For insurers, pharmaceutical usage involves increasing complexity and skyrocketing costs. Within this category, specialty drugs are of greatest concern. To make the best decisions and proactively manage pharmaceutical costs, insurers need to understand why those costs are increasing as well as what’s coming down the specialty drug pipeline. Equally important is information that will enable insurers to put measures in place to mitigate risks.
Specialty drugs are big business for pharmaceutical companies — and a big expense for insurers and their clients. How did we get to this point?
First, according to the Centers for Disease Control and Prevention, treatment of chronic conditions such as diabetes, renal disease, multiple sclerosis and coronary disease now makes up more than three-quarters of all healthcare spending (not counting insurance premiums). The rate of renal disease, for example, is rising as the population ages and as related chronic conditions (e.g., diabetes, hypertension and heart disease) also increase. In response, scientists are continually developing new — and expensive — medications designed to target these conditions and their symptoms.
Second, improvements in medical technologies (such as organ transplants), alternative treatments for major illnesses and improved long-term outcomes for life-threatening diseases (such as HIV and certain types of cancer) offer hope for patients — but necessitate immunosuppressant drugs and other types of maintenance medications.
According to a report from Diplomat Pharmacy Inc., oncology is particularly representative of this type of scenario, as 7 of the 10 most expensive drugs are cancer drugs. According to the report, the pipeline for 2016 is forecast to have the highest number of approvals in oncology with approximately one dozen expected approvals for a variety of cancers. These targeted therapies are a major focus in oncology and an expensive proposition, costing as much as $270,000 or higher per year per patient. This price increase is consistent across cancer medications; according to the Memorial Sloan Kettering Cancer Center, the median launch price of new cancer drugs has doubled in the last decade. Furthermore, the use of specialty drugs as part of maintenance therapy and follow-up treatments is also on the rise.
As a result, the availability and cost of specialty pharmaceuticals has steadily increased, as has the population that is treated with these drugs. According to the 19th edition of the Express Scripts Drug Trend Report, specialty drug spend in 2014 ($124.1 billion) was nearly a full third of the year's total medication spend and showed an increase of more than 25% over the previous year. In fact, spending on specialty pharmaceuticals was responsible for 73% of overall medicine spending growth over the past five years. More specifically, the 2016 estimated sales for the top seven specialty pharmaceuticals are expected to come to $9 billion.
As Figure 1 shows, these increases are expected to continue with projections of as much as a 44% increase in specialty drug spend over the next three years.
Figure 1: Expected trends for specialty medications billed through pharmacy benefits
Pharmaceutical suppliers want to sell their products at the highest possible prices; payers want to access medications for the lowest possible prices while still ensuring that patients receive appropriate care.
One key to managing pharmaceutical costs — and specialty drug increases in particular — is to know as specifically as possible what new pharmaceuticals are entering the market and the types of diseases that require specialty meds. Figure 2 shows the top 10 costliest specialty drugs in 2015, according to Express Scripts.
Figure 2: Top 10 specialty medications
These therapy classes show dramatic price increases year over year. The trend can be expected to continue, particularly as pharmaceutical companies introduce new specialty drugs targeting chronic conditions, such as:
Seven new drugs in these categories are in the 2016-2017 specialty drug pipeline and will have a significant financial impact as they hit the market.
Figure 3: Top 7 highest-cost drugs in the specialty pipeline for 2016-17.
Targeted drugs use recombinant therapeutic proteins to create highly specific gene- and cell-based therapies. These represent a subclass of specialty drugs that are growing in popularity. As these medications approach their patent expirations, insurers had hoped that “generic” versions, known as biologics or biosimilars, might help to reduce costs, as generics have in other medication arenas.
Unfortunately, those replacements won't drop costs much below original prices. The FDA has granted biosimilars 12 years of exclusivity, providing no incentive to be competitive in pricing. And according to The Wall Street Joual, even if biosimilars are less expensive than the originals, many such specialty drugs have seen massive cost hikes of as much as 75% ahead of patent expiration — so overall costs aren't likely to drop anywhere near pre-hike prices.
How can insurers manage rising pharmaceutical costs? A comprehensive contract review is an essential first-step. Consult with experts who can help you build transparency into your pharmacy benefit manager and specialty pharmacy contracts.
It’s also critical to conduct ongoing, thorough case reviews to validate appropriateness of usage, dosage, efficacy and charge which may include asking the following questions:
For specialty pharmaceuticals where the indication or dosage is not being prescribed according to package insert and FDA guidelines, insurers should consider a coverage evaluation of the costs. Many plans list their medical coverage policies for these pharmaceuticals online, and these policies can be useful resources as insurers develop their own plan guidelines.
PULSE + Plus™ brings a tailored, thoughtful approach to cost management. This integrated state-of-the-art program helps insurers to proactively manage risk exposure and find optimal solutions that address today's healthcare trends and tomorrow’s challenges. PULSE + offers extensive analysis and decision-support resources to help insurers validate payer decisions and communicate with providers. Furthermore, it offers specialty pharmacy solutions specifically targeted for annual patient spends of more than $200,000 as well as complimentary case assessments and customized recommendations.
A partnership with PartnerRe provides the experience and resources that insurers need to reduce risk exposure while maintaining focus on patient-centered care. Contact us today for a comprehensive look at our programs and approaches to dealing with the challenges that are specific to specialty pharmaceuticals.
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