Soaring Specialty Drug Costs Require HR Response

Specialty drugs can have an outsize impact on benefits costs.

By Tamara Lytle March 1, 2014

March 2014 CoverAmong all the factors driving up health care costs, one type of medication is casting a long shadow. Many "specialty drugs" can cost hundreds of thousands of dollars a year per patient.

In 2013, specialty drugs—loosely defined as drugs that cost more than $600 per month, and often much more—accounted for 30 percent of total drug costs, according to Prime Therapeutics, a pharmacy benefit manager (PBM). By 2018, that number will reach 50 percent, it predicts.

Specialty drugs treat a variety of serious conditions, including multiple sclerosis, rheumatoid arthritis, hemophilia and cancer. Increasingly, emerging drugs are being used to treat a broader range of chronic conditions.

"They are aimed at devastating, life-altering illnesses," says Helen Darling, president and CEO of the National Business Group on Health, whose members are large employers. As a former director of health benefit purchasing at Xerox Corp., Darling saw how multiple sclerosis could wreak havoc on employees’ health. Now specialty drugs provide more options for treatment, she says.

But they are expensive to develop and hard to produce.

Half the drugs currently in development are specialty drugs, according to Rae McMahan, vice president of specialty pharmacy programs at Prime Therapeutics. Some are biologics, which are derived from living organisms instead of chemicals. Some, called orphan drugs, are developed to treat rare diseases and don’t allow drugmakers to spread research and development costs over a large market. Many of the drugs require special handling and storage and can’t be purchased easily at retail pharmacies.

Specialty drugs are 50 times more expensive than traditional ones, according to a report from Prime Therapeutics. Nationally, $80 billion was spent on these medications in 2012.

The average cost of a specialty drug is $10,000 per month for a patient, according to Randy Vogenberg, principal of the Institute for Integrated Healthcare, a benefits consulting company in Greenville, S.C. "You’re really talking something more like a hospitalization than filling a $100 prescription," he says.

Even a single patient can cause pharmacy benefit costs to spike. Prime Therapeutics, which administers benefits for 23 million people, looked at patients with $50,000 or more in drug spending annually. This population represented just 18 of every 10,000 plan members, but it accounted for 17 percent of all drug costs.

Many patients with chronic diseases are likely to be on very expensive medication for many years. "It’s potentially a lifetime of paying for these drugs. For companies, it’s a big responsibility," says Vogenberg, co-leader of the National Employer Initiative on Specialty Pharmacy, which is part of the Midwest Business Group on Health.

Coping with the rising costs requires information many human resource departments don’t have.

A 2013 report by Towers Watson and the National Business Group on Health found that 24 percent of 583 employers surveyed didn’t know how much their organizations were spending on specialty drugs or didn’t track it. Nearly 20 percent of respondents were not at all familiar with specialty pharmaceutical costs in drug plans. And nearly a third were not at all familiar with the specialty drug costs that are billed through medical plans, such as chemotherapy drugs administered in a medical setting.

According to the Towers Watson report, "While 20 percent of respondents have adopted incremental solutions, managing high cost trends requires more aggressive approaches."

The Right Product

Many cost-saving strategies involve making sure plan participants are using the most effective, cost-efficient therapies. Often, that starts with requiring prior authorizations for prescriptions. By 2014, more than two-thirds of the companies polled by Towers Watson were planning to require participants to get prior authorizations from their health plans.

That’s "low-hanging fruit," says Mary Dorholt, vice president and clinical practice lead-specialty at Express Scripts, which manages pharmacy benefits for 100 million people. It’s a practice that can save 10 percent to 15 percent on specialty drug costs.

Prior authorizations open a dialogue with doctors so a plan sponsor can request the use of a less expensive therapy or a drug brand for which the plan gets discounts or rebates. Some specialty drug regimens don’t have multiple options for medications, but some do, Dorholt says. Employer plans can save money by negotiating deals with drugmakers to get discounts in exchange for making a certain medication the preferred agent on a formulary.

At Vanderbilt University in Nashville, Tenn., rising pharmacy benefit costs raised red flags and led to a new strategy involving discounts. Vanderbilt’s specialty drug costs jumped from an average of $16.89 per beneficiary in 2011 to $24 in 2013, according to Rick Ohmer, SPHR, senior director of compensation and benefits. In 2011, specialty drugs accounted for 26.5 percent of the total pharmacy benefit but by 2013 had jumped to 32.7 percent—and was still growing, he says.

Instead of a traditional PBM, Vanderbilt uses a self-directed one, Navitus Health Solutions LLC. Vanderbilt pays Navitus an administrative fee but keeps control of the medications listed on the formulary—and keeps any discounts that are negotiated by Navitus with drugmakers. It’s more work for Vanderbilt and may not work for smaller businesses, but it has saved the university millions on specialty and traditional drugs.

"We took out a lot of costs by adjusting the formulary," Ohmer says. "By changing what drugs are available, we’ve been able to manage the costs."

Benefits experts say "biosimilar" drugs—a sort of generic version of specialty biologic drugs that are coming onto the market—will offer new options for saving money through the formulary.

A Prescription to Contain Costs

Employers need their own prescription for keeping specialty drug costs under control. Pharmacy benefit managers and HR professionals say a range of strategies can help.

Mary Dorholt, vice president and clinical practice lead-specialty at Express Scripts, says plan sponsors can cut specialty drug costs by 50 percent through innovative strategies. “There is a lot of opportunity for better management,” she says.

Approaches include:

  • Making sure the expensive drugs are really the best treatment.
  • Improving communications with doctors and patients.
  • Focusing on the often-forgotten specialty drugs that are administered through medical plans instead of drug plans.
  • Requiring tiered out-of-pocket costs.

Refills and Step Therapy

The two most popular strategies for saving money on specialty drugs are limiting the number of days for refills and step therapy, according to the Towers Watson report. More than three-quarters of the employers polled planned to limit doses based on clinical evidence.

Many oncology treatments, for instance, have burdensome side effects. Instead of the usual 30-day prescription, many companies require that a new prescription be filled only for a week or two to make sure the patient tolerates the drug—and doesn’t waste expensive medicine.

"That simple change will save you thousands of dollars," Vogenberg says.

Towers Watson found that 17 percent of those polled had such a refill policy in 2013 and another 6 percent were adding it this year.

In step therapy, doctors are pressed to first try the least expensive medications before moving to pricier ones. Ohmer says working with doctors has helped Vanderbilt make sure health care providers know about cost-effective alternatives.

Sometimes step therapy involves genetic testing to make sure someone is a good candidate for a particular specialty drug. For instance, Dorholt says, one cystic fibrosis drug costs $300,000 a year but is appropriate for only a sliver of the population. It makes sense to test patients to see if they have genetic markers associated with a positive response to the drug, she says.

Closer Contact

Better communication with patients and doctors has helped employers make sure specialty drugs aren’t being wasted.

Express Scripts uses a specialized patient care model that involves teams of experts working on a particular disease. Calls from the patient go to that team. Team members remind patients to refill their prescriptions, check whether the dosage is right for a person’s weight, offer advice on the best way to take the drug (such as with food) and make sure people are adhering to the treatment regime.

Adherence is not easy with medications that can cause side effects and are complicated to take. And patients who don’t adhere to the therapy aren’t getting the full benefit of expensive medications. Express Scripts estimates that patient nonadherence results in $417 billion a year in waste from unnecessary hospitalizations and other costs.

A study of rheumatoid arthritis patients in an Express Scripts specialized patient care program last year showed that the program increased adherence by 15.6 percent, compared with patients using a retail pharmacy. The patients sticking to their regimen had 23.3 percent fewer office visits, Dorholt says, and 9.3 percent fewer hospitalizations.

"They are happier; they are at work; they are productive," she points out.

As more technologically savvy people age and develop serious illnesses, smartphone applications and texting can help patients adhere to their protocols, she says.

During cancer treatment, communication with doctors is especially important. Dorholt says 35 percent of oncology regimens are "off guidelines"—in other words, they use medicines in ways that have not been proved to be effective.

"Cancer is a very emotional disease," she observes, and physicians face pressure to try treatments that may not have been shown to be effective.

Focus on Medical Plans

About 47 percent of specialty drug costs are billed through medical benefits instead of pharmaceutical plans, and that can make it harder to control costs, Dorholt says.

Some infusions and other specialty drugs must be dispensed by doctors. In these instances, billing information about what was prescribed and in what quantity and packaging can be difficult for the employer to come by. That makes it harder to track costs, arrange discounts and make sure patients are getting the correct prescription for their condition.

Some of those drugs could be dispensed instead through the drug benefit plan, with the help of a specialty pharmacy, says Dorholt, whose company owns the specialty pharmacy Accredo. An Accredo study of clients using medical channel management to exclude specific specialty drugs from the medical benefit plan and move them to the pharmaceutical program found that clients cut costs by 8.4 percent.

Two solutions aimed at moving those bills back to the pharmacy side are "white-bagging" and "brown-bagging."

White-bagging occurs when a specialty pharmacy delivers a drug to a doctor’s office to be administered. Brown-bagging involves sending the medicine to a patient’s home for the individual to bring to the doctor’s office. In both cases, since the doctor doesn’t purchase the drug, she can’t mark up the cost, Darling says.

Tiered Costs and Metrics

Some plan sponsors are putting specialty drugs in the pharmacy benefit in a new tier with higher patient out-of-pocket payments. Vanderbilt increased its co-insurance out-of-pocket maximum for prescriptions to $100 from $75 in 2014.

But Vogenberg and others think tiered cost-sharing could backfire. "You want to eliminate barriers so … the patient gets these drugs," he says. That’s because, when taken correctly, the drugs can save patients from surgeries and hospitalization—and the resulting costs.

Metrics also can help keep costs in line.

Vogenberg says employers need to track specialty drug spending as they would a hospital visit. What tests were given to make sure the specialty drug is needed? Is the patient actually using the drug? What trends are appearing in utilization?

Vanderbilt looks quarterly at costs per person, which drugs are being used and which medicines are increasing most in cost, Ohmer says. "This is an area you need to focus your attention on," he advises.

"This problem is not going away," adds Vogenberg. "It’s growing faster by the day. [Employers] don’t have an option of doing nothing."

Tamara Lytle is a freelance writer based in the Washington, D.C., area.

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