How to Get a Handle on Specialty-Drug Costs

From the early days of the apothecary in the late 1890s until nearly a century later, prescription drugs were fairly mainstream–an antibiotic or pain medication, for example. Perhaps something to soothe an itch or relieve nausea. Later on, patients benefitted from innovations like birth-control pills and medications to ease the symptoms of anxiety. As the 20th century came to a close, however, an exciting new class of drugs made its debut. Known as specialty drugs, these advanced medications are used to treat complex or rare chronic conditions, such as cancer, rheumatoid arthritis, hemophilia, HIV, psoriasis, inflammatory bowel disease and hepatitis C.

In recent years, these have become some of the most widely advertised drugs, with TV viewers regularly bombarded with commercials for Humira, Stelara, Remicade, Keytruda, Methotrexate and other medications. The ads boldly tout the benefits–and side effects–of these drugs and encourage patients to ask their doctor if such treatments are right for them. What they don’t say is these are some of the most expensive drug therapies ever to be commercially offered in the U.S. (An effort by the Trump administration to require that prices be divulged in TV ads was struck down by a federal judge in July.)

The average monthly outlay for a specialty drug is $3,000, according to Strategic Benefit Advisors. However, many of the most commonly prescribed specialty drugs cost far more. Enbrel, which is widely used to treat rheumatoid arthritis, juvenile idiopathic arthritis, plaque psoriasis and other chronic conditions, averages more than $4,000 per month, while Hepatitis C drug Harvoni averages $1,125 per pill, equating to $94,500 for a 12-week treatment course. Meanwhile, the list price of Neulasta, which helps prevent infection in cancer patients receiving chemotherapy, is $6,231 per dose.

In May, the Food and Drug Administration approved a new gene therapy for spinal muscular atrophy, a rare disease affecting infants and toddlers. Pharmaceutical giant Novartis has priced the one-time drug at $425,000 per year over five years. At $2.1 million for a full course of therapy, Zolgensma is now the world’s most costly drug.

For patients, the benefits of these innovative drug treatments are clear: They improve quality of life, extend life expectancies and sometimes–such as in the case of Hepatitis drug Mavyret–even cure disease. However, insurance carriers and self-insured employers are struggling to figure out how they can possibly cover the astronomical cost of specialty drugs, which currently account for just 1% to 2% of prescriptions, but more than 40% of total U.S. drug spend, according to the Express Scripts 2018 Drug Trend Report. And that figure is projected to rise to 50% by 2020, reports the Pharmacy Benefit Management Institute.

Panic Mode

While they recognize the challenge posed by the high cost of specialty drugs, less than half of employers had enacted a specialty-drug strategy as recently as 2015, according to a survey by Mercer. A heightened awareness of the challenge of specialty-drug costs has likely resulted in a greater number of employers adopting strategies over the past four years, according to David Dross, managing pharmacy practice leader in Mercer’s Houston office. However, he believes employers still feel there’s not much they can do to get a handle on costs.

“It’s the biggest issue in the pharmacy space, and employers recognize they need to take action, but they don’t feel they have a whole lot of options,” says Dross.

Paul Fronstein, director of health research and education for the Employee Benefit Research Institute, goes one step further, saying many plan sponsors and HR executives are in full-blown “panic mode” when it comes to getting their specialty-pharmacy spend under control.

“They want employees to get the right care, but they feel their hands are tied with regard to the cost of these medications,” says Fronstein.

That feeling of panic isn’t likely to ease up anytime soon, as specialty drugs are accounting for an ever-increasing percentage of the prescription-drug business. According to Strategic Benefit Advisors, just 10 specialty drugs were available in 1990. Today, there are more than 300 on the market, with another 700 in the pipeline. That intensifies the need for employers to craft a specialty-drug strategy. Many are left to wonder if they should even try to cover such drugs or exclude them from the plan altogether.

“There are concerns around ethics. Do we cut off specialty at a cap? Do we give a lifetime amount? Do we exclude gene therapy because it’s going to cost millions of dollars?” says Kelly Chillingworth, senior vice president and pharmacy practice leader at Lockton Cos. “Employers don’t want to discriminate against anyone, but they don’t see these costs as sustainable or even manageable.”

According to Fronstein, the easiest approach is to simply increase co-pays or deductibles. While he sees a great deal of interest in that strategy, Fronstein says, it’s not an effective means of controlling costs because asking an employee to pay an extra $1,000 or $2,000 will do little to chip away at a $50,000 or $60,000 pharmaceutical cost–and may even damage employee morale or discourage employees from taking a necessary medication to avoid the hit to their pocketbook. The result is a disengaged, sickly employee who may cost the company more in the long run because their condition is left to fester.

Chillingworth has a few clients that have opted not to cover specialty drugs at all or only cover them if there are no other therapies available to treat a given condition. While that certainly is the employer’s prerogative, Chillingworth says, Lockton doesn’t recommend that approach. Fronstein concurs, adding that it’s “going to be really tough to exclude” specialty drugs if they have been approved by the FDA, Medicare covers them and they have been deemed medically necessary by the prescribing doctor.

While she’s seen other companies excluding or restricting specialty drugs to save money, Misty Guinn, director of benefits and wellness at Benefitfocus Inc., has a “strong stance” against the strategy, which she calls “short-sighted.”

“The negative impact on employees’ wellbeing comes into play and, in that sense, it’s not allowing them to achieve better health and could lead to higher claims costs in the long term,” says Guinn.

Still, Guinn recognizes the need to adopt an aggressive strategy for reigning in the cost of specialty drugs, which she says represented the largest growth area in medical and pharmacy benefits for Benefitfocus during the 2017-2018 plan year.

“Our ultimate goal is to prevent the ripple effect of high claims that drive overall healthcare spend at Benefitfocus,” says Guinn. “Our primary strategy for accomplishing this is to identify the chronic conditions present in the employee base, identify the utilization and medication compliance by these employees and put specific programs and initiatives in place to educate employees and help offset the cost.”

Low-Hanging Fruit

In her first year at Benefitfocus, Guinn instituted a strategy that employs a “step-up” approach, in which traditional, generic drugs are tried first. If the desired outcome is not achieved, providers are then allowed to step up treatment to incorporate specialty drugs.

Benefitfocus has also begun requiring pre-authorization to verify that a specific drug is medically necessary. According to Nadina Rosier, health and group benefits pharmacy practice leader at Willis Towers Watson, such pre-authorization and other utilization-management programs help an employer keep a lid on costs, while also ensuring a given drug is appropriate for a patient’s specific condition.

“Ensuring the drug is clinically appropriate is the first key to managing specialty drugs because you don’t want to pay for drugs that you know clinically are not going to work,” says Rosier. “You don’t want to use a drug for breast cancer that’s only been proven effective for lung cancer.”

In addition to pre-authorization, Chillingworth recommends plan sponsors consider requiring reauthorization, which she describes as “a newer thing in pharmacy-coverage land.” Under reauthorization, employees will be granted six to nine months of coverage to determine if they are responding appropriately to the drug treatment. After that point, they must meet reauthorization criteria.

“We might ask for evidence that their viral load is dropping or their inflammatory markers are under control,” says Chillingworth. “If we find that it isn’t working, why would we want to continue paying for that drug indefinitely?”

Employers would also benefit from limiting the initial supply of a specialty drug to 30 days, according to Brian Marcotte, president and CEO of the National Business Group on Health. That allows sufficient time to assess not only the effectiveness of the drug, but to watch for side effects and determine whether a dose adjustment is needed for maximum benefit, while avoiding the waste that would come if the patient had been provided a larger supply of the drug from its initiation.

Lincoln Financial Group has adopted a multi-faceted specialty-drug strategy that also incorporates a pre-authorization requirement and a step-up approach, according to George Murphy, senior vice president of total rewards, HR technology and operations. Rather than starting a patient on a specialty drug “right off the bat,” patients are started on a less expensive drug and then moved up “through the more expensive classes of drugs” if they are not achieving the desired result. This approach not only saves money, explains Murphy, it also results in more effective treatment for that particular individual.

“We want to make sure we are getting the most effective drugs into our employees’ hands, not necessarily the most expensive ones,” says Murphy. “The difference could be related to how a person metabolizes drugs in their system.”

While some specialty drugs are taken orally, the majority are injected or infused, thus requiring administration by a medical professional. That opens the door for employers to practice site-of-care management, another promising cost-control strategy, as patients are encouraged or required to access treatment through less expensive providers. Lincoln Financial Group practices this strategy, which can result in significant savings. Chillingworth points to Remicade, commonly prescribed to treat certain types of arthritis, Crohn’s disease, ulcerative colitis and chronic plaque psoriasis. She says the cost to administer the drug in an outpatient hospital setting is double the cost in an office setting.

“If you can incentivize or drive employees to have their drug treatment administered in an office setting instead of a hospital, you’re going to save $5,000 to $10,000, which otherwise would have been completely wasted money,” says Chillingworth. “There is so much low-hanging fruit where we can shave off some meaningful dollars by doing things that don’t impact member access or quality.”


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Julie Cook Ramirez
Julie Cook Ramirez is a Rockford, Ill.-based journalist and copywriter covering all aspects of human resources. She can be reached at [email protected]