Overall spending on prescription drugs has increased an average of about 10% a year since 2000, with a small but growing subset of drugs showing extraordinary price increases, according to a report from the General Accounting Office (GAO). In particular, specialty drugs drive especially high costs.
Specialty drugs are generally defined as high-cost medications that typically target a smaller group of patients with narrow indications or complex conditions; they may require special shipping or handling and often need close supervision or monitoring during therapy.
Cost data on these types of drugs emphasizes how important it can be for employers to develop specific cost-control strategies aimed at specialty drugs. For related employer insurance topics, see Insurance topics: drug costs, migrant worker protections, risk management, food safety, construction hazards.
According to the GAO report, between 2000 and 2008, 416 brand-name drugs had price increases ranging from 100% to 499%, and in a few cases 1,000% or more. In most cases the products sustained the new price: 87% of these products remained at the increased price or rose further, while only 13% had a price decrease.
Specialty drug prices are especially acute. A report from pharmacy benefit manager Prime Therapeutics shows that although specialty drugs represented about 1.1% of prescriptions filled for its members, they accounted for 15.4% of overall drug costs.
An article in the Journal of Managed Care Pharmacy lists 10 specialty drug therapeutic classes, with the average annual cost of therapy ranging from roughly $5,000 to $150,000 or more. These classes include treatments for rheumatoid arthritis, HIV/AIDS, multiple sclerosis, cancers, growth disorders, hepatitis, hemophilia, infertility, osteoporosis, and other conditions.
When developing strategies to manage specialty drug costs, remember that some specialty drugs require administration by a health care professional in a doctor's office, infusion center, or outpatient hospital department. When a specialty drug is administered by a clinician, it may be billed through the medical benefit rather than the prescription drug benefit.
Paying for specialty drugs through the medical benefit can hide the expense from the plan sponsor. Prime Therapeutics notes that more than half of specialty drug costs may be paid as a medical benefit. Separate medical billing codes also make implementation of cost-management strategies more difficult, since pharmacy benefit coding is often more specific and enables better identification and analysis of use.
For specialty drugs covered by the pharmacy benefit, many plan sponsors have adopted a four-tier copayment or coinsurance structure: tier one for generics, tier two for preferred brand-name drugs, tier three for nonpreferred brand-name drugs, and a fourth tier that requires the highest cost sharing for specialty drugs. Given potential high annual costs, plans with a fourth tier typically set a maximum out-of-pocket cost per prescription or per plan year.
If cost-sharing creates a financial burden for the patient, noncompliance with the therapeutic regimen is more likely, which can worsen medical conditions and increase the need for hospitalization or other costly treatments. Consider whether it is appropriate to include some specialty drugs in lower-cost tiers to help drive compliance.
The Prime Therapeutics report notes that growth in the number of specialty drugs presents an opportunity to establish formularies and preferred drug lists that encourage use of specialty drugs identified for clinical safety, effectiveness, and value. Formularies can help optimize use of medications that best combine therapeutic benefit and cost value.
Reports suggest using efficient drug delivery channels; a pharmacy program offering streamlined processes, detailed utilization reporting, integrated care management, and the opportunity for aggressive discounts on specialty drugs; and tighter controls on "buy and bill" arrangements by providers who administer specialty drugs.
Another possible cost management strategy is to move specialty drugs into the pharmacy benefit to achieve more uniform patient cost sharing and consistent clinical and utilization management, though this approach may face challenges due to plan provisions, vendor contracts, and provider agreements. Employers with specialized retail or entertainment operations may also consult industry-specific pages such as Lazer Tag Insurance or Gourmet and Specialty Food Store Insurance for related coverage considerations.
Though specialty drugs offer important therapeutic opportunities, their price tags pose cost-management concerns. Consultation with a benefit consultant, PBM, or health plan is a good starting point for developing strategies to optimize the value of specialty drugs for employees, or you can talk to an agent.
Frequently Asked Questions
What makes a drug a "specialty" drug?
Specialty drugs are typically high-cost medications for complex or rare conditions that may require special handling, administration, or monitoring.
Why do specialty drugs drive up plan costs?
High per-patient prices, complex administration, and increased use of medical benefit billing contribute to disproportionate cost impact on plans.
How can employers manage specialty drug spending?
Employers can use formularies, benefit design (such as tiering), pharmacy programs with care management, and controls on buy-and-bill arrangements to manage costs.
Could higher patient cost sharing reduce overall spending?
Higher cost sharing can lower utilization but risks noncompliance and worse health outcomes, so sponsors should balance affordability and adherence strategies.