are distinct in many ways, the lines that once separated these two sales channels have blurred in recent years. The specialty pharma sector has evolved to move beyond strict mail-order distribution and incorporate more patient-facing service delivery related to home infusion, and home infusion has evolved to expand their offerings to include an increasingly long list of IV-based specialty therapies.
The specialty pharmacy market was originally built on a centralized distribution model, whereby players contract with manufacturers to manage the regional or nationwide distribution of a limited number of specialty drug therapies to treat chronic diseases. Because many of today’s specialty pharmacy products are biologically derived, they often have special handling requirements (such as refrigerated handling, storage and delivery protocols). Today’s specialty pharmacies are set up to meet these rigorous requirements.
“Data related to compliance and referral information, as well as clinical data related to efficacy, side effects and adverse reactions are invaluable to makers of high-cost, small-volume specialty drugs. This information helps them to assess utilization patterns and improve their forecasting, which helps improve production planning and inventory management and reduce shortages,” adds Walgreen’s Mastrapa. “Specialty pharmacy is no longer just about managing the central distribution model,” he says. “It’s about managing patients with chronic conditions, who require high-cost specialty drugs that are dispensed from multiple channels.”
Meanwhile, the home infusion industry has been focused on the patient-centric delivery of not just the various IV medications, equipment and supplies, but also the coordination of care with physicians, the coordination of professional infusion pharmacist monitoring and the management of billing, reimbursement and customer service.
As the products and delivery models that were once distinctly associated with the home infusion and specialty pharmacy sectors continue to converge, class-of-trade pricing issues have also arisen, with potential negative implications for home infusion providers. “Throughout the healthcare spectrum, pharmaceutical manufacturers routinely charge widely different prices to their customers, based upon class-of-trade distinctions that are set by the manufacturers themselves without standardization or transparency of process,” explains Franklin of Vital Care. “Which category a provider falls into ultimately depends upon which one it is put in by the manufacturer, under its own internal practices.”
“The class-of-trade that many drug manufacturers place home infusion pharmacies within means that their direct acquisition costs for drug purchases are often higher than for other purchasers of drugs—notably hospitals [that administer the same IV drugs], says Bruce Rodman, MBA, VP, health information policy, for NHIA. Government-promulgated drug-pricing benchmarks that are used to determine government reimbursement rates, such as Average Sales Price (ASP) and Average Manufacturer Price (AMP), “use data submitted by drug manufacturers that aggregate all purchases from all buyers,” says Rodman. Under the current classes-of-trade scenario, “one entity is able to purchase the same drug at a fraction of the cost of another in a different class of trade, but both are reimbursed the same amount,” adds Franklin of VitalCare. In this way, many feel that class-of-trade pricing differences create, in essence, a legally acceptable form of price discrimination.
“The impact pertaining to health plans adopting such payment benchmarks means that it is critical for home infusion pharmacies to be reimbursed directly and adequately, to cover the costs of their professional pharmacy, care coordination, nursing and other support services that are so essential to quality patient outcome,” says Rodman of NHIA.
In a 2008 presentation on pharmacy pricing models, Franklin identified 19 different methods of reimbursement for pharmacy products, and AMP was only one of them. AMP is aimed at the “retail” class of trade, but due to these problems often ends up being applied to a wide range of pharmacy operations and models.
So what can home infusion providers do to remedy the situation? “Educate, educate, educate,” says Franklin. “The main problem is simply a lack of understanding of the issues on the part of those who don’t dwell directly in the infusion industry every day. They hear ‘pharmacy’ and revert to the model that they are aware of—30 pills in a bottle with a label on it, a product-based modality with a small service components called a dispensing fee.’ So we seek to constantly lobby, present to and educate a variety of constituencies, any chance we get.” PC
Bullish on home infusion
Just as wholesale distribution, retail pharmacy and, to some extent, biopharma itself has rolled up to a handful of majors and “everybody else,” consolidation is advancing in the home infusion business, according to The Braff Group (Pittsburgh), a boutique investment bank specializing in home health markets. In its recently released report, “Market Watch: Home Infusion Therapy and Specialty Pharmacy Services,” Braff says that despite the epochal financial downturn last year, 2008 was the second-best year on record for M&A, with 19 deals, since the company began tracking activity in 2001. The peak year was the preceding one, with 27.
And private equity continues to aggressively target the home infusion market. According to the group, in 2007, private equity groups accounted for 13 of the year’s transactions. The greatest limitation to transaction volume in 2008 is the supply of attractive, established, mid-size ($5-10 million in revenues) acquisition candidates. This shortage drives up valuations.