Understanding Limited Distribution Networks

A limited distribution network is the result of an agreement between a pharmaceutical manufacturer and a small number of specialty pharmacies that are contracted to dispense specialty drugs. Specialty pharmacies typically provide high-cost medications used for complex or rare diseases and employ pharmacists who specialize in handling and dispensing those specialty drugs.

Limiting the size of specialty pharmacy networks allows the drug manufacturer greater quality control and more targeted distribution, ensuring that only highly trained pharmacists are dispensing medications and supporting patients. Limited distribution networks can also streamline access to drugs that have additional FDA requirements for prescribing and administering, such as drugs that are only available through Risk Evaluation and Mitigation Strategy (REMS) programs.

Understanding which drugs are distributed through specialty pharmacies can be helpful for many industry stakeholders, including pharmacies, manufacturers, and payers that are aiming to control drug spending while improving patient outcomes and providing quality care. 

Limited Versus Open Distribution Networks  

What are limited distribution drugs?

IPD Analytics defines a limited distribution drug as a specialty drug for which the manufacturer limits direct distribution to 24 or fewer specialty pharmacies. According to our data, about 80% of limited distribution drugs are distributed by fewer than 10 specialty pharmacies. 

What are open distribution networks?

Open distribution networks take the opposite approach to limited distribution networks, where a manufacturer does not limit distribution of its drug to selected specialty pharmacies. Open distribution allows for distribution of the drug from any pharmacy. It is important to note that federal and state regulations governing retail and specialty pharmacies are the same; the differentiation lies in the number and types of medications they distribute.

What are authorized distributors for limited distribution drugs? 

Another method of manufacturer distribution is via an authorized distributor, also known as an authorized wholesaler. In this case, the authorized distributors, not the manufacturer, directly distribute the drug to doctors' offices, clinics, hospitals, and/or specialty pharmacies. Many drugs that are distributed to specialty pharmacies by an authorized distributor are considered “open distribution” drugs, because there is no limit on the number of specialty pharmacies to which those drugs are distributed.

For some drugs, such as infusion drugs, the manufacturer may allow the authorized distributor to only distribute to certain specialty or certified infusion sites. These drugs would be considered limited distribution drugs, not open distribution drugs. Examples of authorized distributors include McKesson, Cardinal Health, and CuraScript SD. 

The Specialty Pharmacy Landscape 

In a limited distribution model, the manufacturer can control supply and better influence risk evaluation and mitigation strategies (REMS), safety, and adherence.

Manufacturers partner with specialty pharmacies that offer clinical excellence, patient education, and treatment monitoring. There are several key criteria considered by pharmaceutical manufacturers when selecting specialty pharmacies to establish a limited distribution network, such as:

●       Clinical expertise, years of experience, number of patients served, and manufacturer relationships

●       National accreditation on correct handling and storage

●       Medication adherence tools and treatment monitoring

●       Patient education programs and support services

●       Advanced clinical, dispensing, inventory, and sales data

●       Established relationships with and access to payers

Pharmacies that distribute medications via a limited distribution network provide some of the most complex and specialized drugs, often with a higher margin of profitability.

Interestingly, the specialty pharmacy landscape has changed in recent years, with fewer independent pharmacies in the sector and more market share concentrated among 4 major specialty pharmacy networks: CVS Health, Express Scripts' Accredo, Alliance Rx Walgreens Pharmacy, and Optum Specialty Pharmacy. 

As Jeff Casberg, Senior Vice President of Clinical Pharmacy at IPD Analytics, explains: 

“In 2024, of the more than 50,000 pharmacies in the United States, about 1600 are considered specialty pharmacies, and these specialty pharmacies have nearly $225 billion in total revenue. To put that in perspective, total pharmacy revenue in the United States is over $550 billion. So, the specialty pharmacy’s $225 billion represents nearly 40% of the total spending in the United States on pharmaceuticals and is dispensed out of specialty pharmacies.

“Now, to go even a little tighter: of these 1600 pharmacies, the top 15 specialty pharmacies represent about 80% of that total specialty revenue. And then, even of these 15, the top five themselves are 70% of that.

“The top five specialty pharmacies in the country are: CVS, Accredo, Optum, AllianceRx Walgreens, and Centerwell/Humana. Each one of these five specialty pharmacies is part of a larger pharmacy benefit manager (PBM), pharmacy chain, or payer. When you look at independent specialty pharmacies, they've diminished in numbers in recent years.”

What are the Benefits of Limited Distribution Networks for Manufacturers, Pharmacies, Payers, and Patients? 

Manufacturers

Specialty drugs are generally used to treat complex and rare diseases and are typically expensive, require specialty transportation and storage, and need greater expertise in the disease area. Choosing specialty pharmacies for distribution ensures that these complexities are handled appropriately to optimize patient education, experiences, and outcomes. Limited distribution networks may also make it easier for manufacturers to obtain data captures and feedback from patients compared to open network distribution. 

Smaller networks also give the manufacturer more control over monitoring, stock levels, and support to pharmacies to distribute these high-cost drugs to patients. Smaller networks can also simplify meeting FDA requirements for storage and handling of specialty products, reducing counterfeiting, and minimizing waste. Distribution via fewer pharmacies also decreases costs for administration and handling for manufacturers. 

Pharmacies

Pharmacies may also specialize in one disease or more diseases to become experts in a particular field, increasing attractiveness to manufacturers.

Pharmacies can then optimize their profit by partnering in limited distribution networks, with smaller networks offering higher profit margins than larger networks. To capitalize on the potential for higher profit, specialty pharmacies need to control the higher overall cost of these drugs, resulting from being prescribed to fewer patients (for rare diseases) and the added costs associated with storage, transportation, and patient education.

Generally, the tighter the limited distribution network the manufacturer chooses to contract with, the more likely it is each pharmacy in the network will maintain higher profit margins. 

Payers

A high proportion of payer drug expenditure is spent on a small number of specialty drugs. Patients on these high-cost specialty therapies often require specialized medical care. Payers can serve these members more effectively when networks for particular drugs are limited to pharmacies that specialize in the disease being treated.

In addition, a limited distribution network offers payers the benefits of reducing wastage, more efficient delivery, cost-effective distribution, better data, and improved understanding of member needs. A limited distribution network can also ensure specialty drugs are brought to market and made available sooner, allowing payers to offer the most effective treatment to members.

Patients 

A limited distribution network can offer patients better coordination between the insurer and the physician. These networks also offer patients more confidence in their medication management, with access to pharmacists with deeper disease area expertise.

Jynarque: An Example of How Limited Distribution Networks Work

Jynarque (tolvaptan) is a specialty drug used to slow kidney function decline in adults who are at risk for rapidly progressing autosomal dominant polycystic kidney disease (ADPKD). Jynarque is manufactured by Otsuka Pharmaceutical Co., Ltd. in Tokyo, Japan, and is marketed and distributed by Otsuka America Pharmaceutical, Inc. in the United States. 

The FDA required a REMS as part of Jynarque’s approval due to the Boxed Warning the drug carries for possibility of serious, potentially fatal liver injury in patients receiving the drug.

Outpatient dispensing of Jynarque is limited to a small number of contracted REMS-certified outpatient pharmacies. Also, only inpatient pharmacies that are certified in the REMS may dispense Jynarque for patients enrolled in the REMS being treated in the inpatient setting. Currently, only 3 pharmacies can dispense Jynarque: AllianceRx Walgreens Prime, Optum, and PANTHERx Rare. 

Conclusion 

Stakeholders across the industry are participating in limited distribution networks, aiming for better patient outcomes and higher quality care.

Through the limited distribution network process, the manufacturer ensures improved control and safety. Payers can ensure that vital therapies are being delivered to patients effectively. For patients, the result is a higher quality of care and a more seamless experience benefiting from their specialty pharmacy’s expertise and enhanced patient education. The specialty pharmacy benefits from less competition on a drug that has a large market value, resulting in higher profitability.     

Overall, specialty pharmacies and the experienced clinical staff they employ are vital in delivering this care.

About IPD Analytics' Limited Distribution Drug Information

IPD's Access Hub platform is designed to centralize fragmented drug information and enable a greater understanding of how products are being covered, distributed, and priced to bolster decision-making strategies.

As the specialty drug landscape has expanded, it has also become more challenging for payers and providers to stay up to date on shifting limited distribution networks. Access to centralized information helps organizations supply these drugs as efficiently and effectively as possible. Our limited distribution coverage provides a comprehensive limited distribution drug list that helps payers understand which specialty pharmacies are supplying which drugs.

Learn more about how IPD Analytics tracks limited distribution drugs by pharmacy, disease state, therapeutic area, and manufacturer, with Access Hub.