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Specialty Drugs a Surging Cost for Employers

November 25, 2008
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Specialty drugs, some costing thousands of dollars for a single dose, are growing into a major cost factor for employer health plans.

Developed in biotechnology labs to treat cancers, multiple sclerosis and rare diseases, specialty pharmacy drugs barely existed a decade ago. Today, their costs are growing at nearly twice the rate of other drugs. In 2007, the cost of specialty drugs grew by 12.3 percent, compared with 6.7 percent for drugs overall, according to pharmacy benefit manager Medco Health Solutions in Franklin Lakes, New Jersey.

“It’s the fastest-growing part of pharmacy spend and medical spend,” said Steven Russek, chief clinical officer at Accredo Health Group, the specialty pharmacy service of Medco. “Across health care in general, aside from imaging, it’s the largest growth sector … and we believe it will continue to trend up.”

Total costs have been pushed upward as more “miracle drugs,” as they are sometimes called, come to market after being in development for years.

Originally targeted for use by a limited number of patients, specialty drugs are also increasingly being used to treat patients with other diseases, said Kevin Host, vice president of specialty pharmacy operations for Prescription Solutions in Carlsbad, California.

“It used to be that they could treat rare disease states, but now they can be used to treat more common diseases,” Host said.

Whether treating common or rare diseases, the drugs are nonetheless expensive. A drug to treat a rare form of blood disease costs $200,000 per patient annually, and the use of oral cancer drugs, which cost $40,000 to $75,000 per patient, grew 24 percent from 2006 to 2007.

In the first six months of 2008, the University of Michigan has seen its cost for specialty drugs, which are used by 1.6 percent of the people covered by the school’s health plan, increase 8 percent. One month’s dose of a cancer drug taken orally costs the university $3,900, said Keith Bruhnsen, the school’s assistant director in the benefits office and an independent consultant based in Ann Arbor, Michigan. A drug that treats hemophilia costs $100,000 a year per patient, he said.

The rise in specialty pharmacy costs, which Bruhnsen estimates could consume 20 to 40 percent of an organization’s drug spending in the next five years, have presented pharmacy benefit managers, or PBMs, with new business opportunities. PBMs say they save employers money by buying in high volume and helping to manage the care of patients who take these expensive medications. Employers could also save money by re-evaluating the way these drugs are covered, making them part of a company’s prescription drug benefit rather than covering them as a regular medical expense.

PBMs say this would avoid doctors’ so-called “buy and bill” schemes, in which they buy the drug themselves and then charge the health plan a higher price than what a PBM would charge.

Doing so “takes away the potential incentive for physicians to prescribe in such a way that they derive profit from certain prescriptions,” Host said.

While PBMs say increased costs come from manufacturers, Bruhnsen asks whether PBMs that make money off dispensing drugs might have a conflict of interest if they are managing costs for employers.

He agrees with PBMs that the best way to manage costs is to make sure patients are getting the supply they need and are taking the drug regularly.

Costs are unlikely to be tempered by the introduction of generic equivalents. Unlike with other drugs, there are no generic specialty drugs and no way yet to make them. The closest equivalent drugs are so-called biosimilars, which are medically equivalent but created differently and therefore may not act in the same way. Even if legislation passed allowing the Food and Drug Administration to approve biosimilars, the earliest a drug could become available would be 2012, Host said.

“When they do come to market, we’ll see increased competition and more competitive pricing,” Host said. But, he added, “I’m not sure if they are interchangeable.”

(For a related story, read "Generics Helping Employers Slim Pharmacy Costs.")

—Jeremy Smerd

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