BHCG Monitor: Focus on Health Care Benefits

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Soaring Specialty Drug Costs – What Can Be Done?

It is generally accepted that pharmacy costs are going to continue to rise faster than the general medical inflation, primarily due to the rapid increase in the utilization of specialty drugs. Specialty drugs, used to treat complex illnesses such as cancer and hepatitis C (see accompanying article in this edition of the Monitor), are consuming an increasing percentage of employers’ drug spend and overall health care spending. The pressure on employers to address the costs of specialty drugs is significant and growing. What strategies and tactics are employers adopting to address this critical issue?

Definition of Specialty Drugs

While the definition of specialty drugs can vary, most agree that specialty drugs:

  • Are complex and expensive (CMS puts the specialty drug definition threshold at $600/month, while some health plans use a $1,200/month threshold)
  • Often are used to treat chronic conditions, such as chronic cancer treatment, rheumatoid arthritis, multiple sclerosis, immune disorders, hepatitis and anemia
  • Require special storage, handling, administration and patient monitoring
  • Usually are biologically derived, rather than chemically

Sobering statistics

To further illustrate the acute cost issues related to specialty drugs, consider the following:

  • From 2012 to 2020 spending on specialty drugs is expected to increase 361 percent, rising from $87 billion in 2012 to $402 billion in 20201.
  • In 2013 70 percent of all drugs approved by the Food and Drug Administration (FDA) fell into the specialty drug category2.
  • While less than one percent of all U.S. prescriptions written, specialty drugs accounted for 27.7 percent of the country’s total pharmacy spend in 20133.
  • By the end of 2015, spending on medications for hepatitis C will exceed that for many common conditions, including high blood pressure4.
  • On a local level, BHCG employers’ specialty pharmacy costs continue to account for a larger percentage of total pharmacy costs.  According to Humana’s PlanCompass Report, specialty pharmacy as a percentage of total pharmacy increased from 27.4 percent in 2012 to 30.2 percent in 2013.

Specialty drugs can make a real difference in the lives of patients.  However, with the high cost of these drugs and trends suggesting the cost pressures will only become more acute, employers must confront this issue head-on if they want to continue to offer an affordable pharmacy benefit to their employees. 

Employers’ awareness increasing

According to a couple of recent employer surveys, employers are becoming more aware of the increased use of specialty drug costs and the potential impact they are having on their bottom-line. For example:

  • According to a 2014 survey by the National Business Group on Health, half of large employers say the cost of specialty pharmacy drugs is their second or third highest cost driver, behind high cost claims and special conditions.
  • According to a 2013 survey conducted by the Midwest Business Group on Health (MBGH), 78 percent of responding employers indicated an above average or high level of understanding of specialty drug management strategies and tactics.
  • According to the same MBGH survey, employers understanding of what pharmacy costs are being paid through the medical benefits vs. pharmacy benefits is improving, with those indicating they “don’t know” dropping from 70 percent in 2011 to 32 percent in 2013.

Potential strategies and tactics

Any plan to address skyrocketing specialty drugs costs must take into account cost increases in an employer’s pharmacy benefits plan and their medical plan.  Historically, costs for drugs that are administered intravenously or that require careful follow-up for safety reasons tend to be covered under an employer’s medical benefit, while safer, self-administered agents are typically covered under a pharmacy benefit plan. Most of the growth in specialty drug costs has taken place on the medical side. 

According to Julie Kulawiec, R.N., senior director of specialty benefit services at Express Scripts one of the industry’s largest pharmacy benefits managers, "It’s absolutely imperative in managing specialty pharmacy costs that you have a plan for both the medical and pharmacy side of the benefit. That may be the most important single thing for employers to consider. Don’t just focus on pharmacy or you’ll have half a management strategy5."

So what can employers do?  Experts are in agreement there is no silver bullet, no one strategy that will successfully address this issue.  Instead, employers must take a number of actions and utilize a variety of tools.  Here are some actions and strategies to consider:

  • Know and understand your drug costs and what factors are driving increases
  • Engage in extensive communications efforts with your employees so they understand their pharmacy benefits, particularly their out-of-pocket costs for certain drugs
  • Use clinical effectiveness criteria to decide what to cover rather than relying simply on what the FDA approves
  • Use specialized case management firms to manage patients on certain drug regimens
  • Offer employees incentives – financial or non-financial – to promote medication compliance.  As former Surgeon General C. Everett Koop once said, "Drugs don’t work in patients who don’t take them."
  • Use specialized pharmacy consulting firms, pharmacy committees and/or employing a pharmacist
  • Utilize independent experts to audit your Pharmacy Benefit Manager’s (PBM) contract terms, bearing in mind that your PBM’s interests may not be aligned with yours  

Spending on specialty drugs is growing exponentially, representing an increasing share of U.S. pharmaceutical spending and overall health spending. Employers need to become better educated about specialty drugs and the impact they have on the cost of the benefit plan offerings – both their medical and pharmacy benefit plans.  With better understanding, employers can assess and implement strategies best suited to their situation.  

Works Cited

1  PricewaterhouseCooper’s (PwC) Health Research Institute: Behind the Numbers 2015 and analysis of CVS Caremark data.

2 PwC, The cost of innovation, a closer look at specialty drugs, 2014.

3 Express Scripts Specialty Medications, April 8, 2014.

4 Express Scripts, Specialty Medications, May 22, 2013.

5 The Commonwealth Fund, Specialty Drug Costs Poised to Skyrocket but Many Employers Have Yet to Take Note, April, 11, 2012.


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BHCG Monitor: Focus on Health Care Benefits - April 2012