More Changes for Specialty Pharmacy

May 29, 2018

Innovative specialty drugs are providing important cures and treatments, but this progress and innovation comes with a high price tag.

Current Specialty Pharmacy Landscape

According to recent Pharmaceutical Research and Manufacturers of America (“PhRMA”) research, the cost of treating patients with chronic conditions accounts for 90 percent of the nearly $3 trillion spent on healthcare in the U.S. each year[1]. Patients with multiple chronic and rare disease conditions are a significant driver of health care costs with medications being the largest category of the expenditures.

Innovative specialty drugs are providing important cures and treatments, with new therapies approved on an ongoing basis. With progress and innovation comes a high price tag.

The distribution of pharmacy spend has changed significantly over the last several years as more and more dollars are spent on specialty pharmacy medications[2]. Medications in specialty pharmacy range from oral to cutting edge injectable and biologic products. The disease states treated range from cancer, hemophilia, multiple sclerosis and rheumatoid arthritis to rare genetic conditions.  This spending is growing at double-digit rates even as the growth rate for traditional pharmaceuticals has slowed.

The Express Scripts 2017 Drug Trend Report[3] confirms the focus on utilization and increasing spend trend in the therapy classes of inflammatory conditions, oncology and anticoagulants related to key chronic and rare disease states.  These findings are consistent with our claims experience across commercial, Medicare and Medicaid lives.

Some examples of these high-cost diseases and disorders include Pompe disease, T-cell lymphoma, atypical hemolytic uremic syndrome and hemophilia with their associated specialty pharmacy medications consisting of Lumizyme™[4], Elspar®, Kidrolase®[5], Soliris™[6] and Advate™[7] respectively.

Looking at hemophilia as an example, almost a third of adults and children living with hemophilia nationwide are covered by Medicaid[8]. And the Medicaid program’s three most expensive drugs per prescription are for hemophilia, according to an analysis by the Kaiser Family Foundation[9]. California Medicaid recently reported a single case with a $21-million annual spend for factor product[10]. This is an extreme case, but medications to treat hemophilia on average cost more than $270,000 annually per patient[11] and they can easily exceed $1 million annually.

Many payors inquire about financial relief through the CMS 340B[12] program for factor product. The 340B program is designed for pharmacies and facilities to receive preferential discounted pricing on the pharmaceutical products which in turn lowers their cost. However, the savings are not necessarily passed through to the health plans that pay for the products.  As stated in the article “Top Trends for 2018” in Specialty Pharmacy Times[13], this gap can result in higher profits for pharmacies.  The industry has seen tremendous growth in the number of pharmacies that have access to 340B pricing. However, CMS recently finalized reimbursement policies and effective January 1, 2018, CMS reduced this payment rate to Average Sales Price (ASP) minus 22.5% for non-pass-through separately payable drugs and biologics acquired with a 340B discount. This change may cause pharmacies to reassess the degree of participation in this program.

2017 was also another strong year for making new cancer therapies available to patients. The FDA approved the first cancer treatment based on a genetic composition of a cancer rather than the location in the body where the tumor originated. Kymriah™[14] and Yescarta™[15] were the first chimeric antigen receptor T-cell (CAR-T) therapies whereby a patient’s own T-cells were genetically modified to treat select types of cancers. The initial prices before provider/facility mark up for Kymriah™ and Yescarta™, which are intended to be administered once, are $475,000 and $373,000, respectively.

In 2017, the FDA approved 46 novel (versus existing) drugs[16], either as new molecular entities (NMEs) under New Drug Applications (NDAs), or as new therapeutic biologics under Biologics License Applications (BLAs). 18 of the FDA’s 46 novel drugs (39%) were approved to treat rare or “orphan” diseases, that is, diseases that affect 200,000 or fewer Americans. Patients with rare diseases often have few or no drugs available to treat their conditions. Novel drugs are products that serve previously unmet medical needs or otherwise significantly help to advance patient treatments. The active ingredient or ingredients in a novel drug have never before been approved in the United States. The novel drugs approved in 2017 with the orphan drug designation were: Aliqopa®[17], Alunbrig®[18], Austedo®[19], Bavencio®[20], Benznidazole[21], Besponsa®[22], Brineura®[23], Calquence®[24], Emflaza®[25], Hemlibra®[26], Idhifa®[27], Macrilen®[28], Mepsevii®[29], Prevymis®[30], Radicava®[31], Rydapt®[32], Xermelo®[33], and Zejula®[34].

In addition to novel drugs, the FDA also has made numerous approvals of the same product for an additional purpose or for use in a different disease population of patients. Some notable examples include the following:

Opdivo®[35], originally approved in 2014 to treat patients with unresectable (cannot be removed by surgery) or metastatic (advanced) forms of skin cancer called melanoma who no longer respond to other drugs. Since that approval, it has been approved for a variety of other uses related to cancer therapy. Notably, in 2017, Opdivo™ was approved for the treatment of certain patients with hepatocellular carcinoma, a type of liver cancer;

Keytruda®[36], originally approved in 2014 to treat patients with advanced or unresectable melanoma who are no longer responding to other drugs. Throughout 2014-­2017, it was approved for many new uses to treat patients with various forms of cancer. In May 2017, Keytruda® was approved to treat patients whose cancers have a specific genetic feature (biomarker). This was the first time the FDA had approved a cancer treatment based on a common biomarker rather than the location in the body where the tumor originated. In 2017, The Center for Drug Evaluation and Research (CDER) also expanded its approved use to include treatment of patients with refractory classical Hodgkin lymphoma, a particularly difficult to treat type of Hodgkin lymphoma in which the cancer returns after treatment. In 2017, Keytruda® was also approved to treat certain patients with recurrent, locally advanced or metastatic forms of stomach or gastroesophageal junction cancer called adenocarcinomas that have come back or continued to grow after having at least two previous treatments[37].

Soliris®[38] was first approved in 2007 to prevent the breakdown of red blood cells in people with the rare disease known as paroxysmal nocturnal hemoglobinuria and subsequently also approved in 2011 to treat patients with another rare disease called atypical hemolytic uremic syndrome, a chronic blood disorder. It was approved in 2017 to treat patients with myasthenia gravis, a rare neuromuscular disease.

Stivarga®[39] was originally approved in 2012 to treat patients with a particular form of colorectal cancer. It was approved for a new use in April 2017 to include treatment of patients with hepatocellular carcinoma (liver cancer) who have been previously treated with the drug Nexavar®[40].  This was the first new FDA-approved treatment for liver cancer in almost a decade.

Kalydeco®[41] originally approved in 2012 to treat a narrow population of pediatric patients with cystic fibrosis (CF), was approved in 2017 to treat new populations of children with one of 23 additional rare mutations. Kalydeco® was previously indicated for 10 CF mutations and is now indicated for 33 CF mutations.

Sovaldi®[42] and Harvoni®[43], first approved in 2013 and 2014 respectively, were approved only to treat adults infected with the hepatitis C virus (HCV). In 2017, both drugs were also approved to treat children with HCV.

In 2017, the FDA approved five new biosimilars (interchangeable with an FDA-approved biological product:

  • Cyltezo®[44], a biosimilar to Humira®[45], approved for the treatment of patients with rheumatoid arthritis, juvenile idiopathic arthritis, ankylosing spondylitis, psoriatic arthritis, Crohn’s disease, ulcerative colitis, and plaque psoriasis;
  • Ixifi®[46], a biosimilar to Remicade®[47], which can be used to treat patients with rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, plaque psoriasis, and ulcerative colitis;
  • Mvasi®[48], a biosimilar to Avastin®[49] is used in the treatment of multiple types of cancer, including treatment for certain patients with metastatic colorectal cancer, non-squamous non-small cell lung cancer, glioblastoma, metastatic renal cell carcinoma, and cervical cancer;
  • Ogivri®[50], a biosimilar to Herceptin®[51] for the treatment of patients with breast or metastatic stomach cancer (gastric or gastroesophageal junction adenocarcinoma) whose tumors overexpress the HER2 gene, and;
  • Renflexis®[52], also a biosimilar to Remicade® (infliximab) (see Ixifi above.).

A biosimilar is a biologic product that is approved based on demonstrating that it is highly similar to an FDA‐approved biologic product, known as a reference product, and has no clinically meaningful differences in terms of safety and effectiveness from the reference product. Only minor differences in clinically inactive components are allowable in biosimilar products.  Biologics are very expensive, but due to their superior efficacy, the path was paved for a lucrative and rapidly expanding market for biosimilars to allow for pricing competition.

Biosimilars are not simply generic replacements for brand-name biologics.  Their effect on the cost of treatment generally will likely be much more modest than that of conventional generic versus brand name drugs.

Single source manufacturers and limited product distribution are other challenging areas affecting the cost of pharmaceuticals. When treatment alternatives are few, or nonexistent, companies can charge whatever the market will bear. And they do. According to Dan Steiber, RPh, Specialty Pharmacy Times Editor-in-Chief & Executive Vice President, Manufacturers are continually assessing their mix of specialty pharmacies granted access to their products and raising the bar as specialty gets even better[53]. Major distributors are experiencing margin compression that results in increased service fees to manufacturers. This trend is further accelerating the process of specialty pharma moving to limited distribution channels.

Market Disruption and Trends

As standard and specialty pharmacy drug prices continue to escalate, the market has experienced disruption with several strategic partnerships and acquisitions of retail and specialty pharmacy providers. The market is seeing pharmacy benefit managers (PBMs) being bought by specialty pharmacies or health plans in an effort to expand their access and consolidation between PBMs and payers, as in the case of Aetna and CVS/Caremark and CIGNA and Express Scripts. At the same time, Amazon waits as a potential competitor that is considering entering this market. We have also seen PBM acquisitions with regional health plans.

By forming these alliances, this structure of managing formulary internally gives insurers more control to lower healthcare cost and opportunity to extend their relationships with providers directly. They also rationalize that their large size gives them bargaining power to negotiate lower prices for their clients, but the market feels that the structure and practices of PBMs make it difficult to tell how they are helping patients and insurers as they carefully guard information about the size of negotiated rebates and discounts they receive which masks whether they are indeed lowering the prices paid by patients and insurers[54].

Additional trends include the lean toward value-based contracts between payers and pharma based on health outcomes. Payers are holding both providers and pharmaceutical manufacturers accountable for choosing the right combination of drug regimens and treatment protocols to deliver the best possible outcomes at the lowest total cost of care.

Experience and Solutions

For most health plans, the frequency and open-ended length of treatment for chronic and rare disease conditions continue to increase as medical technology advances and the population continues to age.  As costs escalate, it is important to evaluate what tools and strategies are available to ensure the best clinical and financial outcomes.

Having optimal contracting is prudent but more importantly, is there an assurance that these medications are being properly used and prescribed as indicated? Optimization of patient outcomes and care quality involves treatment plans in which health care providers utilize evidence-based guidelines with progress and benchmarking oversight. Our PULSE team collaborating with our preferred vendor partners offers case-specific strategies to effectively address the complexity and challenges of specialty pharmacy services.

Chronic condition claims are complex and difficult to review for clinical appropriateness and charge propriety requiring an integrated, creative, and holistic solution that coordinates care management, contract compliance and benefit consideration with claims adjudication.

Early identification is key resulting in solutions that can be implemented to promote member centric care, and the potential to turn many chronic high-dollar cases into manageable events.

Specialty pharmacy claim payment integrity determinations should be supported by extensive analysis, documentation and decision support tools to validate healthplan coverage decisions and facilitate communication with providers. Custom client and case-specific solutions yield better outcomes for chronic and rare disease conditions. Utilize the PULSE + Plus™ Program to improve medical management for your members and reduce costs.

Contact the experts at the PULSE + Plus™ team online, by phone at 415-354-1551 or by email at contactus@partnerre.com.


[1] https://www.phrma.org/industryprofile/
[2] https://www.actuary.org/files/publications/PrescriptionDrugs.030718.pdf
[3] http://lab.express-scripts.com/lab/drug-trend-report/2017-dtr
[4] Alglucosidase alfa, Genzyme
[5] Asparaginase, Merck and Company, Inc., EUSA Pharma SAS
[6] Eculizumab, Alexion Pharmaceuticals Inc.
[7] Antihemophilic Factor (Recombinant), Shire
[8] https://khn.org/news/states-strive-to-curb-costs-for-a-crucial-but-exorbitant-hemophilia-treatment/
[9] https://www.kff.org/health-costs/issue-brief/medicaids-most-costly-outpatient-drugs/
[10] https://khn.org/news/states-strive-to-curb-costs-for-a-crucial-but-exorbitant-hemophilia-treatment/
[11] https://www.statnews.com/2018/03/08/hemophilia-drugs-price/
[12] https://www.340bhealth.org/340b-resources/340b-program/overview/
[13] https://www.specialtypharmacytimes.com/publications/specialty-pharmacy-times/2018/january-2018/top-trends-for-2018-in-specialty-
[14] Tisagenlecleucel, Novartis
[15] Axicabtagene ciloleucel; Kite Pharma
[16] https://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm537040.htm
[17] Copanlisib, Bayer
[18] Brigatinib, Takeda Pharmaceutical Company, Ltd
[19] Deutetrabenazine, Teva
[20] Avelumab, Pfizer
[21] Chemo Research SL
[22] Inotuzumab ozogamicin, Pfizer
[23] cerliponase alfa, BioMarin Pharmaceutical Inc.
[24] Acalabrutinib, AstraZeneca
[25] Deflazacort, PTC Therapeutics, Inc
[26] emicizumab-kxwh, Genentech
[27] Enasidenib, Celgene Corporation
[28] Macimorelin, Aeterna Zentaris Inc.
[29] vestronidase alfa-vjbk, Ultragenyx
[30] Letermovir, Merck
[31] Edaravone, Mitsubishi America, Pharma America
[32] Midostaurin, Novartis
[33] telotristat ethyl, Lexicon Pharmaceuticals, Inc.
[34] Niraparib, Clovis Oncology
[35] Nivolumab, Bristol‑Myers Squibb Company
[36] Pembrolizumab, Merck
[37] https://www.cancer.org/latest-news/fda-approves-keytruda-pembrolizumab-for-stomach-cancer.html
[38] Eculizumab, Alexion
[39] regorafinib, Bayer
[40] sorafenib, Bayer
[41] ivacaftor, Vertex Pharmaceuticals Incorporated
[42] Sofosbuvir,  Gilead Sciences, Inc
[43] Ledipasvir, Gilead Sciences, Inc.
[44] adalimumab-adbm, Boehringer Ingelheim Pharmaceuticals, Inc.
[45] adalimumab, Abbvie, Inc.
[46] infliximab-qbtx, Pfizer
[47] infliximab, Janssen Biotech, Inc.
[48] bevacizumab-awwb, Amgen
[49] bevacizumab, Genentech
[50] trastuzumab-dkst, Mylan
[51] trastuzumab), Genentech
[52] infliximab-abda, Merck
[53] https://www.specialtyrxaccess.com/publications/industryguide/2017/specialty-pharmacy-times-industry-guide-october_2017/launching-a-new-specialty-product-finding-the-ideal-patient-path-to-optimal-outcomes
[54] https://pharmacyschool.usc.edu/schaeffer-center-report-follow-the-money-the-flow-of-funds-in-the-pharmaceutical-distribution-system/

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