When I started in the pharmacy consulting business 30 years ago, pharmacy benefits represented about 3% to 4% of an employer’s total health care costs. Today, according to results from our 2013 Employer Prescription Drug Benefit Survey, the majority of employers spend 16% or more of their total health care benefit cost on pharmacy benefits, and this number is expected to increase further as utilization of high-cost specialty (biotech) drugs increases.
During the early days (1990 through the mid-1990s) of specialty drugs, specialty drug manufacturers targeted treatment of certain rare diseases, such as Fabry’s disease, that previously had no effective treatment. New, effective specialty drug treatments also were developed to manage such diseases as rheumatoid arthritis and multiple sclerosis. Other specialty drugs have provide a treatment for some conditions that previously had no effective treatment, including several forms of leukemia.
With breakthroughs in genetic engineering and development of other sophisticated biotechnology techniques, specialty drug manufacturers also targeted treatment of more common conditions, including common cancers, heart disease and diabetes. Currently, there are more than 900 specialty drugs in development.
Today, specialty drugs typically represent 1% – 3% of an employer’s drug plan utilization, but 20% or more of total pharmacy plan costs. According to Caremark, a major pharmacy benefit manager (PBM), 2012 specialty drug trend (annual rate of increase in plan costs) for employer-sponsored plans was 19.1%, compared to a negative 2.2% trend for non-specialty drugs (e.g., cholesterol-lowering drugs, diabetic drugs, antihypertensive drugs). This negative trend largely resulted from patent expiration for many blockbuster brand drugs over the past three years. Patent expirations have enabled manufacturers to produce generic equivalents at a fraction of the cost. Because there is no FDA-approved pathway for manufacturing generic specialty drugs, virtually no specialty drug has lower-cost generic alternatives and, thus, specialty manufacturers have no generic competition after patent expiration.
Currently, the average cost per 30-day supply of specialty drugs is approximately $2,800; some of these drugs cost more than $100,000 per patient per year.
According to Express Scripts, another major PBM, eight of 10 new drugs approved by the FDA during the next five years are expected to be specialty drugs. Caremark expects that by 2016 specialty drugs will represent 30% of an employer’s drug plan costs.
Typically, an employer’s pharmacy plan covers 50% of specialty drug costs; the other 50% is provided through an employer’s medical plan.
Specialty drugs may be administered through infusion, self-injection or orally, depending on the drug. Infused and self-injectable specialty drugs require special storage, packaging and close monitoring for serious side effects.
Despite the surging cost of specialty drugs, Buck’s Employer Survey showed that more than 30% of responding employers did not know the magnitude of their specialty drugs costs.
Employers need to understand the immediacy of rapidly rising specialty drug costs and develop strategies to manage these costs effectively. Otherwise, they will find that their pharmacy plans will soon be unaffordable.
Increasing member cost share for specialty drugs is counterproductive. If patients stop taking specialty drugs because they can no longer afford to pay specialty drug copays, their condition will likely worsen and require expensive hospitalizations which, in turn, will drive up employer medical and disability plan costs.
Specialty drug price inflation and new product entries into the market are outside an employer’s control. Employers need to focus on factors that are within their control, including:
- negotiating optimal specialty drug ingredient cost discounts during contract renewals with PBMs
- managing specialty drug coverage and pricing under both the medical and pharmacy benefit plans
- implementing proactive patient management to help members manage their complex conditions and potentially serious side effects of specialty drugs, and ensure appropriate use of these drugs for the right condition at the right time and at the right dose
Pharmacy benefit management is complex and specialized. It requires an experienced, specialized consultant who understands the unique economics of the pharmaceutical marketplace to help employers develop a specialty drug strategy select a pharmacy vendor that best meets an employer’s needs and objectives and negotiate optimal financial and other terms.
As a longstanding pharmacy benefit consultant and negotiator of PBM services on behalf of my employer clients, I know that today’s marketplace for PBMs is a “buyer’s market” for employers. As a result, virtually all financial and non-financial terms are negotiable with the PBMs — If you don’t ask, you don’t get!
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