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Specialty Drug Spending Costs Expected to Soar Over Next 10 Years: Study

Specialty drug spending is expected to soar over the next decade, and ways to limit the spending are limited, according to a new study from the Center for Studying Health System Change (HSC). Unlike conventional prescription drugs, whose spending has been limited by patent expiration, generic substitution and other factors, health insurers and employers have few tools to control rapidly rising spending on specialty drugs, which are typically high-cost biologic medications used to treat complex medical conditions. Studies show that specialty drug spending has increased by 14 to 20 percent annually in recent years.

And these numbers will only grow over the next 10 years as the hundreds of biologic medications currently developed gain market approval. The number of conditions that can be treated with specialty drugs, and the number of patients eligible for treatment with these drugs, is expected to skyrocket, intensifying the cost and access trade-offs that payors and purchasers already face, according to interviews with representatives from health plans, benefits consulting firms, pharmacy consulting firms and other industry experts.

Original, brand-name biologics are granted 12 years of market exclusivity, according to federal law, and many biologics are protected by patents for years after their exclusivity expires. Given the lack of generic alternatives and brand-name equivalents for these designer drugs, specialty drug manufacturers could eventually have near-monopoly pricing power, the study says. The absence of alternative drug options also limits the effectiveness of conventional benefit design and utilization management tools, researchers say.

And the high price of specialty drugs are prompting some employers to increase patient cost sharing, according to the study. The average specialty drug costs for a patient with multiple sclerosis can be as much as $25,000 a year. But researchers feel this may reduce patient adherence, which could lead to higher costs from complications.

Unlike conventional drugs, a substantial share of specialty drugs, typically clinician-administered drugs, are covered under the medical benefit rather than the pharmacy benefit. This leads to high drug markups by physicians, less utilization data, and less control for health plans and employers. Steps to integrate medical and pharmacy benefits are still in early development, according to the study.

The study, funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, stemmed from site visits to 12 nationally representative metropolitan communities, including Boston; Cleveland; Phoenix, northern New Jersey and Syracuse, New York. Researchers conducted 174 interviews with health plans, benefits consulting firms and other private-sector market experts, and an additional 20 in-depth interviews specifically on specialty drug management with more representatives from health plans, benefits consulting firms, pharmacy consulting firms and other industry experts.

Utilization management for specialty drugs has focused on prior authorization and quantity limits, rather than step-therapy approaches, where lower-cost options must first be tried, that are prevalent with conventional drugs, the study found.

Other steps to control the spending include making biosimilars, or alternative drugs, more widely available, but this too is in early development, according to the study. Shortening specialty drugs’ exclusivity period to seven years could also eventually reduce drug costs, researchers say.


Source: Center for Studying Health System Change, April 26, 2012

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Managing Specialty Drugs Across the Medical and Pharmacy Benefits

This 54-page report contains details of strategies health plans are employing to effectively manage specialty drugs under the medical benefit using pharmacy benefit principles. You'll read about the outcomes being seen, and pitfalls to avoid, at companies like Blue Cross Blue Shield of Florida, RegenceRx, CVS Caremark and Express Scripts.

Managing Specialty Drugs Across the Medical and Pharmacy Benefits is available from the Healthcare Intelligence Network for $84 by visiting our Online Bookstore or by calling toll-free (888) 446-3530.

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IMPORTANT NOTICE: This information is designed to provide accurate and authoritative information on the business of healthcare. It is distributed with the understanding that Healthcare Intelligence Network is not engaged in rendering legal advice. If legal advice is required, the services of a competent professional should be retained.

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