Employers Take Steps to Curb Specialty Drug Costs

Expensive biologics are key culprit driving up health care spending

Stephen Miller, CEBS By Stephen Miller, CEBS February 9, 2017
Employers Take Steps to Curb Specialty Drug Costs

Employees face growing challenges in paying for expensive specialty drugs, according to a new report that examines initiatives by employers and policymakers to control rising pharmaceutical costs.

The National Business Group on Health (NBGH), a Washington, D.C.-based association of 420 large U.S. employers, recently released Policy Recommendations to Promote Sustainable, Affordable Pricing for Specialty Pharmaceuticals. The report notes that spending for specialty medicines, including biological drugs manufactured using living organisms, is projected to overtake spending for traditional pharmaceuticals over the next several years.

"With spending on specialty drugs skyrocketing, large employers, and employees who use these medications, are struggling to manage rising costs," said Brian Marcotte, NBGH president and CEO. "Most employers we surveyed now rank specialty pharmacy as the No. 1 driver of rising costs" for health care.

In November 2015, the AARP Policy Institute in Washington, D.C., prepared a study of 115 specialty drugs and found that:

  • In 2013, the average annual price of therapy for specialty prescription drugs was 18 times higher than the average annual price of therapy for brand-name prescription drugs ($53,384 versus $2,960, respectively) and 189 times higher than the average annual price of therapy for generic prescription drugs ($53,384 versus $283, respectively.)

  • Retail prices for 64 chronic-use specialty drugs increased cumulatively by an average of 161 percent from January 2006 through December 2013. General inflation in the U.S. rose 18.4 percent during the same 8-year period.

Since the study, the rising costs for specialty drugs haven't slowed, benefit specialists say.

What Can Employers Do?

"Specialty pharmacy is different from other medications in many ways, including having a tendency to be much more expensive—some meds cost in the tens of thousands of dollars per treatment," said Steve Wojcik, NBGH's vice president of public policy. "As a result, we are seeing growing numbers of employers, along with their health plans and pharmacy benefit managers, implementing many [cost-control] techniques."

NBGH's annual Plan Design Survey of large employers, noted in the group's report, found that respondents were:

  • Putting in place more aggressive use-management protocols for specialty drugs (74 percent of large employers).

  • Requiring that specialty medications be obtained through a freestanding specialty pharmacy (69 percent).

  • Using a specialty drug tier in the plan design, to require greater cost-sharing by employees (38 percent).

  • Using high-touch case management, such as with a nurse practitioner (35 percent).

  • Requiring prior authorization for specialty medications billed under the medical benefit (35 percent).

  • Requiring site-of-care management to ensure that specialty drugs—which may need to be injected or infused—are administered in appropriate settings (30 percent).

"While reducing or removing policy obstacles to better pricing will be a major step forward, the real solution must involve manufacturers," Marcotte said. "Ultimately, they will need to address the growing concerns about pricing and adopt pricing models that respond to and better reflect those concerns."

"High specialty pharmacy prices are facing growing public and political pressure," Wojcik agreed. "Combined with employers' concern over their ability to manage rising costs, we believe now is the time to review public policies that influence the pricing, prescribing and administration of specialty meds."

[SHRM members-only toolkit: Managing Health Care Costs]

Rising Drug Costs Require Greater Retirement Savings

Projected savings by employees to cover their health care in retirement went up last year after several years of decline, according to new research by the nonprofit Employee Benefit Research Institute (EBRI) in Washington, D.C. The main reason: out-of-pocket spending for prescription drug use, said Paul Fronstin, director of EBRI's health research and education program and co-author of the February report, Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000.

EBRI found that, in 2016, a 65-year-old man would need $72,000 in savings and a 65-year-old woman would need $93,000 if each had a goal of having a 50 percent chance of saving enough to cover their health care expenses in retirement. If they wanted a 90 percent chance of having enough savings, the man would need $127,000 and the woman would need $143,000.

Those with high prescription drug costs would need to save substantially more. For a married couple both with drug expenses at the 90th percentile throughout retirement who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings would be $349,000 in 2016.

Related SHRM Articles:

Costs Care Management Vital in Tackling Specialty Pharmacy, SHRM Online Benefits, February 2017

Negotiating Price Transparency with PBMs Pays Off, SHRM Online Benefits, January 2017

Employers Prepare for 2017 Drug Price Hikes, SHRM Online Benefits, October 2016

Related Resource:

Attention Turns to Specialty Pharmacy, Benefits Quarterly, May 2017


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