How Do Insurers Respond When “Special” Automatically Means High Cost?

June 23, 2014

Specialty pharmaceuticals are a growing concern for health plans, benefit managers, plan sponsors, insurers, and other risk-bearing entities. As the costs escalate, it’s essential that everyone understand how to analyze their contract effectiveness, watch for billing improprieties, and validate the treatment plan.

The New York Times reports that pharmaceutical companies introduced 36 new drugs in 2013, “the most in more than a decade.” That number included 10 notable cancer treatments as well as novel therapies for hepatitis C and multiple sclerosis. In fact, 40% of the new drug pipeline in the United States is made up of specialty drugs or drugs designed to treat so-called orphan diseases — that is, conditions that affect fewer than 200,000 people nationwide.

Although many specialty drugs have tremendous potential for improving patient outcomes, the cost of these drugs is concerning to professionals throughout healthcare. Business Insider, reporting on the annual meeting of the American Society of Clinical Oncology (ASCO), noted the split focus between excitement about “breakthrough drugs” and cost concerns. The article underscored that concern by citing the annual Express Scripts Drug Trends Report, which revealed the “average cost per prescription for a cancer drug in 2013 was US$4,023 — 22 times more than when reporting began in 1997.”

What are specialty pharmaceuticals?

Specialty pharmaceuticals refers to high-cost drugs that are generally not available from a pharmacy benefit manager (PBM) but rather from a specialty drug company connected to the PBM that is solely involved in obtaining and delivering those drugs. Such pharmaceuticals are typically injectable agents that, because of associated side effects or toxicity, are not delivered other than as managed by a clinician.

Specialty drugs account for approximately 17% of prescription drug costs in the United States. Of that number, 45% are covered under specialty pharmacy programs (that is, programs run by third-party drug program administrators or organizations such as the U.S. Department of Veterans Affairs); 55% are covered under medical benefits. The drugs that are billed under medical benefits are primarily administered in physicians’ offices (60–65%), while hospital outpatient settings see 15–20% of these patients.

Highly targeted drugs created to treat specific conditions include:

  • Novoseven, used to treat hemophilia-factor VIII (average cost $1 million to $18 million per year);
  • Soliris (orphan drug), used to treat the rare blood disease paroxysmal noctual hemoglobinuria and atypical hemolytic–uremic syndrome, a rare kidney disorder (average cost in excess of $2 million per year);
  • Sovaldi, touted as a breakthrough drug for the treatment of the liver disease Hepatitis C (average cost $1000 per dose, or $84,000 for a 12-week course of treatment);
  • Elaprase, a treatment for the metabolic disorder Hunter’s syndrome, which causes infections, breathing disorders, and brain damage (average cost $375,000 per year);
  • Elelyso, an IV infusion drug administered every other week to treat the enzyme deficiency Gaucher Disease, which causes liver or spleen damage, low red blood cell counts (anemia), low blood platelet counts, and bone problems (average cost $324,000 per year);
  • Erwinia, a drug used to treat acute lymphocytic lymphoma by interfering with the growth of cancer cells (at an average cost of $20,000 per injection with a schedule of 36 injections);
  • Myozyme (orphan drug), used to treat a Pompe disease, a genetic disorder that causes sugars to build up in bodily tissues and organs (average cost more than $1 million per year).

Such drugs may be prescribed for years, or even for the life of the patient, so these costs recur over the long term.

Why such high costs?

Why are specialty pharmaceuticals so costly? Sometimes, such drugs “coer the market” for the disease they’re designed to treat and no generic is available. Although some cost guidelines do exist, there are no standards for how much organizations can or should bill for these drugs. There is a baseline cost, but the mark-up is extremely variable from healthcare provider to healthcare provider. It’s important to ascertain that the diagnosis supports the treatment and that the treatment plan (efficacy, dosage, duration, setting and billing) are correct.

Recently, PartnerRe received a $4.7 million dollar claim for a three month inpatient stay. $2.6 million of the charges were for pharmaceuticals. The patient received a drug which requires a complex calculation to determine appropriate dosage and possible dilution. In addition, waste can occur based on the package size chosen. The claim referenced unit charges which did not correspond to the actual dosage and amounts administered to the patient. As a result of PartnerRe’s analysis and intervention, a billing error was identified, resulting in a $2.4 million correction to the submitted claim.

This is a particularly glaring example, but many types of billing inaccuracies occur, including severe inflation of charges. But help is available.

PartnerRe can help

The FDA approves changes to pharmaceuticals almost daily. It’s challenging for insurers to keep up. PartnerRe thinks outside the box, looking at how our clients are dealing with inflation and inappropriateness of charge, as well as experimental or off-label uses of pharmaceuticals.

For example, we provide resources to our clients including appropriate average treatment costs per disease or specialty drug. We can validate that a patient’s diagnosis supports the drug and dose prescribed and that the patient is actually receiving the drug at the dose specified. We offer resources for data intelligence and a knowledge base that our clients can access to help keep costs down. PartnerRe is not just a capacity-providing reinsurer: We’re your partner.

To that end, PartnerRe offers the PULSE + Plus™ program, which provides services to help improve patient clinical and financial outcomes. We emphasize evidence-based practices. In addition, PartnerRe can provide access to optimal contractual arrangements for client organizations as well as audit claims to ensure high-cost therapies are provided, administered, and billed in the most efficient, effective, and cost-effective way possible.

The future of specialty pharmaceuticals

The number of specialty pharmaceuticals is only going to increase as new drugs are tailored to specific patients and diseases. In addition, costs are shifting to the private population because hospitals and outpatient providers aren’t receiving as much in reimbursement from the governmental payers toward covering their costs.

Inflation and inappropriateness of charge are both factors contributing to the rising costs of healthcare that with careful review can be mitigated. It’s critical to ask the right questions and maintain a proactive process.
Are you seeing some shocking numbers in your pharmaceutical billing? Contact the experts at PartnerRe today to see how we can help.

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