Thanks to the rise of generics, pharmaceutical-benefit costs have been dropping -- with one glaring exception: specialty drugs.
Thanks to cutting-edge research, new and effective treatments for chronic illnesses such as hemophilia, rheumatoid arthritis, multiple sclerosis and Crohn's disease are making the lives of patients suffering from such conditions much easier. These "specialty pharmaceuticals" do come with a hefty price tag, of course -- in some cases, the costs can exceed $100,000 for a year's supply.
"The average cost of these medicines is well above a typical non-specialty drug by a magnitude of several times, and patients often have to be on these drugs for the rest of their lives," says David Dross, national pharmacy practice leader for New York-based Mercer.
Indeed, even though the latest drug-trend report from St. Louis-based Express Scripts reveals that spending on prescription drugs in the United States rose only 3 percent last year -- the smallest increase in the two decades it's tracked such data -- it finds that spending on specialty drugs jumped by more than 17 percent in the same period. Express Scripts attributes at least part of the jump in prices to new treatments for hepatitis C.
Spending for specialty drugs has grown between 15 percent and 20 percent for the last several years, and accounted for 21 percent of U.S. drug expenditures in 2009 -- despite the fact that such drugs are used by only 1 percent to 5 percent of the U.S. population, according to a recent report by the Pharmacy Benefit Management Institute in Plano, Tex.
Worse yet, there appears to be no end in sight to this trend. The report -- the 2011-2012 PBMI Prescription Drug Benefit Cost and Plan Design -- anticipates that the growth in spending on specialty drugs will continue to outpace non-specialty drug spending for years to come.
"This is a situation where, in general, the cost trend on these drugs will continue to be double-digit annually," says Dross.
Factors behind the growth include, among other things, expensive manufacturing processes and limited competition within drug-therapy classes corresponding with less price competition, according to the PBMI report.
"Specialty drugs are a primary topic of discussion for benefit-plan sponsors these days," says Allan Zimmerman, national pharmacy practice leader at New York-based PricewaterhouseCoopers.
Perhaps not surprisingly, the PBMI report finds that reducing the acquisition cost of these types of drugs is a top specialty management goal of nearly 60 percent of employers. But HR leaders at those companies have their work cut out for them, experts warn. Many specialty drugs have traditionally been sold and administered directly to patients by their doctors, with the costs accruing to group-health plans rather than pharmacy plans, which are typically administered by pharmacy benefit management companies.
This can make tracking the cost of these drugs more difficult, say experts. However, new developments on the pharmacy benefits side may make it easier for HR to not only monitor the cost of specialty drugs, but ensure that the employees (and their covered dependents) taking them truly are being helped.
A Careful Balance
For HR leaders, the first step toward managing costs should be to get a clear picture of their organizations' total annual spend on specialty drugs, says Dross. This isn't nearly as straightforward as it sounds, he adds.
"Lots of times, when they're adjudicated on the < medical > side, there isn't any specific reporting on these drugs -- it's just blended in with other expenditures," he says. "It's easier to do on the pharmacy benefit manager side, because they do specific reporting on these drugs."
In many instances, the PBM may be the best venue, since many of those firms have begun offering services devoted exclusively to dispensing and managing specialty drugs, he says.
Even so, efforts by PBMs to work more closely with doctors in this area have not always gone smoothly, says Kevin Host, senior vice president of specialty pharmacy operations at OptumRx, a PBM that is part of Eden Prairie, Minn.-based OptumHealth.
"In the early days, as we tried to help manage specialty drugs, there was a lot of pushback from < medical > providers because they used to derive a great deal of income from selling these products -- they called it 'buy and bill,' " he says.
"Now, we're seeing that, for the small and mid-sized practitioner groups, they don't have the cash flow to support the buying and selling of these drugs anymore," he says. "They are more receptive to the fact that PBMs like us are going to use the most efficient channels for distributing these drugs."
Although doctors play a vital role when it comes to specialty drugs, not all the services they provide may be necessary, says Randy Falkenrath, senior vice president of specialty pharmacy at Woonsocket, R.I.-based CVS Caremark.
"If you start with the provider in this model, the doctor is typically playing three roles: dispensing pharmacy, clinical overseer of the patient and being adminstrator of the medication," he says. "The question is, is this the best model for a particular therapy?"
For example, many specialty drugs are taken by injection and are often administered in doctor's offices, says Falkenrath. But in some cases, they can be self-administered by the patients themselves.
In these instances, it doesn't make sense for a plan sponsor to pay for a doctor's services, he says.
"Essentially, you're paying extra for a service that patients should be learning to get comfortable with doing on their own," says Falkenrath. "When you have the opportunity to leverage a caregiver for administering a drug, it may not necessarily be the best approach, from a care or a cost standpoint."
PBMs can take on a greater role not only because they have trained pharmacists and nurses who can counsel patients, he says, but also because they have access to databases that can make it easier to track prescriptions and ensure they don't cause side effects -- a risk that's heightened when patients are on multiple prescriptions, he adds.
Depending on the circumstances, some specialty drugs may trigger depression in a patient or aggravate an existing state of diagnosed depression, says Suzanne Tschida, vice president of specialty pharmacy benefits at OptumRx.
"Some patients may already have depression related to co-morbidities," she says. "We screen for this and, if a member screens positive, we'll refer them to OptumHealth for additional services. We'll screen for other issues as well, and refer as needed so members can get access to those services."
Having a patient work closely with a PBM that has a robust clinical-management model is key, says Falkenrath. "You want to ensure they're starting off on the right medicine and that they're also working with a pharmacist who can coach them through issues that might be associated with that medicine," he says.
No Easy Answers
Few plan sponsors have figured out a comprehensive way to manage costs for specialty drugs on both the < medical > and pharmacy sides, says Zimmerman. Some PBMs are trying to control costs by establishing a separate cost-sharing "tier" for specialty drugs in which co-payments are often much higher than those for non-specialty medicines, he says.
These higher co-payments have sparked concern among patients and have led a number of states -- including New York, Vermont and Maine -- to pass laws limiting the annual out-of-pocket expenses borne by patients who use specialty drugs.
At OptumRx, the company has deployed a specialty drug cost-sharing product for its small-business clients, and is carefully evaluating the effect on savings and patient outcomes, says Tschida. There is reason to proceed cautiously, she adds.
"There are several research publications focused around rheumatoid arthritis, multiple sclerosis and HIV that have found a correlation between an increase in out-of-pocket expenses and decreased adherence, so we are concerned about this," she says. "We want to study the potential ramifications."
When it comes to specialty drugs, it's important that benefits are structured such that a reasonable cost-sharing balance exists between patient and plan sponsor, says Falkenrath.
"When you get a specialty medicine under the < medical > benefit, it often comes with co-insurance, which means only 50 percent to 70 percent of the cost is covered," he says. "That cost can be a barrier to patients [geting access to] these drugs. So, ensuring appropriate cost-share is very important."
Although generics have dramatically decreased the cost of non-specialty drugs, a similar trend is unlikely to occur on the specialty side, says Dross.
There had been some initial hope that so-called "biosimilars," or generic replications of these medicines, could lower their cost. Biosimilars have been used to a limited extent in Europe, but have not received approval from the U.S. Food and Drug Administration, he says. Additionally, in the countries where they have been used, costs have typically gone down by 15 percent at most -- a mere drop in the bucket when considering the overall cost of these drugs, he adds.
The future of specialty drugs may lie beyond the < medical >/pharmacy continuum, says Dross. Specialized vendors that are unaffiliated with either < medical-plan vendors or PBMs and are focused specifically on areas such as cancer, hepatitis 3 and rheumatoid arthritis have the potential to improve outcomes and limit healthcare costs, he says.
These firms, which include Axium Healthcare Pharmacy Inc. and ICORE Healthcare Inc., have teams of pharmacists, registered nurses and patient-care coordinators working closely with patients to ensure they have access to the full spectrum of needed care, says Dross.
"The real value proposition of these firms is not that they claim to get you a better price-per-unit on these drugs, but that they're the best at patient-management and helping them get the most out of what someone would get by taking these drugs," he says.
Specialty drugs have greatly improved the lives of patients with chronic conditions, and the next few years promise to deliver a veritable cornucopia of innovative drugs that will help even more people, says Tschida.
"When you look at 2014, seven of the top 10 drugs are going to be specialty," she says. "We're seeing new medicines in the pipeline, new drugs coming to market and expanded use of these drugs to treat disease in its earlier stages. These new medicines have a very high cost."
However, the question of how the costs of these "miracle drugs" will be absorbed without devastating the bottom lines of patients or plan sponsors probably won't be answered anytime soon.
"I think everyone is trying to look at the levers available to them to manage the cost of these drugs without negatively affecting care," says Host. "It's a tricky balance."
See these charts that illustrate spending on specialty drugs.