Managing the cost challenges of specialty drugs

Tim Hayden

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If you or someone you know uses a specialty pharmaceutical, you know how important the drug can be to achieving health and a quality of life. Specialty drugs are typically used to treat chronic, serious, or life-threatening conditions, such as cancer, rheumatoid arthritis, growth hormone deficiency, multiple sclerosis and HIV/AIDS. These drugs are necessary and costly (some with a threshold of $600 per month or higher) and usually have few if any low-cost generic equivalents. Therefore, specialty drugs pose yet another obstacle to employers as they seek to control healthcare costs for their benefits program and to provide a plan that employees and their beneficiaries can afford.

Affordability is an ongoing challenge. In 2013, spending on pharmaceuticals increased by 5.4%, with a large part of that increase driven by specialty medications, which increased by 14.1%. The increase for specialty was actually down from a high of 20% over the past three years. However, the forecast for 2014-2016 is a combined 63% for regular prescription drugs and specialty pharmaceuticals. The leading driver of the steep spending forecast are new treatments for hepatitis C; these medications can cost more than $80,000 for a 12-week course of treatment.1

Over 14% increase in specialty medication spend in 2013.

In 2013, specialty pharmaceuticals also dominated the list of drug approvals from the Food and Drug Administration, garnering a 70% share.2 And finally, costs to employer-based health plans on a per member/per year basis was $290 in 2012 and expected to be as much as $845 in 2018.3 Evidence of this is shown by our recent communication with a national health insurance carrier who indicated their renewals for 2015 will include an additional $5 per member/per month charge to premium. We all need to pay more attention to these costs drivers and focus on how to control them.

Specialty drugs also present complex handling, administration and monitoring requirements. They require specialized shipping, storing and handling and a class of providers, known as specialty pharmacies, to distribute and dispense these products. These pharmacies can be owned by stand-alone companies, pharmacy benefit managers (PBMs), or large pharmacy chains. The pharmacies ship the product to the physician and bill the patient’s insurance company. Additionally, some drug wholesalers have specialty distribution capabilities and will ship products directly to physicians who then buy the product and bill the patient’s insurance company.

It is not only the cost of the drugs that are the issue. There is an opportunity to impact the overall healthcare cost picture, with physician, hospital and other facility charges. Proper coordination of these systems becomes more important as the number of drugs in use and their costs continue to escalate. Below are a number of cost-control approaches available today along with the issues that each presents.

1. Insurance Carrier Approach
Insurance carriers typically see the bigger picture and have the intrinsic motivation to control pharmaceutical costs. Carriers are in a unique position to engage all four constituents in the solution: healthcare providers, pharmaceutical companies, employers and plan participants. One carrier’s approach is to focus on affordability, health improvement, and efficient and effective delivery and monitoring systems. This is accomplished through:

  • Gaining insights and sharing best practices and treatment regime from all healthcare professionals
  • Proactively engaging the current and future patient community with education
  • Coordinating and improving the proper management of care delivery
  • Aligning incentives for all participants

Issues to Consider
Many employees are enrolled in benefit plan designs that offer them freedom of choice when it comes to treatment decisions. The carrier programs introduce tighter controls that will impact these employees, their spouse and their dependents.

  • Is this strategy in alignment with other employee interactions?
  • Is it consistent with your company culture?
  • Additionally, are the education and communication strategies in place to support a successful role out?

2. Pharmacy Benefit Management Approach
PBMs generally make money through service fees charged for processing prescriptions, operating mail-order pharmacies and negotiating with pharmacies and drug-makers. Their contracts can include incentives for cutting costs. Their approach to managing specialty drug costs focus on:

  • Utilization management programs
  • Price negotiation
  • Network and formulary management
  • Oversight of office-based injectable prescribing
  • Policies to scrutinize billing

Issues to Consider

  • With nearly 50% of the total cost for specialty drugs embedded within the medical spend through hospital admissions and other out-patient treatment facilities, these programs will be limited by their reach.
  • How decisions are made and to what extent discounts are negotiated to determine which drugs end up where on the formulary lists and/or in specialty management program

3. Specialty Pharmacy Approach

As stated earlier, the larger retail pharmacy chains have also entered the market with integrated specialty drug programs. One such program focuses on increasing access and improving outcomes through integrated utilization and clinical management programs to maximize adherence and minimize costs. The multichannel platform includes:

  • Central fulfillment with a network of retail pharmacies
  • Clinical integration with health systems pharmacies
  • Home and alternate treatment site infusion services
  • Access to limited distribution drugs

Issues to Consider

  • These programs will also be limited by their reach.
  • How is price negotiation with drug manufacturers handled by the pharmacy?
  • Is it direct or through a third party?
  • Is there adequate education to guide plan participants to the most cost-effective drug?
  • Are there proper incentives built into the system?

4. A Prescription to Contain Specialty Drug Costs

Here are some steps to take and strategies to consider as you decide on your course of action:

  • Develop your one- to three-year overall benefit strategies, including alignment with the realities of specialty drugs?
  • Know and understand your drug costs, what factors are driving increases
  • Understand the solutions available to you, through the carrier, PBM or a retail specialty channel
  • Introduce an effective education and communication strategy to support your prescription drug initiatives.

Most importantly, seek professional advice when developing a prescription drug program. A qualified group employee benefits professional should be able to guide you through this process.

1 The Express Scripts Lab “2013 Drug Trend Report”
2 Ibid.
3 American Journal of Managed Care, “The Growing Cost of Specialty Pharmacy – Is It Sustainable?”


©2015 Corporate Synergies Group, LLC. No part of this material may be republished or distributed without prior written consent.