Growing Use of Specialty Drugs Poses Challenges

Employers are confronting a challenge in the form of expensive specialty drugs (formerly known as biotech drugs) that are being prescribed for a growing list of health conditions. Unlike traditional medications, most specialty drugs do not have generic equivalents or substitutes that offer opportunities to manage costs.

Big costs of specialty drugs spreading to common treatments

Specialty drugs are expensive to produce, store and administer, and manufacturers pass their costs on to payers and group health plan participants. On average, employer costs for specialty drugs run $18,000 per patient per year, compared to $550 for traditional medications. Also, unlike traditional medications, specialty drugs are usually administered via injection by a nurse, adding to the overall cost.Originally developed for rare diseases, specialty drugs are now being used to treat common conditions such as asthma, infertility, multiple sclerosis, cancer and rheumatoid arthritis. Especially rapid growth has been reported in treating pulmonary hypertension, osteoporosis and deficiencies in blood clot formation.

Ominous cost trends for specialty drugs

Overall, specialty drugs accounted for 10.4% of employers' pharmacy spending in 2006. Cost increases in 2006 averaged 16.1%, compared to 5.8% for traditional drugs. Aggressive marketing by drug companies to both physicians and consumers has encouraged prescriptions and fueled consumer demand. Spending on direct advertising to consumers jumped from $2.8 billion in 2005 to over $4 billion in 2006.

Confusing coverage issues: Physician-billed vs. pharmacy-billed

Along with the challenges associated with new clinical treatment protocols, employers' costs for specialty drugs can be inflated by physicians' inefficient or inconsistent billing practices. Surprisingly, health plans will accept different codes and "mark-ups" for the same drug based on claims submitted by physicians.Moreover, despite the obvious billing inefficiencies that can result, many employer plans allow claim administration through both their medical and pharmacy benefit managers (PBMs). This practice may make it convenient for participants to obtain specialty drugs from a provider of choice, but it doesn't allow employers to administer their health and welfare plans with consistent cost or quality management controls.

What can your organization do to manage specialty drug costs?

To customize strategies to the unique needs of your organization and employee population, you can undertake a number of key steps as follows:
Determine which medical conditions drive specialty drug utilization by analyzing the prevalence and cost of related health conditions in your employee population. The approach to managing drugs for cancer will be different from the approach for managing drugs for rheumatoid arthritis.

Compare, contrast and benchmark the pricing terms under your health plan versus your PBM contracts. While health plans may inconsistently apply discounting rules to claims, PBMs generally apply negotiated discounts at the NDC level to every claim.*

Decide what level of benefit you can provide. Look at your copayment or coinsurance-based cost-sharing provisions (and your formulary), and design your program to meet budgeted cost targets. In addition, you should evaluate the advantages and disadvantages of specialty pharmacy distribution channels compared to retail pharmacy channels. What results can you expect?

After completing this three-step diagnostic, you will have gained important insights into your organization's specific challenges — insights you can use to build data-driven solutions that address the underlying problems that drive costs. This approach also puts you in a good position to measure the impact of key interventions in clinical management, pricing and contract terms, and benefit plan design.

For further information about how your organization can manage specialty pharmacy costs, contact Revera Health.

* "NDC" refers to National Drug Code, a standard pricing element for pharmacy claims.