The Payment Reform Landscape: Specialty Pharmacy — Can Payment Reform Offer Relief?

The Payment Reform Landscape: Specialty Pharmacy — Can Payment Reform Offer Relief?

The number of specialty pharmaceuticals available has increased from 10 to more than 900 over the last 20 years. This is good news for the patients who sorely need these drugs to improve, or even reverse, their medical conditions. However, specialty pharmacy is also the fastest growing sector of pharmacy spending today. Although approximately 1 percent of the U.S. population uses specialty drugs, these drugs account for more than 25 percent of total pharmacy spending.

Great Cost And Great Promise

Many specialty products cost over $10,000 per month, some as much as $1 million or more in annual treatment costs. For example, Sovaldi, the attention-grabbing treatment for Hepatitis C launched in 2013, costs around $84,000 for an average treatment or about $1,000 per pill. The skyrocketing costs of specialty pharmacy medications has been so astonishing that they have made national headlines and led to protests by consumers and health care experts.

The fact that no end appears to be in sight for the rising costs is a major concern among employers and other health care purchasers, as they bear a significant portion of the expense. In 2012 alone, employers paid $87 billion for specialty pharmaceuticals. By 2019, these costs are anticipated to account for at least 50 percent of drug spending nationwide.

However, the promise of specialty pharmaceuticals to vastly improve lives for some patients is undeniable and revolutionary. Sovaldi, using the previous example, blocks a specific protein needed by the Hepatitis C virus to replicate. When used in combination with other antiviral drugs, Sovaldi offers a cure for Hepatitis C in as little as 12 weeks.

Another specialty drug called Evolocumab significantly reduces “bad” cholesterol levels to help prevent clogged arteries. Recent trials show the drug, which inhibits an enzyme called PCSK9, reduces low-density lipoprotein (LDL) cholesterol levels by as much as 61 percent, compared to standard therapy alone.

Evolocumab is just one of many PCSK9 inhibitors being produced by pharmaceutical manufacturers as noted in a commentary in Health Affairs by CVS Health, a pharmacy benefits manager with nearly 65 million plan members. The inhibitors appear to be well-tolerated and highly effective in reducing LDL, or “bad,” cholesterol; they could potentially lead to treatment for as many as 15 million people in the U.S. alone, though information is still scant on how they will affect clinical outcomes.

With many specialty drugs providing highly effective treatments, health care purchasers wish to make them available to their populations and health plans are trying to make them available as soon as they come to market. However, the financial reality posed by these drugs means that purchasers must become savvy about the complex dynamics of the specialty pharmacy market to make the most of purchasing specialty drugs for their populations.

In particular, the pricing mechanisms are complicated and there are myriad distribution channels. And whether a drug is covered by the pharmacy benefit versus the medical benefit will have implications for everything from care management and coordination to the cost of the drug. The bottom line is there is no magic bullet for getting the best value out of specialty pharmacy spending, but there are various strategies purchasers can consider when implementing or expanding a specialty pharmacy management program.

Managing Specialty Pharmaceutical Costs: The Old-Standby Strategies…

Most efforts to manage specialty pharmacy costs will rely on typical strategies like formulary management, prior authorization, step therapy, and appropriate site of service. Where specialty drugs are administered (i.e. “sites of service”) affects their expense. Some drugs require professionals to administer them to patients, which is more costly. Whether administration of the specialty drugs is more expensive in a physician’s office or other outpatient facility, compared to when self-administered or administered at other outpatient sites, varies with where the patient lives and how their plan pays for it.

Where specialty drugs are administered can also affect how they are covered by insurance. It can be challenging as a purchaser to know which insurance benefit (medical or pharmacy) should cover what and when. Pharmaceuticals that require administration in a facility or doctor’s office are typically paid for by the health plan using the medical benefit. For example, cancer drugs typically administered by a physician, such as intravenous chemotherapy, are covered under the medical benefit. Pharmaceuticals that can be self-administered or are dispensed by pharmacies are typically covered under the pharmacy benefit. Determining which route of coverage is best will vary with each drug, from how it is administered to what price the plan was able to negotiate.

Another point to consider is the lack of regulation in the United States. Compared to other countries, our relatively “free market” means there is little oversight of the pricing of specialty pharmaceuticals. Take for instance the overnight price increase that made headlines recently when Turing Pharmaceuticals acquired the 62-year-old drug Daraprim, which is used mainly to treat toxoplasmosis, a parasite infection. After purchasing the drug in August, Turing immediately increased its price from $13.50 per tablet to $750 a pill.

Ultimately, purchasers will need to assess how specialty pharmacy is impacting their populations and develop hands-on strategies to ensure they can extract the greatest possible value out of their expenditures in this area.

…And A Role For Payment Reform In Striking The Right Balance

In addition to the usual tactics outlined above, CPR believes reforming how we pay health care providers can impact the appropriateness with which we use specialty pharmaceuticals. The more we package together the payment for the medical and pharmaceutical care patients need, the greater the incentive health care providers will have to make sure they deliver each type of care as appropriately as possible.

When, for example, will the expense of specialty drugs that can improve patient outcomes and fend off patient suffering be more cost-effective than expenditures on a preventable hospitalization? Bundled payment for chronic conditions or an episode of cancer care could help providers focus on achieving the right balance. Even global payment could improve care coordination and correct for some of the perverse incentives providers have to deliver specialty drugs. Pay-for-performance could offer possibilities too, providing financial incentives to providers to use equally successful but more cost-effective therapies or to encourage patients to go to lower-cost sites of care.

We don’t yet know enough to be able to lay out for purchasers the “right” strategy in this space. We do know that it will take concentrated effort to achieve the optimal balance between expenditures on specialty pharmaceuticals and the benefits they bring to the people who need them. While the pharmaceutical industry goes through its own trial and error in developing more of these specialty drugs, employers and other health care purchasers, as well as the health plans and pharmacy benefit managers that administer their benefits, will need to undergo their own trials and tribulations to determine the best path forward for each drug. We all assign high value to medical advances; it’s achieving high value for this size expenditure that’s at stake.


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