Specialty pharmacies, limited distribution and how they differ from the drugstore

In 2024, Medicare drug plans and their enrollees spent an average of $13,333 on each claim for lenalidomide sold under its generic name, according to CMS Part D spending data². Across all generic claims in the program that year, the average was $23.19, CMS's Part D grand totals report⁴ shows. The capsules are a generic copy of a blood-cancer drug, and their labels say they are "only available through a restricted distribution program," per the prescribing information on DailyMed.

Drugs like that rarely sit on the shelf of a neighborhood drugstore. They move through specialty pharmacies, which mail or courier medicines to patients, handle insurer paperwork and, for some products, are the only outlets a manufacturer or an FDA safety program allows.

Specialty pharmacy covers a lot of ground and has no fixed legal meaning. Federal documents say only a little about these pharmacies, they sit outside the main federal price survey, and Congress has now scheduled changes to how Medicare drug plans build their pharmacy networks.

A term with no legal definition

CMS says so plainly. In its December 2024 NADAC methodology¹, the agency writes that "there is no statutory, regulatory, or universal industry accepted definition or listing of 'specialty pharmacies'" used in state Medicaid programs. The same document says the phrase "specialty drugs" typically refers to "high-cost prescription drugs used to treat complex, chronic conditions," often needing special handling and monitoring, and that there is no uniform list of them either.

In practice, a pharmacy becomes "specialty" by calling itself one. CMS notes that pharmacies can self-designate in a national pharmacy database or through a specialty accreditation process, and its survey contractor uses both sources to find them.

Medicare comes closest to a rule, and its definition covers a drug tier. Under 42 CFR 423.104⁵, a Part D "specialty tier" is a formulary tier "dedicated to high-cost Part D drugs" whose ingredient cost for a 30-day equivalent supply exceeds a threshold CMS sets each year. A drug on that tier may be filled at any pharmacy in the plan's network that stocks it. GxRadar's guide to tiered formularies covers how tiers drive copays.

How a specialty pharmacy differs from the corner drugstore

Federal Medicaid rules draw one firm line. A "retail community pharmacy," as defined in 42 CFR 447.504⁷, is an independent, chain, supermarket or mass-merchandiser pharmacy that dispenses "to the general public at retail prices." The definition excludes pharmacies that dispense "primarily through the mail," along with hospital, clinic, nursing home and government pharmacies. CMS's methodology describes closed-door specialty pharmacies in the same terms, as pharmacies that provide drugs "primarily through the mail."

Mail delivery is not unique to specialty pharmacies. GxRadar's piece on mail-order pharmacy covers the 90-day refill side of mail delivery, which runs on different economics.

Limited distribution and FDA safety programs

Some restrictions come from FDA. Under a Risk Evaluation and Mitigation Strategy, or REMS, the agency can require "elements to assure safe use." FDA's REMS explainer⁸ lists examples, including that "pharmacies, practitioners, or health care settings that dispense the drug may be specially certified," and that a patient may need to document a "safe use condition," such as a monthly lab test, before a drug is dispensed.

Lenalidomide is one case. Because of the risk of birth defects, its labels state that capsules are available only through a restricted distribution program run under a REMS. The generic versions carry that requirement in their own labels.

Other restrictions are commercial. A manufacturer can choose to sell a drug through a short list of pharmacies or distributors even when FDA has not asked for it. Brand companies once used tight distribution to refuse samples to would-be generic makers, a practice Congress addressed in 2019; GxRadar covers that history in how the CREATES Act got generic makers access to brand samples.

Generic does not always mean cheap here

Most generics cost a few dollars per fill. A small group of generic versions of specialty drugs cost hundreds or thousands. The table below uses the Medicare Part D Spending by Drug² file for 2024, limited to rows CMS lists under the generic name. Per CMS's methodology³, spending figures include ingredient cost and dispensing fees and do not reflect manufacturer rebates.

Prices for most of these drugs fell sharply between 2020 and 2024 as more makers entered, the same pattern GxRadar tracks for ordinary tablets in why generic prices fall as competitors enter. Even after those declines, a single fill can exceed the cost of a year of most common generics. Some of these products are also hard to copy at all, for reasons covered in complex generics.

Outside the federal price survey

NADAC, the National Average Drug Acquisition Cost, is the federal benchmark of what pharmacies pay for drugs. It comes from invoices that retail community pharmacies send in each month. CMS's methodology says self-designated specialty pharmacies "are generally excluded from the surveys at this time." A specialty drug can still get a NADAC rate, the agency adds, if enough retail pharmacies buy it. GxRadar's explainer what NADAC measures, and what it leaves out walks through other gaps.

That gap has drawn attention in Congress. A Senate bill introduced in March 2025, S. 927¹¹, would direct HHS to survey "applicable non-retail pharmacy drug prices" alongside retail ones and publish separate averages for them. GxRadar found no comparable survey provision in the Consolidated Appropriations Act, 2026, so the survey still covers retail stores only.

Questions worth asking

When a prescription is routed to a specialty pharmacy, patients and caregivers often have questions that only their plan, pharmacist or prescriber can answer for their situation:

• Does my plan require this drug to come from a particular specialty pharmacy, or can a local network pharmacy order it?
• Is the drug on a specialty tier, and what is my coinsurance there?
• Is a prior authorization on file, and when does it expire? (GxRadar explains prior authorization and step therapy.)
• If the drug is under a REMS, what steps must happen before each fill?
• Are there assistance programs for this drug? (See patient assistance programs, Extra Help and 340B.)

Medicare's network rules and the 2029 change

Part D plans already must offer a standard contract under which "any willing pharmacy may access the standard contract and participate as a network pharmacy," under 42 CFR 423.505(b)(18)⁶.

The Consolidated Appropriations Act, 2026¹⁰, signed Feb. 3, 2026, rewrote that provision and signaled that dispensing limits within networks are still in use. Section 6223 requires HHS to issue a request for information by April 1, 2027, covering, among other topics, plan "restrictions or limitations on the dispensing of covered part D drugs by network pharmacies (or any subsets of such pharmacies)." HHS must set standards for "reasonable and relevant" contract terms by the first Monday in April 2028, and those standards apply to plan years starting Jan. 1, 2029. Section 6224 of the same law requires pharmacy benefit managers in Part D to define terms including "specialty drug" in a "fully transparent and consistent manner" when they measure performance against pricing guarantees. More on the counter side of these rules is on GxRadar's At the pharmacy counter desk.

First comes the April 1, 2027, request for information, which will ask pharmacies and plans how specialty dispensing limits work today.