What is Diplomat Pharmacy today started as a community pharmacy in 1973 in Flint, MI, known as Ideal Pharmacy. Dale Hagerman, later joined by his son Philip, took ownership of that store in 1975, renamed it Diplomat Pharmacy, and began a growth path that led to the largest independent specialty pharmacy in the US, with 2013 revenues of more than $1.5 billion. In 2010, it took over what had been the GM Great Lakes Technology Center in Flint, which has allowed it to maintain its double-digit growth; additionally, the company has satellite offices in Michigan, Illinois, Florida, California, Connecticut, North Carolina and Massachusetts.
This fall, the company went public (listed on the NYSE as “DPLO”) and through the end of 2014, saw its stock price rise by around 50%. Through this growth, it has been guided by the philosophy, “Take good care of the patients, and the rest will follow.”
1. Diplomat Pharmacy started out as a community pharmacy in the mid-1970s. Take us from that time to when you identified specialty pharmacy as a new category of pharmacy services.
In 2005, we began to expand the scope of our specialty pharmacy business from a small, regional operation by opening a second location in Grand Rapids to capture a greater share of Michigan, and launched a distribution center in Cleveland, Ohio to expand our business nationally. This platform allowed us to capitalize on the growth of the overall specialty pharmacy market from approximately $20 billion in sales in 2005 to $63 billion in sales in 2013, a compound annual growth rate of approximately 15%.
2. Several years ago, you took a fairly radical step of acquiring the former GM Great Lakes Technology Center in Flint as the headquarters for the growing company. What was it like to convert an automotive-centered facility into a pharmacy?
It was an exciting project for us and became an even more important step than I had imagined when we bought it. We knew the amount of physical space would be important for us to support our long-term growth, but we completely underestimated the positive response from the industry. As business clients arrived at our headquarters and we gave them a tour, we became a different company in their eyes. It was clear to them we had grown from a small regional pharmacy to a true national player that had the size and scale to compete with anyone in the industry.
Our physical footprint has enabled us to develop a centralized infrastructure that we have successfully scaled to dispense to all 50 states. We now have an advanced distribution center to ship medications nationwide, as well as a centralized clinical call center that helps us deliver localized services on a national scale.
3. Specialty pharmacy, at its core, is a group of patient-support services wrapped around delivering the needed pharmaceutical products. Tell us how Diplomat approaches these wraparound services, and what distinguishes Diplomat from other specialty pharmacies providing more or less the same service.
Part of our differentiation comes from using our technology systems to customize solutions for each patient based on the patient’s overall health, disease and family history, lifestyle, and financial means. We also use patient data, reporting and tracking to ensure all stakeholders work together as a uniform care team.
4. Diplomat operates nationwide, but has only a few brick-and-mortar locations. That implies a lot of online, call center and telehealth services. How does Diplomat make all those remote services operate effectively?
We have a total of eight pharmacy locations nationwide, including our corporate headquarters, that offer dispensing and patient services. The location of our corporate headquarters, and satellite service sites on the East and West Coasts, South and Midwest, serve three different time zones and offer us the best model for consistent, cost effective services, while creating backup services and shipping efficiencies.
For our specialty infusion services, we acquired two companies over the past year. We purchased AHF in December 2013, serving primarily the hemophilia community, with locations in Connecticut and Massachusetts; and in June of 2014, we purchased MedPro Rx, serving primarily IVIG therapies and the hemophilia community, with headquarters in North Carolina. For our services in the specialty infusion space, we utilized both in-house nursing and clinical care, as well as a national, validated nursing network to ensure services in every state.
5. Specialty pharmaceutical manufacturers have many expectations on how business partners like specialty pharmacies can help them market their products. What is the basic proposition Diplomat makes to these manufacturers?
We created national programs for retail pharmacy partners (“RSN” or Retail Specialty Network), hospitals and health systems (“HSP” or Hospital Specialty Program) that were not historically present in the industry. By providing clinical and administrative services that our retail, hospital and health system partners could purchase, we offered manufacturers specialty pharmacy services in settings where they had not previously existed. We also recently launched hub capabilities under a new division, Envoy Health. This service offers customized drug and patient management services to manufacturers that often do not include dispensing the drug. Hub services are generally contracted by the manufacturer and delivered before the drug is dispensed to support optimal outcomes.
Another division that has helped to ensure our success is Diplomat University (DU). Launched in 2010 when we were preparing to move into our new headquarters, DU has become a central aspect of our success. DU not only trains our employees through a very complete formal education model named NEOP (New Employee Orientation Program), it also offers specialty pharmacy educational services outside of Diplomat, including modules available for manufactures and industry partners.
6. A particular element of specialty pharmacy/manufacturer relationships is the use of limited-distribution networks. What’s your take on the value of limited-distribution networks for better patient care, and more efficient marketing of pharmaceutical products?
I believe the Limited Distribution (LD) model brings great value and is here to stay. The first note is that with LD, one size does not fit all—different drug categories and patient populations may require different LD models. These models allow manufacturers to customize their approach to distribution. This customization can bring great value to new drug launches by improving adherence, managing complex side effects, and tracking key data elements that may not be available from broad pharmacy networks.
Benefits to biotech/pharma are extensive and include:
- improving access to real-time clinical data
- offering commercialization assistance
- improving performance of appropriate utilization
- bringing the manufacturer closer to the patient.
Further, there are also significant benefits for specialty pharmacies, including deeper, and earlier, partnerships with pharma/biotech and an increased value proposition to payers. At Diplomat, we currently have a portfolio of more than 70 limited distribution drugs.
7. Diplomat makes a case for using its services during clinical trials. How does that work, and what advantages are there to working with Diplomat rather than through conventional clinical research organizations?
In recent years, there has been increased attention on the need to continue drug studies after drugs have been launched—post market surveillance or Phase IV studies. I believe this is an area where the specialty pharmacy industry can offer strong support. Along with large and concentrated patient populations around specific diseases or drugs, we have the extensive infrastructure to capture data and manage the patients—two of the critical elements of Phase IV studies.
8. The high prices of many specialty pharmaceuticals is an ongoing source of friction in the US healthcare system, and it impacts patient access and reimbursement issues. When you talk with payers and healthcare providers, what is the reaction you get to this situation?
Ultimately, we believe the most critical service we can offer is to ensure the right patient can be treated by the right drug, for the right amount of time. I believe it requires integrating all available avenues and resources to maximize patient adherence at the lowest possible cost of care.
9. What’s the future of the specialty pharmacy industry as a whole? Is it more than to say that there will be ever more specialty products and more volume being handled through specialty pharmacy?
As new therapies become both more expensive and more complex, the need for services to manage these patients has never been greater. A few trends I see as important future drivers are:
- More focus and need for management of specialty drugs that are paid on the medical benefit. We are seeing pressure to move drugs that were previously paid on the medical benefit being paid under the pharmacy benefit due to the better control, tracking and reporting under pharmacy.
- Continuation of and increases in drugs being launched and dispensed under the limited distribution model. I believe this model will continue to take on many forms and one size will not fit all drugs or manufacturers.
- Increased prevalence and relevance of small biotech companies. More and more companies are bringing drugs to market instead of just selling the rights to larger manufacturers. This will continue to create needs and opportunities for specialty pharmacy services.
- More focus on total cost of care. This will require even greater patient management, on both the pharmacy and medical benefit on expensive complex drugs to ensure every patient on a complex costly specialty drug has the needed support for the best outcome.
As we saw our efforts making a difference, we expanded further and created a department called Community Affairs and Government Relations. This gave us a more defined platform to work from and allowed us to partner with other local and like-minded businesses to create even more momentum. The work we have done and continue to do in this community has been some of the most satisfying work of my career. I think this is a model others can easily replicate, and I would love to share how valuable this is to our community, our company and to me personally.