The Unsustainable Rising Cost of Specialty Drugs

Specialty drugs currently represent about 1% of all prescriptions. However, they account for about 20% of today’s drug spend. It is predicted by industry experts that the cost will reach more than $402 billion per year by 2020, nearly four times today’s number. A recent action brief was released by the National Business Coalition on Health outlining some of the key issues and actionable items to consider for both employers and employees.

Specialty drugs are also known as biologics and generally defined by the following indicators:

• They treat complex chronic and/or life threatening conditions
• Have a high cost per unit (typically > $600 per month)
• Usually require special storage, handling, and site-of-care administration
• Involve a significant degree of patient education, monitoring, and management.

The Issue

•The average specialty prescription costs $1,776 compared to $54 for a traditional drug.
•In 2012 there were 900 specialty drugs in development in contrast to a total of 10 specialty drugs on the market in 1990.

What It Means For Employers

•Specialty drug costs are estimated to increase from about 17% of the average employers pharmacy cost to 40% by 2020
•50% of specialty drug spend occurs in the medical benefit and less than 25% of employers report being able to track these transactions

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Education and Preparation

•Bring together a team of internal stakeholders, identify the data that needs to be collected and devise a comprehensive strategy
•Utilize resources such as the Midwest Business Group on Health Employer Toolkit on Specialty Pharmacy which has vast amounts of information, resources and best practices to assist employers in better understanding the basics and economics of specialty pharmacy, manage at-risk populations and identify means of effectively partnering with and contracting vendors.

Benefit Design Strategy and Setting Expectations

•Require medical and pharmacy drug related claim reports to be detailed and integrated
•Collaborate with service providers to ensure that they provide reporting tools that focus in on the clinical as well as the economic data across medical and pharmacy benefits
•Identify opportunities for plan design changes that can encourage and assure cost-efficient utilization by plan members
•Implement value-based benefit design that will drive consumer engagement and accountability including incentives for medication adherence and/or use of case management services
•Help manage utilization, cost, and outcomes by utilizing case management, step therapy and prior authorization
•Optimize site of administration for specialty therapies occurring in the medical benefit such as infusions, because the switch from hospital to outpatient or home setting can result in a savings of 20% to 60% per infusion

The bottom line is the increasing cost of specialty pharmacy is not sustainable for employers and must be actively managed in order to impact change. Employer-based health coalitions and community based industry groups can be a valuable resource in getting plugged into resources and becoming a more powerful voice by leveraging the purchase power of their members.